adobe stock dives after Q2 2022 earnings

The price of Adobe stock is declining in pre-market stock trading action following the release of the firm’s financial results covering the second quarter of the 2022 fiscal year as guidance was a bit softer than expected.

For the three months ended on 3 June, the software developer reported total revenues of $4.39 billion resulting in a 15% year-on-year jump on a constant currency basis. Analysts were expecting revenues of $4.35 billion for the period.

The Digital Media segment – the largest for Adobe – experienced a 16% year-on-year increase including the impact of FX rates while revenues for the Digital Experience segment rose 18% as well at $1.1 billion.

GAAP operating income by the end of the quarter stood at $1.53 billion resulting in a $123 million jump compared to a year ago. However, operating margins declined 160 basis points to 34.9%.

Finally, GAAP and non-GAAP earnings per share stood at $2.49 and $3.35 respectively. These adjusted earnings came in 4 cents lower than analysts’ consensus estimate for the period.

“FX Headwinds” and Q3 Seasonality Drive Softer Guidance

adobe 2022 guidance

Guidance for both the next quarter and full 2022 fiscal year came in below estimates with revenues expected to end the year at $17.65 billion while adjusted EPS is forecasted to land at $3.3 per share.

The company cited that its decision to stop offering its services in Russia impacted its top-line performance by around $75 million while the management also highlighted some FX-related headwinds that may cause a $175 million drop in revenues in Q3 and Q4.

In terms of its balance sheet, Adobe reported cash, equivalents, and marketable securities of $5.3 billion by the end of the quarter while the firm generated $2.04 billion in operating cash flows and around $1.91 in free cash flows after excluding $126 million in capital expenditures.

Adobe’s long-term debt by the end of the quarter stood at $3.63 billion not including lease liabilities while total assets ended at $26.33 billion including $14.45 billion in goodwill and intangibles.

Adobe Plans to Launch a Free Web-Based Version of Photoshop

Adobe is reportedly planning to launch a free web-based test version of Photoshop soon to attract more users to the software.

Canadian users will be the first to give this beta version a try with the company planning to adopt a “freemium” model in which some features may only be accessible if the user subscribes to the service.

Photoshop is typically viewed by non-creatives as a complex tool that requires strong hardware to be comfortably used. The software developer would be choosing to make Photoshop more accessible via this web-based version to increase awareness and attract more users to the entire ecosystem of solutions it provides for video editing and other similar tasks.

Adobe Stock in Deep Red as Bear Market Hits Tech Stocks the Hardest

The price of Adobe stock has declined 37.2% so far this year as tech stocks have been hit hard by a shift in macroeconomic conditions in the United States.

Elevated inflation readings have prompted the Federal Reserve to take some drastic measures lately including a 75 basis points hike to its benchmark interest rate. Market participants have reacted negatively as they believe that these measures may be opening the door for a recession.

The 31% year-to-date decline in the tech-heavy Nasdaq 100 index illustrates how the tech sector has been one of the most heavily battered as its negative performance exceeds that of the more diversified S&P 500, which is shedding 23% of its value during that same period.

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