Adobe ADBE is set to report its first-quarter fiscal 2025 results on March 12.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

For first-quarter fiscal 2025, Adobe projects total revenues between $5.63 billion and $5.68 billion. The company expects non-GAAP earnings between $4.95 per share and $5 per share.

The Zacks Consensus Estimate for revenues is pegged at $5.65 billion, suggesting growth of 9.11% from the year-ago quarter’s reported figure. The consensus mark for earnings has been unchanged at $4.97 per share over the past 30 days, indicating 10.94% growth from the figure reported in the year-ago quarter.

ADBE’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average earnings surprise being 2.59%.
 

Let us see how things have shaped up for ADBE shares prior to this announcement.

ADBE’s Q1 Segmental View is Encouraging

For the first quarter of fiscal 2025, Adobe expects Digital Media segment revenues between $4.17 billion and $4.2 billion.

The Zacks Consensus Estimate for Digital Media segment revenues is pegged at $4.18 billion, suggesting a 9.6% year-over-year growth. The consensus estimate for Creative Cloud revenues stands at $3.33 billion, indicating 8.5% year-over-year growth. Document Cloud’s consensus estimate for revenues is pegged at $855 million, implying 14% growth from the year-ago quarter’s reported figure.

Digital Experience segment revenues are anticipated to be $1.38-$1.40 billion. Experience Subscription revenues are expected to be $1.27-$1.29 billion.

The consensus mark for Digital Experience revenues is pegged at $1.40 billion, indicating 8.5% year-over-year growth. The Zacks Consensus Estimate for Digital Experience subscription revenues is pegged at $1.29 billion, indicating 10.8% year-over-year growth.

Factors to Note Prior to ADBE’s Q1 Earnings

Adobe’s strong Generative AI (GenAI) portfolio and a rich partner base, which includes the likes of Amazon AMZN, Microsoft MSFT and Alphabet GOOGL, are expected to have driven its top-line growth in the fiscal first quarter.

Adobe expanded its GenAI portfolio with the launch of Firefly Image Model 3, enhancements to vector models, richer design models and the all-new Firefly video model. The deep integration of these models into Adobe’s tools, such as Lightroom, Photoshop, Premiere, InDesign and Express, has improved the experiences for creative professionals globally. Firefly generations now have crossed 16 billion cumulative generations.

Strong Adobe Express adoption by businesses is noteworthy. The increasing number of integrations into leading social, productivity and collaboration apps like ChatGPT, Google, Slack, Wix, Box, Hubspot and Webflow significantly increases Adobe Express’ customer reach.

Adobe’s Document Cloud AI Assistant is now available in Acrobat across desktop, web and mobile, and integrated into Chrome, Microsoft Teams and Edge extensions. Adobe GenStudio, which integrates Express, Firefly, Workfront, Experience Manager, Customer Journey Analytics and Journey Optimizer, is riding on strong adoption in the content supply chain for enterprises.

These factors are expected to have driven first-quarter fiscal 2025 results amid stiff competition and the sluggish monetization rate of Adobe’s GenAI solutions.

ADBE Shares Lag Sector in a Year

In the trailing 12-month period, Adobe shares have declined 20%, underperforming the broader Zacks Computer and Technology sector’s return of 11.1% and the Zacks Computer Software industry’s appreciation of 0.7%.

ADBE Stock’s Performance

Image Source: Zacks Investment Research

The ADBE stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.

In terms of the forward 12-month price/sales ratio, Adobe’s shares are trading at 8.16X, higher than the sector’s 6.06X.

P/S Ratio (F12M)

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Can Strong Portfolio, Rich Partner Base Drive ADBE?

A solid portfolio and differentiated approach to AI are attracting an expanding universe of customers across Adobe’s segments. The company recently launched a couple of the latest offerings, including Firefly Standard and Firefly Pro, which give customers access to premium Firefly video and audio features. The company released the latest Firefly application, which can be used to generate image vectors and now videos with the Firefly Video Model, in a public beta.

Adobe’s expanded partnership with Amazon makes the Adobe Experience Platform available on Amazon Web Services. Partnerships with Google’s Campaign Manager 360, Meta Platforms, Microsoft Advertising, Snap and TikTok are key catalysts.

The integration of Acrobat PDF technology into Microsoft Edge and Alphabet’s Google Chrome is a major plus. Adobe is experiencing rising free-to-paid conversions on the back of its Acrobat extensions for Microsoft Edge and Google Chrome.

Adobe Ahead of Q1 Results: Buy, Hold or Sell?

Adobe’s prospects benefit from strong demand for its creative products. Its Creative Cloud, Document Cloud and Adobe Experience Cloud products have been driving top-line growth. New AI releases, including Express, Acrobat AI Assistant, Firefly Services, DX premium tiers and GenStudio for Performance Marketing, have expanded the portfolio of products. These are expected to drive Adobe’s market share and monetization in the near future.

However, Adobe is suffering from increasing competition in the GenAI space from the likes of Open AI, as well as a lack of monetization of its AI solutions.

Technically, ADBE shares are trading below the 200-day moving average, indicating a bearish trend.

ADBE Shares Trade Below 200-Day SMA

Image Source: Zacks Investment Research

Adobe currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a favorable time to start accumulating the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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