Citi expects Adobe to report better-than-expected earnings next week, but remains cautious about the company’s long-term growth prospects.
On Tuesday, Citi said a strong third-quarter result from Adobe would not be surprising, especially since the company recently lowered its annual recurring revenue guidance by about $500 million. Adobe will report its results after the market closes on September 10. Analysts expect revenue of $6.69 billion and earnings of $4.48 per share.
Citi kept a neutral rating on Adobe’s stock but raised its price target. The firm said this was mostly because technology stocks in general have gone up in value, not because Adobe’s business fundamentals have improved.
Adobe’s shares dropped slightly in the afternoon as part of a wider selloff in technology stocks. The stock is still down significantly for the year.
Even though Citi expects Adobe to beat earnings in the short term, the firm has some longer-term worries. Some business customers are combining paid licenses for Creative Suite products like Photoshop and Illustrator, or thinking about switching to cheaper options. To help sales, Adobe has kept some Creative Cloud products discounted. Citi also noted that standard-tier users are logging in less often, although visits to Adobe’s homepage and its Firefly AI platform have stayed strong. Opinions about Firefly have improved recently, thanks to new features and better protections for enterprise and government users.
Citi’s main long-term concern is Adobe’s dependence on free-tier users. The firm is unsure how well Adobe can turn these users into paying subscribers by fiscal 2027.
Adobe is also going through leadership changes. The chief financial officer left in June to join Marvell Technology, and CEO Shantanu Narayen said in March that he will step down once a replacement is found, but he will stay on as chairman.
