BMO Cuts Target Price on Adobe

Investing.com– BMO has reduced its target price on Adobe (NASDAQ: ADBE) following disappointing quarterly metrics and a weaker-than-expected outlook for 2025.

BMO has lowered Adobe’s target price to $570 from $600, while maintaining its Outperform rating on the stock.

The brokerage highlighted that Adobe’s annual recurring revenue (ARR), a crucial metric for Software as a Service (SaaS) firms, surpassed expectations in the November quarter, albeit by a smaller margin than earlier this year.

Furthermore, BMO pointed out that the ARR growth for Adobe’s Creative Cloud was only 2%, missing estimates of 5% growth for the November quarter.

The most concerning aspect was Adobe’s revenue guidance for 2025, estimated between $23.30 to $23.55 billion, which fell short of street estimates at $23.78 billion. This suggests that Adobe’s efforts to integrate artificial intelligence into its offerings are taking longer to yield returns than anticipated.

Despite these challenges, BMO acknowledged the resilience of Adobe’s Document Cloud business, which drove most of the ARR increase. However, the brokerage also noted that this trend, while positive for Document Cloud, was disappointing for investors seeking a more balanced growth outlook.

BMO maintains its Outperform rating for Adobe based solely on valuation. Following this announcement, Adobe's stock dropped nearly 10% in after-market trading and is down approximately 5% so far in 2024.

As competition escalates from smaller firms like Stability AI and Midjourney, which offer image-generating software, Adobe has intensified its investments in AI. Nonetheless, the company is struggling to monetize these AI features, with revenue not showing significant growth despite launching its own image and video generation capabilities.