Why Is Adobe (ADBE) Down 11.6% Since Last Earnings Report?

Earnings Performance - Adobe's Q3 2024 non-GAAP earnings were $4.65 per share, beating estimates by 2.65% and showing a 13.7% YoY increase [2] - Total revenues reached $5.41 billion, surpassing estimates of $5.37 billion and growing 11% YoY on both reported and constant-currency bases [2] Revenue Drivers - Strong performances from Adobe Creative Cloud, Document Cloud, and Experience Cloud drove top-line growth [3] - Subscription revenues accounted for 95.8% of total revenues at $5.18 billion, up 11.6% YoY [5] - Product revenues declined 14.6% YoY to $82 million, while services & other revenues decreased 10.4% YoY to $146 million [5] Segment Performance - Digital Media segment revenues grew 11% YoY to $4 billion, with Creative Cloud contributing $3.19 billion (up 10% YoY) and Document Cloud generating $807 million (up 18% YoY) [6][7][8] - Digital Experience segment revenues increased 10% YoY to $1.35 billion, with subscription revenues rising 12% YoY to $1.23 billion [9] Operational Metrics - Gross margin expanded 170 bps YoY to 89.8% [10] - Operating expenses increased 9.5% YoY to $2.86 billion, but as a percentage of total revenues, they contracted 50 bps to 52.9% [10] - Adjusted operating margin expanded 30 bps YoY to 46.5% [10] Financial Position - Cash and short-term investments stood at $7.5 billion as of Aug 30, 2024, down from $8.1 billion as of May 31, 2024 [11] - Trade receivables increased to $1.8 billion from $1.6 billion in the previous quarter [11] - Long-term debt remained stable at $4.128 billion [11] - Cash generated from operations increased to $2.02 billion from $1.94 billion in the previous quarter [11] Future Outlook - Q4 2024 revenue guidance is projected between $5.50 billion and $5.55 billion [13] - Digital Media revenues are expected to be between $4.09 billion and $4.12 billion, while Digital Experience revenues are anticipated to range from $1.36 billion to $1.38 billion [13] - Net new ARR in the Digital Media segment is projected at $550 million, and Digital Experience subscription revenues are expected to be between $1.23 billion and $1.25 billion [13] - Non-GAAP earnings per share are forecasted between $4.63 and $4.68 [14] Market Position and Growth - Adobe faces stiff competition in the AI software space from tech giants and well-funded startups like Stability AI and Midjourney [4] - The company's investments in generative AI capabilities and AI-powered offerings are expected to boost its prospects [3] - Estimates have been trending upward, with Adobe holding a Zacks Rank 3 (Hold) [15][18]