Adobe Earnings Preview: What to Expect This Week
Adobe Earnings Preview: What to Expect This Week
By:Mike Butler
An important focal point for Thursday's earnings call will be Adobe's plan to monetize generative AI
- Adobe is set to report quarterly earnings on Thursday, after the market closes,
- Adobe continues to beat EPS and revenue estimates quarter after quarter.
- Experts expect EPS of $4.38 on $5.15 billion in revenue from Adobe on this earnings call.
Adobe (ADBE) is one of the few stocks involved in the artificial intelligence sector that is down so far this year.
After opening 2024 trading at $589.51, the software company is trading just over $575 today. Adobe looks to recoup losses during its earnings call on Thursday, March 14 after the market closes at 3:05 p.m. CDT.
Analysts expect earnings per share (EPS) of $4.38 on $5.15 billion in revenue.
Optimism last quarter
Last quarter, Adobe's CEO Shantanu Narayen shed some positive light on fiscal 2023 and was optimistic about 2024.
“Adobe drove record revenue of $19.41 billion in FY23 and 17% year-over-year EPS growth," he said last quarter, "with strong momentum across Creative Cloud, Document Cloud and Experience Cloud. Adobe’s strategy, category leadership, ground-breaking innovation, exceptional talent and global customer base position us well for 2024 and beyond.”
ADBE stock has a relatively large, expected move relative to the stock price, with the options market pricing in a +-$41.08 expected move this week with the stock trading higher today just over $575 per share. That's about 7% of the stock price, which is above the average range of around 5% we've seen from the tech sector so far this earnings season.
Like other AI stocks, we see front-loaded implied volatility in Adobe. This just means the market is placing a lot of weight on Thursday's earnings call relative to the expected move through further-dated monthly options cycles.
Looking forward to December of this year, we can see an expected stock price move of +-$137.89. This week alone makes up for about 30% of the expected stock price range through the rest of the year. In a few days, we will see what sort of sentiment Adobe executives give us for 2024, and whether it has beaten or fallen short of expectations for the quarter.
Bullish on Adobe for Earnings
Adobe stock has stayed above the lower-bound of the expected move for most of the past few earnings announcements, and EPS and revenue estimates are higher than the numbers Adobe reported the previous quarter.
If you're bullish on ADBE, you may think that the stock's turbulence so far this year can be offset by a strong earnings call and guidance for 2024. We've seen a lot of AI stocks soar to the upside this year, and the market is pricing in a bit of call skew this week, which means a high-velocity move is perceived to be to the upside:
This doesn't mean the stock will move up, but it does mean the options market is leaning towards the upside for a high velocity move. It's more expensive to hedge risk and/or participate in speculation to the upside.
Bulls will likely want to hear positive results and plans for generative AI, with products like Adobe Sensei & Adobe Firefly leading the charge.
Bearish on Adobe for Earnings
Adobe is a popular tech company with household name products like Adobe Photoshop, but the stock price has almost doubled from the summer of 2023.
Adobe currently has a price to earnings (P/E) ratio of 47, which exceeds the likes of Microsoft (MSFT), Apple (AAPL), Tesla (TSLA) and other popular stocks. Traders that are bearish on Adobe may see this "premium" price as a selling point, as any miss from Adobe on this earnings call could send the stock lower.
Tune in to Options Trading Concepts Live at 11. a.m. CDT on Thursday, March 14, ahead of the earnings call for an in-depth look at options strategies.
Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb
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