Adobe to Unveil Q2 Earnings With Stock (ADBE) Underperforming – What To Expect

Adobe Inc. (NASDAQ: ADBE) is poised to release its second-quarter fiscal year 2025 earnings report after market close today, with the stock stuttering, and underperforming markets on a YTD basis. The stock currently trades at $414.35 in the pre-market, up 0.37% from its previous close, as markets look for the company to again beat expectations.

For Q2, Adobe provided guidance of $4.95 to $5.00 EPS, aligning with consensus estimates ($4.97), and revenue between $5.8 billion and $5.85 billion, also in line with expectations ($5.8 billion).

Adobe's recent performance has been a mixed bag. While the company has consistently delivered slight earnings beats in the past four quarters, exceeding expectations by narrow margins, concerns persist regarding its ability to sustain growth in the face of increasing competition and the rapid advancement of artificial intelligence.

In the first quarter of fiscal year 2025, Adobe reported a net income of $1.81 billion, translating to an EPS of $4.14. Adjusted EPS, accounting for one-time gains and costs, came in at $5.08, surpassing analysts' estimates of $4.97. Revenue for the quarter reached $5.71 billion, exceeding the consensus estimate of $5.66 billion.

This performance was largely attributed to the continued strength of Adobe's Creative Cloud and Document Cloud segments, demonstrating the enduring demand for its core software offerings

However, the market's response to Adobe's performance has been far from uniformly positive. The stock trades down 6.4% since the start of the year, as the S&P 500 has gained 2.62%. The current price sits significantly below both the 50-day ($436.53) and 200-day ($496.45) simple moving averages, technically indicating a bearish trend. This has been somewhat offset by a couple of recent analyst price target revisions.

Whilst Citi, and UBS raised their price targets on Adobe on Tuesday to $465 (from $430) and $430 (from $380) respectively, both firms retained a Neutral rating, expecting the stock to perform largely in line with the market. These improved targets also sit below the average on the street ($490), indicating that whilst their view on ADBE is improving, there remain questions to answer in the upcoming print.

What Do The Bull's See In Adobe?

While competition is undoubtedly intensifying, Adobe possesses significant advantages that should not be underestimated. Its vast library of software, its deep integration with professional workflows, and its established ecosystem of users and partners provide a formidable barrier to entry for competitors. The $630 high price target is an expectation that Adobe will deliver.

Furthermore, Adobe has a proven track record of adapting to technological changes and successfully integrating new features into its products. The current concerns surrounding AI disruption may be overblown, as Adobe has the resources and expertise to leverage AI to enhance its offerings rather than be threatened by it.

The company has already started implementing AI-powered features in its software, such as content-aware fill and neural filters, which have been well-received by users. Moreover, low price target revisions are a sign of market corrections, which can be an opportunity for investors to buy into a fundamentally strong company at a discounted price. The recent price drops may simply reflect a period of consolidation after a period of rapid growth, and the stock could be poised for a rebound once the market regains confidence in Adobe's long-term prospects.

The upcoming earnings call, scheduled for 2-3 p.m. Pacific Time, will provide an opportunity for investors to gain further insights into Adobe's strategy and outlook. Key areas of focus will likely include the company's progress in integrating AI into its products, its efforts to expand its cloud services offerings, and its plans to address the competitive pressures in the creative software market.