Shares of Adobe (ADBE 3.42%) rebounded after the maker of creative software programs such as Photoshop reported solid revenue growth for its fiscal second quarter. Despite the solid post-earnings gains, the stock is still down about 12% year to date.
Let's take a closer look at the company's most recent quarterly results and guidance and whether it is too late to buy the stock.
Solid revenue growth
Adobe solidly grew its fiscal Q2 revenue by 10% to $5.31 billion topping the analyst consensus of $5.29 billion. Adjusted earnings per share (EPS), meanwhile, rose 20% to $4.48, beating analyst estimates by $0.09.
On its earnings conference call, management said it was seeing early success monetizing new generative artificial intelligence (AI) technologies across both its digital media and digital experience businesses.
Digital media segment revenue rose 11% to $3.91 billion. Within the segment, creative revenue was up 10% to $3.13 billion, while document cloud revenue jumped 19% to $782 million. Management said it saw steady growth in monthly active users of its document cloud solutions, especially Acrobat.
Its digital experience segment, meanwhile, saw revenue grow 9% to $1.33 billion, with digital experience subscription revenue up 13% to $1.2 billion. The company said customers are embracing its Adobe Experience Platform (AEP) to boost productivity and create personalization at scale. AEP subscriptions rose 60% in the quarter.
Image source: Getty Images.
Looking ahead, Adobe forecast fiscal third-quarter revenue of between $5.33 billion and $5.38 billion. It expects digital media segment revenue of between $3.95 billion and $3.98 billion and digital experience segment revenue of between $1.325 billion and $1.345 billion. It guided for adjusted EPS of $4.50 to $4.55.
For the full year, it forecast revenue of between $21.4 billion and $21.5 billion, with digital media segment revenue of between $15.8 billion and $15.85 billion and digital experience segment revenue between $5.325 billion and $5.375 billion. It projected adjusted EPS of $18 to $18.20. Adobe originally guided for full-year revenue of $21.3 billion to $21.5 billion and adjusted EPS between $17.60 and $18.
Overall, it was a solid quarter of revenue growth from Adobe as its new AI features across its products continue to power results. Document cloud, in particular, was a highlight. However, growth was pretty steady across the board.
The company is still in the early days of monetizing its AI capabilities in its Creative Suite as it lets users trial its generative AI capabilities before they need to purchase generative credits. Down the road, the company can probably come up with a better way to monetize its AI features and Firefly AI platform.
Adobe Express, which is an AI-powered creation app for things like social media graphics and promo videos, also holds a lot of promise given that it expands Adobe's audience from creatives to everyday social media users. The company also just launched a version for businesses.
Is it time to buy the stock?
Adobe currently trades at a forward price-to-earnings (P/E) ratio of 29 and a price-to-sales (P/S) multiple of nearly 11. Given its low-double-digit growth, that appears to be a fair valuation for this leading software-as-a-service (SaaS) company.
ADBE PE Ratio (Forward) data by YCharts
The key for Adobe going forward will be increasing Express adoption and better monetizing its AI capabilities. How well it can do both of these things is still a question mark although it's off to a solid start. Given the company's dominant position in the creative community and potential upside with AI and Express, the stock should be a solid investment over the long term and it's not too late to buy.
The biggest risk the company faces is if an alternative generative AI solution upends the entire creative field. As such, Adobe needs to continue to push forward and invest in its AI technology so that it remains the leader in the space.
