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Adobe shares need a bright earnings spark

Adobe’s stocks are going through a tough time.

The US software company, which makes marquee titles such as Photoshop and Acrobat, has lost -34.5% of its value so far this year, dragged down along with the entire technology sector due to the Fed's interest rate hikes.

And even some resilient earnings, to be announced after US markets close today (Thursday, 15th September), may not be enough to excite markets.


What to expect today:

Here are a couple of top-line items that analysts are forecasting for the upcoming earnings release:

  • Earnings per share (EPS): $3.33 forecasted (32.8% year-on-year growth)
  • Revenue: $4.43 billion forecasted (12.6% growth compared to FYQ3 2021)


For the record, Adobe has announced a positive surprise for its quarterly earnings every single time since Q4 2018. That’s a positive run stretching over 141 consecutive quarters.

Despite such relative good news, this stock has dropped the day after its earnings releases for the past four straight quarters.

As things stand, markets are forecasting a 1-day move of 6.67%, either up or down, when Friday’s cash session opens.

While such a sizable single-day move may present opportunities for intraday traders, today’s earnings announcement may do little to entice longer-term investors.


Stronger US dollar hurts Adobe’s sales growth

Note that Adobe generates over 40% of its sales outside of the US.

And with King Dollar reigning supreme across the FX universe, Adobe’s international clients are finding it harder to make those dollar-denominated subscriptions and payments for Adobe’s software and services.

With that in mind, the projected 12.6% year-on-year growth for Adobe’s quarterly revenue can be seen in a whole different light.

While that 12.6% figure, in and of itself, may look decent, that is still a marked slowdown from the year-on-year growth rates of above 20% for each of its quarter in its 2021 fiscal year.

Hence, as the company’s revenue growth decelerates, shareholders have one less reason to keep pushing this stock significantly higher, barring a resoundingly optimistic guidance out of Adobe’s C-suite later today.


Adobe not immune from global economic woes

Also, keep in mind the souring global economic outlook, as the world braces for a looming recession.

Central bankers around the world are aggressively hiking their respective interest rates, with hopes of “destroying” enough demand to subdue inflationary pressures.

Such “demand destruction” hurts the pockets of companies, households, and individuals.

Lower demand levels in an economy could well translate into less spending power for professionals, students, and digital hobbyists who use Adobe’s suite of software, which is set to keep a lid on Adobe’s profit margins.

However, such macro challenges may also directly impact Adobe’s headcount.

A trimming of its workforce should lower its operating costs, and help preserve its margins in light of the other extraneous headwinds.


Adobe price hike could see knee-jerk jump in share price

Perhaps Adobe’s management may be tempted to announce a price hike for its products that are indispensable for users (can we imagine a typical graphic designer without Photoshop/Illustrator?).

Flexing its ‘pricing power’ may be needed to preserve the company’s income and profitability.

Such an announcement may be the trigger for some gains, though such price action may be fleeting, depending on what broader risk sentiment is at play across financial markets.


Adobe breakout depends on fundamental catalyst, broader risk sentiment

Looking at the price chart, Adobe stock is trading in a deep downtrend that started in November last year when it was trading around $699.

From that near-$700 level, it has fallen to as low as $347.21 – a stunning 50.3% drop.

Since then, even most of its summer gains have been undone, with the stock now hovering just above the psychologically-important $370 level while remaining below its 50-day and 100-day simple moving averages (SMA).

Adobe bulls will be hoping that this $370 region would offer a sturdier floor from which this stock can recover, even as its 50-day simple moving average attempts to creep back above its 100-day counterpart – a technical event that could spur more immediate gains.

If the earlier-mentioned 6.67% forecasted single-day move materialises on Friday to the upside, that should see Adobe’s stock revisiting its previous cycle high just below $400. That’s also close to where the 100-day and 50-day SMAs currently converge to potentially offer immediate resistance.

However, another dour showing from today’s earnings release, coupled with a risk-off move across broader markets, could drag this stock back to its mid-June lows, assuming that forecasted 6.67% single-day move happens to the downside.

Adobe shares need a bright earnings spark



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