Adobe Pre-earnings Analysis
Chart done on daily timeframe. Adobe is set to report earnings today after market close and investors are nervous about the impact artificial intelligence, specifically generative AI, has had on the company. Fierce competition in the space is beginning to grow, and Adobe’s costs may be getting tough to justify for savvy designer who have found alternatives, but this narrative isn’t reflecting in the company’s numbers so it may be overblown for now. Adobe has posted steady quarterly revenue at around the 10% mark over the past several quarters, reinforcing their market position, but their profitability suffered greatly last quarter, dropping as much as 50%. Their last report also indicated a softer outlook for the year, which explains why the stock has been on a steady decline since. Despite the softer outlook however, Adobe’s earnings per share are still expected to come in at a strong 3.54, above same quarter last year. Adobe has met expectations on three of the last four earnings, we expect them to come in line this time around.
The fears around generative AI and how it may impact Adobe are reasonable, but the company has competent leaders who are working to integrate and advance their existing platforms to provide those services. The company patterned with Nvidia last year to bring those generative AI features to their platform, which could yield great results for them. With a massive pre-existing user base, Adobe has a chance to covert those same customers to generative AI users without losing them to competition.
Options chain analysis:
ADBE’s option chain expiring on July 19 2024 currently reflects an implied volatility reading of 42%, which translates to about a $48 move from the underlying stock between now and then. The direction of that move will depend on their earnings outcome and call.