For a stock that is down by more than 27% over the past year, Adobe Inc. (NASDAQ:ADBE)’s shares were a breath of fresh air on Friday as they closed 1.4% higher. The day was quite eventful for the firm as it saw action by several analysts. For instance, investment bank Morgan Stanley recommended selling the stock following Adobe Inc. (NASDAQ:ADBE)’s third quarter earnings report. The bank reitreated an Underweight rating and a $240 share price target, TipRanks reported. The coverage came after the firm reported its third quarter earnings on September 10th after market close. Cramer tweeted about the stock on Friday:
“Cuts in Adobe seem false. I wonder if a squeeze could develop here. The company has a big market cap and can use it to buy companies…
“Good squeeze up in Adobe”
Adobe Inc. (NASDAQ:ADBE)’s earnings were modestly impressive in terms of growth. The firm’s revenue and earnings of $6.76 billion and profit per share of $6.13 were higher than analyst estimates of $6.70 billion and $6.09. With the debate for Adobe Inc. (NASDAQ:ADBE) focused on its AI initiatives and the impact on the traditional business by users’ ability to create their own tools with AI or use AI-enabled products, the firm’s AI annual recurring revenue was a key metric in the earnings report. In its Q3, Adobe Inc. (NASDAQ:ADBE) jumped by a whopping 150% annually and sat at $650 million.
Delving deeper into the AI growth, the firm’s AI platforms Firefly and GenStudio marked a 40% and 20% ending ARR growth. Overall, ARR, short for recurring revenue, grew by 11% annually to $27.50 billion. During the quarter, Adobe Inc. (NASDAQ:ADBE) also reported more than one billion monthly active users (MAUs) for the first time. Put together, these metrics indicate that the worst of the impact of AI on the firm’s business might be behind it.
Yet, other metrics weren’t as great. For instance, Adobe Inc. (NASDAQ:ADBE)’s net new ARR dipped by 36% to 37% annually with the dip attributed to its freemium initiatives and hesitance to increase prices. Additionally, remaining performance obligation (RPO) growth was also muted at 8% annually. Coupling these with the fact that Adobe Inc. (NASDAQ:ADBE)’s fourth quarter revenue guide ranged between $6.80 billion to $6.85 billion, missed analyst estimates of $6.85 indicates that the firm might continue to experience a tough operating environment. The lower guide also led JPMorgan to cut the price target to $315 from $340 following the earnings.
As for the hedge funds, 81 funds out of the 1,006 tracked by Insider Monkey had held a stake in Adobe Inc. (NASDAQ:ADBE) during Q2. This marked a dip over the 86 out of the 1,022 funds in Q1. Notable exits included Two Sigma Advisors and Tudor Investment Corp. On the valuation front, Adobe Inc. (NASDAQ:ADBE) trades at a forward P/E ratio of 9.09 is substantially lower than Figma’s 61.35 and so is the short interest as a percentage of float. Adobe Inc. (NASDAQ:ADBE)’s short interest is 4.89% while Figma’s is 19.57.
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Disclosure: None.