Adobe ADBE shares declined 19.8% following its fourth-quarter fiscal 2024 results on Nov 11. Although both earnings and revenues beat the Zacks Consensus Estimate and improved on a year-over-year basis, a disappointing fiscal 2025 guidance resulted in the slide.

ADBE’s 2025 prospects are suffering from increasing competition in the Generative AI (GenAI) space from the likes of Microsoft MSFT-backed Open AI, as well as a lack of monetization of its AI solutions. 

For fiscal 2025, Adobe expects total revenues between $23.30 billion and $23.55 billion ($21.51 billion in fiscal 2024). Unfavorable forex and continued move to subscriptions from perpetual offerings are expected to negatively impact revenues by $200 million.

Adobe expects fiscal 2025 non-GAAP earnings between $20.20 and $20.50 ($18.42 per share in fiscal 2024). 

Year to date, Adobe shares have fallen 26%, underperforming the broader Zacks Computer and Technology sector’s return of 30.4% and the Zacks Computer Software industry’s appreciation of 18%.

ADBE Lags Sector, Industry Year to Date

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ADBE’s 2025 Estimate Revision Trends Lower

For fiscal 2025, the Zacks Consensus Estimate for earnings is pegged at $20.38 per share, down 0.8% over the past 30 days. The figure indicates 10.64% growth from that reported in fiscal 2024.

ADBE’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 2.55%.

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

The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $23.45 billion, suggesting 9.04% growth from that reported in fiscal 2024.

ADBE Stock Seems Overvalued

The Adobe 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, ADBE is trading at 8.20X, higher than the sector’s 6.35X.

Price/Sales Ratio (F12M)

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Can Adobe’s Strong Portfolio Help the Stock Recover?

Adobe’s prospects are expected to benefit from a strong demand for its creative products. Its Creative Cloud, Document Cloud and Adobe Experience Cloud products have been driving top-line growth.

ADBE’s strong positioning in the digital content and marketing industry, backed by its robust cloud-enabled products and growing GenAI capabilities, has been boosting its business prospects.

In the fiscal fourth quarter, Adobe saw strong adoption of the Acrobat Pro single app in both Document Cloud and Creative Cloud offerings.

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, like Lightroom, Photoshop, Premiere, InDesign and Express, has improved the experience of creative professionals globally. Firefly generations now have crossed 16 billion cumulative generations.

Strong Adobe Express adoption by businesses is noteworthy. Number of students using Adobe Express jumped 84% year over year. The increasing number of integrations into leading social, productivity and collaboration apps like ChatGPT, Alphabet GOOGL division Google, Slack, Wix, Box, Hubspot and Webflow significantly increased Adobe Express’ customer reach.

Adobe’s Document Cloud AI Assistant is now available in Acrobat across desktop, web and mobile, and integrated into Chrome, and 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. 

Adobe’s expanded partnership with Amazon AMZN 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.

Expanding Enterprise Clientele Bodes Well for Adobe

Adobe is wining clients at both Creative Cloud and Document Cloud segments. 

Alphabet, American Express, Coca-Cola, Johnson & Johnson, LVMH, Procter & Gamble, T-Mobile and the U.S. Department of Defense were major additions to the Creative Cloud clientele in the fiscal fourth quarter.

Abbott Laboratories, BWI GmbH, Defense Information Systems Agency, Kaiser Permanente, Novo Nordisk, Truist, U.S. Cellular and the U.S. Department of State were major additions to the Document Cloud clientele.

How Should Investors Approach ADBE Post Q4?

Adobe’s deepening GenAI focus and innovative GenAI-powered portfolio present a compelling opportunity for long-term investors.

However, intensifying competition from the likes of OpenAI is concerning. While Adobe’s video model will be widely available in early 2025, OpenAI’s video-generating Sora is available to those users already paying for ChatGPT.

Stretched valuation also remains concerning.

ADBE currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable time to accumulate the stock.

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

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