Adobe's fiscal first-quarter performance appears to have been overshadowed by significant changes in digital media disclosures that have left investors searching for clarity regarding key metrics. Shares of Adobe experienced a notable decline of 14%, closing lower on Thursday, even after the company reported record revenue figures that exceeded expectations and a larger-than-projected increase in earnings per share late Wednesday. Investor sentiment seems to have turned sour due to Adobe's adjustments to its digital media disclosures.
The brokerage Morgan Stanley indicated that the company's use of rounded numbers has effectively widened the potential variability for net new annualized recurring revenue (ARR) contributions. As stated in their analysis, these dampened disclosures have led investors to feel that while there was a semblance of transparency with the business, the overall direction felt more like a step forward followed by two steps back. In light of these developments, Morgan Stanley has revised its price target for Adobe's stock, dropping it from $660 to $600, though maintaining an overweight rating on the shares.
The financial firm's new customer segmentation approach seems to align better with demand pools, but the omission of creative and document cloud ARR figures was unexpected. Furthermore, the absence of historical data surrounding this new customer group segmentation has limited analysts' ability to model future metrics with confidence. The company's digital media net new ARR, reported at $414 million, exceeded consensus estimates by 6%, but it remained lower in both sequential and year-over-year comparisons.
Morgan Stanley still assesses the risk-reward scenario as attractive, particularly with growing optimism regarding the monetization of generative artificial intelligence, expected to ramp up in 2025. Current Share Price: $375.48, Change: -63.12, Percent Change: -14.39.