Home / Stocks / Why One Analyst Downgraded Adobe Stock After Earnings

Why One Analyst Downgraded Adobe Stock After Earnings

Shares of
Adobe

Systems (ticker: ADBE) were down nearly 5% Friday after the company issued a weaker-than-expected forecast during its earnings call last night and an investment bank cut its rating on the stock.

KeyBanc Capital Markets downgraded Adobe shares to Sector Weight from Overweight following Adobe’s announcement that it expects earnings of $1.77 per share on revenue of $2.7 billion in its current fiscal second quarter, below analysts’ estimates of $1.88 per share on revenue of $2.72 billion. (Adobe said it anticipates fiscal year earnings of $7.80 and revenue of $11.15 billion, in line with Wall Street expectations.)

“We maintain a favorable view on ADBE as a marquee cloud investment with high margins and healthy growth,” KeyBanc analyst Brent Bracelin wrote in his note, but cautioned that the company faces escalating competition from
Salesforce.com

(CRM),
Oracle

(ORCL),
SAP

(SAP),
Alphabet
’s
(GOOG) Google, and others, which could weigh on Adobe’s recurring revenue.

Wedbush Securities also expressed concern about Adobe’s outlook but maintained a neutral rating and $270 price target because of Adobe’s strong subscription model. Adobe shares were trading at $255.48 early Friday afternoon.

“We cannot lose sight of the continued execution from ADBE’s management team as they have engineered a legendary model transition from its original license roots to a subscription-based business that has really been flawless with minimal speed bumps along the way over much of the past decade,” Wedbush analyst Daniel Ives wrote in a note Friday.

For its fiscal first quarter, Adobe reported earnings of $1.71 a share on record revenue of $2.6 billion, topping analysts’ consensus estimate of $1.62 in earnings per share on revenue of $2.55 billion.

“Our subscription model, which is delivered by the cloud, has been a beautiful mix together,” Adobe Chief Financial Officer John Murphy told Barron’s in a phone interview after Thursday’s earnings announcement. He pointed to Digital Media segment revenue of $1.78 billion and a record $282 million in Document Cloud sales.

Murphy expressed mild frustration at the market’s reaction to the company’s second-quarter guidance. He said investors “seemed to emphasize the immediate outlook” rather than the full-year picture.

Write to Jon Swartz at jon.swartz@dowjones.com