How Did Adobe Fare In Q2?

Adobe (NASDAQ:ADBE) recently announced its Q2 results, (Nov. fiscal year), surpassing analyst expectations. The company reported earnings of $5.06 per share on sales of $5.9 billion, exceeding the consensus estimates of $4.97 per share and $5.8 billion, respectively. Additionally, Adobe raised its full-year outlook.

Despite these positive results, the stock saw a minimal reaction in extended trading, declining by 1%. This response, or lack thereof, prompts a closer look into the company’s financial performance and its current stock valuation. But, if you are looking for an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception. Separately, see – Boeing Stock Faces Fresh Crisis After 787 Dreamliner Crash.

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How Did Adobe Fare In Q2?

Adobe’s revenue was up 11% year-over-year, reaching $5.87 billion in Q2 (fiscal year ending in November). This growth was driven by both its key segments:

• Digital Media segment sales climbed 11% to $4.35 billion.
• Digital Experience sales rose 10% year-over-year to $1.46 billion.

Adobe is currently benefiting from customers transitioning to its higher-priced subscription plans, which are providing a stable revenue stream. Adobe’s Firefly, an innovative AI tool that empowers users to generate, modify, and improve images and videos using simple text commands, has expanded Adobe’s suite of AI-driven creative tools, designed to speed up the ideation and content creation process. Furthermore, Adobe recently announced that it is integrating image-generation AI models from OpenAI and Google directly into the Firefly application, enhancing its capabilities even further.

Adobe’s adjusted operating margin of 45.5% in Q2’25 was slightly below the 46% figure it reported in the prior-year quarter. The company also purchased 8.6 million of its shares during the quarter. Higher revenues, a slight decline in operating margin, and fewer shares outstanding resulted in the company’s bottom line of $5.06, versus $4.48 in the prior-year quarter.

Looking ahead, Adobe has raised its full-year revenue outlook to a range of $23.5 billion to $23.6 billion, up from the previous projection of $23.3 billion to $23.55 billion. The company also anticipates adjusted earnings per share to be between $20.50 and $20.70, an increase from the prior estimate of $20.20 to $20.50.

What Does This Mean For ADBE Stock?

ADBE stock is down 6% this year, underperforming the broader indices, with the S&P 500 index up 3%. Overall, the performance of ADBE stock with respect to the index over the recent years has been quite volatile. Returns for the stock were 13% in 2021, -41% in 2022, 77% in 2023, and -25% in 2024. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that ADBE underperformed the S&P in 2021, 2022, and 2024.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment, with ongoing geopolitical tensions, could ADBE face a similar situation as it did in 2021, 2022, and 2024 and underperform the S&P over the next 12 months — or will it see a recovery? While we will soon update our model to reflect the latest results and guidance for ADBE, the stock seems undervalued. At its current levels of $410, ADBE stock is trading at 20x expected adjusted earnings of  $20.35, at the mid-point of the provided guidance, versus the stock’s average P/E ratio of 25x over the last three years. In fact, we currently estimate Adobe’s Valuation to be $550 per share, reflecting over 30% upside potential from the current levels.

However, it’s important to consider potential risks. Investors might temper their valuation of Adobe due to a slower-than-anticipated acceleration in AI-driven growth. Additionally, the stock has historically underperformed the S&P 500 during recent market downturns, as detailed in our “Buy or Sell Adobe Stock” dashboard. Therefore, investors should carefully weigh these risks before investing in Adobe stock.

While ADBE stock looks like it has room for growth, it is helpful to see how Adobe’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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