UPDATED 18:54 EDT / DECEMBER 16 2021

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Adobe’s stock falls hard and fast as guidance falls short of expectations

Creative design software firm Adobe Inc.’s stock lost more than 10% of its value today after it projected fiscal first-quarter and full-year 2022 revenue that came way below analysts’ estimates.

It as the second-worst one-day stock drop Adobe has suffered in more than a decade, surpassed only by a 15% slide in March 2020 when the coronavirus pandemic first rattled the public markets.

Adobe had put in a decent fourth quarter, reporting earnings of $3.20 per share on revenue of $4.11 billion, up 20% from a year ago. The company’s net profit for the quarter came to $1.23 billion. Wall Street had been expecting earnings of $3.20 per share on sales of just $4.09 billion, so it was a better-than-expected performance.

Adobe said its growth was primarily driven by its Digital Media business, where sales rose 21% from a year ago, to $3.01 billion.

However, concerns about rising inflation and interest rates mean investors are putting 2021 behind them and instead focusing more on the coming year, and Adobe did not have much good news there.

The company said it’s expecting first-quarter revenue of just $4.23 billion, trailing Wall Street’s forecast of $4.34 billion by some way. Its full-year forecast didn’t get any better. The company called for $17.9 billion in sales versus a consensus forecast of $18.16 billion.

“We believe the shares will be weak today as concerns about a slowing spending environment and conservative guidance proved to be correct,” Atlantic Equities wrote in a note. Adobe had reported its earnings before the market opened Thursday.

Adobe pointed out that its revenue forecast factors in a strengthening U.S. dollar and a slightly longer first quarter in 2022 compared with the previous year.

Adobe’s problem is that, while it continues to lead the market for professional digital design software, it is facing greater competition in most areas. These days there are many alternative tools for creating graphics, videos and other content.

Adobe Chief Executive Shantanu Narayen (picture) has sought to ease some of that pressure by expanding the company’s marketing and analytics offerings. During the previous quarter, it acquired ContentCalendar Ltd., a business-to-business software-as-a-service content marketing platform that it intends to fold into its own offerings.

However, Adobe faces strong rivals at every turn.

“Most investors are still a little more cautious there, it’s viewed as a distant runner-up to Salesforce in that space,” Guggenheim Partners director Ken Wong told Bloomberg.

Analyst Charles King of Pund-IT Inc. told SiliconANGLE that although Adobe’s guidance was certainly less optimistic than many had hoped, the selloff was likely prompted by other issues too. He noted that several tech vendors, notably Advanced Micro Devices Inc. and Nvidia Corp., also suffered this week.

“As we near the end of December more than a few shareholders and institutional investors look to lock in profits, especially if they expect taxes to increase in the coming year,” King added. “While the selloff is likely disappointing for many, Adobe’s strong position in its core markets is likely to make the company attractive to many others.”

Alongside its earnings results, Adobe said it is promoting Anil Chakravarthy, general manager of its marketing and analytics business, to president of that division. David Wadhwani, Adobe’s chief business officer and executive vice president of Digital Media, becomes president of that unit.

Constellation Research Inc. analyst Liz Miller told SiliconANGLE Adobe was suffering to an extent due to its earlier success during the pandemic. She explained that having broke numerous records in its last few quarters, growth of “just 20%” may be a bit too pedestrian for some investors’ liking.

Miller said that above all else, today’s reaction from investors should serve as a wake up call for Adobe to crank up its innovation engine. Luckily, she said, that is something Adobe has done successfully in the past.

“Marketing as a total function is changing and players will need new pathways to growth,” Miller continued. “Adobe needs to be part of rethinking those better practices. Reorganizations will satisfy stockholders, but the next step is to reinvigorate solutions and resources to satisfy stakeholders.”

Photo: Adobe MAX/Flickr

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