Nasdaq 100 forecast: How will Adobe earnings impact ADBE stock?

Key takeaways

• Adobe set to deliver record revenue and adjusted EPS
• Not immune to slowdown in spending, but proving more resilient than most
• Well-positioned to be among early beneficiaries from AI applications
• Analysts see chance for a beat and raise this quarter
• Adobe has been among the best performers in the Nasdaq 100 this year, setting a high bar but one that it could overcome considering its valuation remains below historic levels.

When will Adobe release Q3 earnings?

Adobe will release third quarter earnings after US markets close on Thursday September 14. A conference call is scheduled on the same day at 1400 PT.

Adobe Q3 earnings consensus

Revenue is forecast to deliver record revenue of $4.86 billion in the third quarter, up 9.8% from the year before. Adjusted operating profit – its headline measure – is expected to rise 13.4% to $2.21 billion and adjusted EPS is seen rising 17% to $3.98.

Both metrics are at the very upper-end of Adobe’s guidance range for the quarter.

Adobe Q3 earnings preview

Adobe has been one of the best performers in the Nasdaq 100 in 2023, with shares up 66% and lingering at levels last seen in late 2021! Adobe was among the tech stocks that took a heavy beating in 2022 but we have seen it rapidly recover this year considering it has consistently delivered growth over what has been a volatile few years for the tech industry.

In fact, Adobe delivered record revenue and adjusted EPS in the previous quarter and is expected to break both of these when it reports results this week. Adobe has not been immune to the slowdown in enterprise IT spending but it has proven more resilient than most thanks to strong demand for its array of software, while its high margins have also managed to defy the inflationary environment.

We are likely to see its Digital Experience division report topline growth of around 9.2% in the quarter, marking a slowdown compared to what we have seen over the past year as businesses become stricter with their marketing and advertising budgets. However, a sequential acceleration in growth from its Digital Media unit that homes its creative and document applications will help counter this.

The stock has also found support from artificial intelligence, which has become the hottest investment trend of the year. Adobe’s software, particularly its Firefly platform, is in a prime position to be among the first to benefit from the technology considering how well it fits the earliest applications of generative AI for images, text and voice.

Adobe lifted its full-year outlook in the last quarter, although Wall Street had hoped for a bigger upgrade. Adobe is currently targeting annual revenue of $19.25 billion to $19.35 billion and adjusted EPS of $15.65 to $15.75. Analysts currently see scope for its topline target to be nudged higher, according to consensus numbers, and they believe earnings will be at the very top-end of its guidance range.

Mizuho Securities recently upgraded the stock to Buy after outlining that its fundamentals are improving and thanks to increased confidence it can get a boost from AI. Jefferies also said just yesterday that demand is becoming “healthier” and that it still sees upside potential from here despite the stellar rally we have seen in the share price this year.

The consensus figures, twinned with recent analyst commentary, suggests there is a good chance we could see a beat and raise this quarter, although that may be necessary to keep the rally going considering the surge in value this year has set a high bar.

Adobe currently trades at a forward price-to-earnings ratio of 32.6x, which is at an 11% premium to the industry average. The multiple sits at its highest level in almost a year, but does remain below the average we have seen over the past five years. The average target price set by 35 brokers that cover the stock implies Adobe is trading at a fair valuation, although the most recent updates suggests there is much more upside potential from here.

Where next for ADBE stock?

Adobe shares recently hit their highest level since December 2021, but has faced some fresh resistance after failing to break above $570 over the past six sessions. This is the immediate upside goal for the stock and, if it can make a sustained move above here, we could see it continue climbing toward $615 to close the gap that was created way back in late 2021.

The RSI remains in bullish territory but is nearing oversold territory. We have seen the rising trendline that can be traced back to May, the 50-day moving average and the 61.8% retracement all align around $534, suggesting this could provide support if it fails to impress. The 20-day moving average at $524 could provide a safety net below here.

Nasdaq 100 analysis: Where next?

Adobe is one of the largest constituents of the Nasdaq 100, which means it is the index to watch ahead of the earnings. It is worth noting that we have some key US inflation data out on Wednesday, which could be significant for stock markets and override any sentiment stemming from the Adobe results.

The index has been setting higher-lows since hitting two-month lows last month and the RSI is back in bullish territory, suggesting it has found some renewed momentum. The immediate job is to set a new higher-high above 15,600 to move above the peak we saw at the start of September, which would pave the way for it to climb toward 15,900 to reclaim the 2023-high.

We saw the 50-day moving average provide support last week at 15,150 and it must remain above here to avoid setting a lower-low. The two-month low of 14,600, which is roughly aligned with the 100-day moving average, should be regarded as the floor.