Adobe Q3 Earnings Preview: AI Tools In Focus, Analyst Expects Upside With Strong Second Half Of Year Ahead

Software company Adobe Inc (NASDAQ:ADBE) could provide another example of a company utilizing artificial intelligence for new products and financial growth when the company reports third-quarter financial results after market close Thursday.

Earnings Estimates: Analysts expect Adobe to report third-quarter revenue of $5.37 billion. That’s up from $4.89 billion in last year's third quarter, according to data from Benzinga Pro.

The company has beaten analyst revenue estimates for six straight quarters and nine of the last 10 quarters, overall.

Analysts expect Adobe to report third-quarter earnings per share of $4.53, up from $4.09 in the comparable period. The company has beaten analyst estimates for earnings per share in 10 straight quarters.

Guidance from the company calls for third-quarter revenue to be in a range of $5.33 billion to $5.38 billion. The company expects earnings per share will be in a range of $4.50 to $4.55 for the third quarter.

Adobe stock is down 0.7% year-to-date in 2024 as seen on the Benzinga Pro chart below.

Read Also: Adobe, Oracle Named Top Tech Picks For July: Why This Investor Expects The AI Momentum To Continue

What Analysts Are Saying: JPMorgan analyst Mark Murphy sees a positive setup for Adobe in the second half of 2024 as Generative AI monetization and pricing tailwinds factor in.

The analyst currently has an Overweight rating and $580 price target. He previously upgraded Adobe shares in June and added the stock to the analyst focus list in September.

"We reaffirm our positive fundamental bias on the setup for the 2H of the year, while we continue to see upside from current levels despite ADBE shares having traded up in the past several months," Murphy said.

The analyst said Adobe shares could remain volatile after earnings and with variance in demand, but the view looks positive with the potential for "differentiated performance" in the third quarter.

"We continue to highlight an important potential trend change for a key metric in Adobe's Creative Cloud Net New ARR, for which the company has outlined expectations for y/y growth in Q3 and Q4, following three consecutive quarters of y/y decline."

Ongoing traction of Adobe's GenAI portfolio is expected from the company in the third quarter by the analyst.

Here are other analyst ratings on Adobe and their price targets:

• Citigroup: Maintained Neutral rating, raised price target from $550 to $621
• Stifel: Maintained Buy rating, raised price target from $600 to $650
• Oppenheimer: Reiterated Outperform rating, raised price target from $580 to $625
• Barclays: Maintained Overweight rating, raised price target from $650 to $675

Key Items to Watch: Adobe's earnings report comes one day after the company unveiled its AI video capabilities with the Adobe Firefly Video Model.

On Wednesday, Adobe showed off the new model that will extend what Adobe Firefly is capable of. Users will be able to generate video from text prompts and make adjustments to the images.

"Building upon our foundations Firefly models for imaging, design and vector creation, our Firefly foundation video model is designed to help the professional video community unlock new possibilities, streamline workflows and support their creative ideation," Ashley Still, senior vice president, Creative Product Group at Adobe, said.

The new features will be available later this year.

Adobe could highlight the new video capabilities during its earnings report or on its conference call as another pillar of growth from AI.

The company highlighted "strong growth" from its cloud segments of Creative Cloud, Document Cloud and Experience Cloud in the second quarter and investors and analysts could be looking for a continuation of this growth.

Artificial intelligence will remain the major topic analysts and investors are looking for in Adobe's third-quarter report.

"Our highly differentiated approach to AI and innovative product delivery are attracting an expanding universe of customers and providing more value to existing users," Adobe CEO Shantanu Narayen said after second-quarter results.

ADBE Price Action: Adobe stock trades at $576.25 versus a 52-week trading range of $433.98 to $638.25.

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