ADBE - Adobe: Q2 Was Good But Needs Revenue Acceleration To Drive Further Upside

2024-06-17 08:22:34 ET

Summary

• Adobe reported its Q2 FY24 earnings where revenue and earnings grew 11% and 11.9% YoY respectively, beating estimates as it drove robust innovation across its solution suites.
• Aside from a suite of AI features, it also rolled its Firefly Services and Custom Models into general availability to drive monetization from its enterprise customers as they deepen adoption across use cases.
• However, the company is likely to face growing competition from Canva as they look to capture a share of Adobe’s enterprise segment from its latest product launches at its annual event.
• Although I believe that the company is well positioned to reach its $30B revenue target given its product roadmap and competitive positioning, its current valuation looks capped.
• Therefore, in order for the stock to gain substantial upside from its current levels, Adobe has to showcase revenue acceleration. Till then, I will rate it a “hold”.

Introduction & Investment Thesis

Adobe ( ADBE ) drives creativity, productivity, and digital experiences through its Creative Cloud, Document Cloud, and Experience Cloud offerings. The company has underperformed the indices YTD, although jumping 14.5% after its latest Q2 FY24 earnings , where it grew its revenue and earnings by 11% and 11.9% YoY, respectively, beating estimates....

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