Adobe stocks drop after strong revenue but weak guidance for next quarter

Adobe shares dropped more than 6 per cent after the company reported strong first quarter results but issued a weaker than expected profit forecast.

The software company reported revenue of 6.4 billion dollars for the quarter ending 27 February, a 12 per cent increase compared with the previous year, while analysts had expected revenue of about 6.275 billion dollars.

Adobe also reported earnings of 6.06 dollars per share, above analyst estimates of around 5.87 dollars per share.

Subscription revenue, which forms the core of Adobe’s business model, reached 6.17 billion dollars, up 13 per cent year on year and higher than the 6.09 billion dollars forecast by analysts.

Within the segment, Creative and Marketing Professionals subscription revenue reached 4.39 billion dollars, while Business Professionals and Consumers subscription revenue rose to 1.78 billion dollars.

Total annual recurring revenue reached 26.06 billion dollars by the end of the quarter.

Chief executive Shantanu Narayen said artificial intelligence is becoming a key driver of growth: “Adobe delivered record Q1 results with AI-first ARR more than tripling year over year and subscription revenue growing 13%,” Narayen said in a statement.

Despite the strong results, investors reacted negatively to the company’s outlook.

Adobe expects second quarter earnings per share between 4.35 dollars and 4.40 dollars, below analyst expectations.