Adobe Q2 earnings preview: Where next for Adobe stock?

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Josh Warner
By : ,  Market Analyst

When will Adobe report Q2 earnings?

Adobe is scheduled to release second quarter earnings after US markets close on Thursday June 16.

 

Adobe Q2 earnings consensus

Wall Street is expecting Adobe to report a 13% year-on-year rise in revenue to $4.35 billion when it releases second quarter earnings this week, just ahead of the $4.34 billion targeted by Adobe. Adjusted EPS is forecast to grow 9% from last year to $3.30 and come in-line with the company’s guidance.

 

Adobe Q2 earnings preview

Adobe is poised to report another quarter of record revenue this week, driven by the rising demand for the company’s array of products and services.

The Digital Media division, which houses the company’s creative cloud applications and document management tools, is set to report 13% sales growth in the quarter. That would be an acceleration in growth after a weaker performance in the first quarter, but is still lagging behind the 18%-plus quarterly growth that we during the last financial year.

Notably, a recent update out from DocuSign has spooked the markets and hit other software firms like Adobe. DocuSign, which is known for e-signature tools, missed expectations when it released quarterly results last week and cut its billings outlook for the rest of the year. That will place a spotlight on Adobe’s document management portfolio, which is seeing a pullback in growth following a boom in demand during the pandemic.

The Digital Experience unit, which is driven by its Experience Cloud subscription service that provides a variety of online marketing and web analytic tools, is poised to grow revenue by around 15% from last year. Still, that will be the slowest quarterly growth seen in over a year as it starts to come up against tougher comparatives.

The outlook will be key in deciding how markets react to the update this week. With that in mind, investors should keep an eye on Adobe’s remaining performance obligation (RPO) that represents the amount contracted for work that is yet to be completed, providing an insight into how new bookings are faring. Analysts are looking for RPO of $14.37 billion at the end of the second quarter, up from $13.83 billion in the first.

Adobe provides guidance on a quarterly basis and analysts anticipate growth will stay largely level from the second and that the company will target revenue of $4.52 billion and adjusted EPS of $3.40 in the third quarter of the financial year.

There has been a moderation in demand for Adobe’s products and services this year, but the company remains poised to deliver double-digit topline growth. Earnings are set to grow at a slower single digit rate as costs continue to rise and squeeze profitability. Over the full financial year, Wall Street believes Adobe will grow revenue by 13% to $17.87 billion and that adjusted EPS will grow 9.6% to $13.68. That will compare to last year, when revenue and earnings both jumped around 23%. 

 

Where next for ADBE stock?

Adobe shares have been swept up in the broader market selloff today, with rising inflation fuelling fears that the Fed will adopt a more aggressive pace of rate hikes and hurt the growth prospects and valuations of tech and growth stocks.

Adobe shares are testing the $382 level of resistance spanning back in June 2020 today, but the two-year low of $370 that it hit last month is now firmly back in play. That needs to hold to avoid opening the door to a more significant move lower toward the $353 level.

The slump on Friday and today has changed sentiment on the RSI and pushed the indicator into bearish territory. Trading volumes suffered a notable drop last week, but volumes on Friday alone were almost double the 5-day average volume at time and over one-fifth higher than the 100-day average. That suggests the stock could come under further pressure in the short term.

Adobe stock needs to retake the 50-day moving average at $417 to install confidence. It then needs to set a new June-high by surpassing the $442 hit earlier this month before the 100-day moving average at $444 comes back onto the radar. The March-high of $480 can then come back into the stock’s crosshairs. Notably, the 31 brokers that cover the stock see greater upside potential over the next 12 months and believe it can hit $555, implying there is over 41% potential upside from the current share price.

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