Adobe needs to demonstrate competitive positioning to silence bears: analysts

Adobe (NASDAQ:ADBE) needs to demonstrate competitive positioning and show growth with its generative artificial intelligence offerings when it releases its second quarter fiscal 2025 financial results on Thursday, according to analysts.

“Investor concerns on Adobe’s long-term competitive positioning and near-term GenAI contribution continue to weigh on shares, which underperformed large-cap software peers by ~15 percentage points over the last three months,” said Morgan Stanley analysts, led by Keith Weiss, in a Tuesday investor note.

Morgan Stanley said the low expectations paired with the potential for net new annual recurring revenue in Adobe’s Digital Media segment creates a compelling risk versus reward scenario. The investment firm rates Adobe at Overweight with a $510 price target.

“Success in the new strategy to push innovation at the high-end of the portfolio and monetize via price likely proves central to bending the growth curve more positively,” Weiss said. “Meanwhile, being more nimble on pricing down-market as the competitive landscape becomes increasingly crowded provides defense to potential leaks in the growth bucket.”

Meanwhile, Jefferies said Adobe’s 7% price increase to Creative Cloud should limit downside during the full fiscal year 2025 and provide upside during fiscal 2026.

“The recently announced price increases for CC renewals starting June 17th should help neutralize the headwind of lapping Nov. ’23 price increases in 2H25,” said Jefferies analysts, led by Brent Thill, in a note. “We also note that it can provide upsides to FY26 est.”

“Based on prior disclosed mix of CC ARR during FY24 investor day, we est. the pricing change can contribute 1-2ppts of tailwind for FY25 DM ARR,” Thill added. “Additionally, FX should be a tailwind to stated revenue (we est. ~1ppt of benefit vs current guidance of ~1ppt headwind), though the market would typically focus on ex-FX growth.”

Jefferies maintains a Buy rating and hefty $590 price target heading into second quarter earnings.

Adobe plans to release its second quarter results post-market on Tuesday. A consensus estimate calls for adjusted earnings per share of $4.97 and GAAP EPS of $3.87. The estimate calls for revenue of $5.8B.

For the first quarter, Adobe reported adjusted EPS of $5.08 and revenue of $5.71B.

Adobe shares have declined 6.4% year to date. In comparison, the iShares Expanded Tech-Software Sector ETF (BATS:IGV) has increased 6% over the same time frame.