Adobe’s Stock Drops 19% on Disappointing Forecast

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Shares in Adobe, Inc. dropped like a rock Wednesday following the company’s earnings report on Tuesday. Adobe turned in record results for its third quarter, which ended September 3rd, but guidance below Wall Street forecasts for the 4th quarter got analysts hot and bothered, leading to today’s selloff.

The stock closed at US$26.67, down $6.27 (-19.03%), on very, very heavy volume of 108.7 million shares, 8.5 times average volume.

The company reported record revenue of $990.3 million, and that compares to only $697.5 million in the year ago quarter, a 42% year-over-year jump. Earnings per share came in at $0.44 ($230 million), up 59% over the third quarter of 2009’s EPS of $0.26 ($136 million).

It’s the guidance that will sometimes do a company’s stock in, or at least lead to it taking a hit, and such was the case for Adobe. For though the company had a stellar third quarter, it guided for revenues of $950 million to $1 billion just under current Wall Street estimates of $1.03 billion.

That and worries that CS5 sales aren’t as robust as had been expected lead to UBS, Credit Suisse, and Bank of America all downgrading Adobe to “Neutral.”

Comments

Lee Dronick

“That and worries that CS5 sales aren?t as robust as had been expected”

I have CS4 and hardly a week goes by when I don’t get an email from Adobe offering a 10% discount to upgrade. There some nice features in the new software, but not enough to compel me to upgrade at this time.

rjackb

Adobe’s prices for their products have become so ridiculous that I’m sticking with the CS3 version of the suite that I have. No wonder why their CS5 sales are off.

Flufflesworth

I agree with rjackb and will predict that business classes will talk about Adobe’ implosion in the future; much like Microsoft’s. They keep upping the price of the Creative Suite while delivering software that may have more features but is poorly designed and buggy. Photoshop used to be the paradigm of stability back when it as only on the Mac. We are a long way from then and a lot of corporate middlemen as well.

geoduck

So. Adobe had a fantastic quarter and predicted that it will do nearly as well next quarter, possibly even better. Certainly far better than a year ago. But because some “analyst” on wall street threw a dart at a board and said Adobe should bring in $1.03bn (as opposed to Adobe’s prediction of up to $1.00bn) Adobe’s stock tanks.

Yeah that makes sense.
/sarcasm

Gareth Harris

If you try to milk the cow too hard, she just dries up. Adobe has done little but milk the cow for about ten years now. Problems with Flash are just the tip of the iceberg. I quit up upgrading my Adobe products long ago. Not only their product line but also their management needs an overhaul.

geoduck

Not only their product line but also their management needs an overhaul.

Wait… are we still talking about Adobe or have we moved on to Microsoft?

Lee Dronick

Adobe?s prices for their products have become so ridiculous that I?m sticking with the CS3 version of the suite that I have.

When I got an Intel iMac several of my CS2 apps had problems and that is the primary reason I upgraded to CS4. I jumped over CS3 and went right to CS4. In the interim I delivered several page layout jobs that I created using Pages and I believe that with a little work that program could be an InDesign killer.

aardman

I have CS1 and there is not that much new in Photoshop to compel me to upgrade to the latest version.  I can’t help the feeling that I’m just being ripped off if I upgrade.  The only reason Adobe is able to charge ridiculously high prices is because Photoshop is the corporate/industry standard.  That company has stopped innovating years ago.

geoduck

The only reason Adobe is able to charge ridiculously high prices is because Photoshop is the corporate/industry standard.?

It’s an interesting parellel between Adobe and Microsoft. Both have come to see themselves as “the industry standard”. As such they no longer feel they have to worry about sales. Customers were locked into every upgrade they put out there no mattrer the price.

Well MS has discovered that it’s biggest competition is older versions of it’s software. Vista lost out to XP. Win7 is in a mighty struggle to get people to upgrade before they buy new hardware. Where I work we see no reason to move off our Win Server 2003 systems or XP desktops. They do what we need and the money can be better used elsewhere.

There are also options when we do need to go to something new. OpenOffice has nearly replaced MS Office in our company. We are looking at using more and more Linux, currently for servers and also for particular types of terminals and kiosks. We used to use a large MS package for our payroll system. When it came time to go to upgrade it, they decided to go to a different company that provides better support.

Similarly our company web site used to be all Adobe all the time. We have an older version of CS but see no reason to upgrade. Our preliminary discussions about the future have boiled down to these options: Stick with what we have for as long as the technology allows. Roll our sites over to open standards (HTML5) and go to open source (non Adobe) tools. Hunt down a more up to date package from someone else (possibly open source) that does what our version of CS does, (we already are only using a fraction of the functions of the CS we have). Only if none of those work out AND a very strong case can be made for why the upgrade is essential will the company consider purchasing the latest Adobe CS. If my company is typical then Adobe could be headed for some very hard times ahead.

Both Adobe and Microsoft got complacent. They took their position, and more importantly the customers for granted. Some may think that Apple is going that way too. I don’t see it. There is a difference between a hungry company that is aggressively trying to make the best stuff they can and beat the competition and a company that assumes they do make the best and have already won. Apple may be arrogant at times, but it’s not complacent.

WonkoTheSane

Apple famously pulled the rug out from beneath the Adobe CS5 launch which would otherwise have seen Flash programmers (at least) queuing up to buy a CS5 collection. Adobe are on a very long development cycle to fully integrate the Macromedia tools with Adobe tools, etc. while levering in features to support emerging standards like HTML5. The price tag might be steep, but for full-time media and interactive web developers that cost can be quickly recouped either in time saving features, or new features such as multi-touch support which clients demand. So yes, don’t upgrade from software that serves your needs, and always wait a few months for the worst bugs to be ironed out, but now Apple has overturned Steve Jobs personal vendetta regarding Flash generated content for iOS there is good reason to have another look at CS5.

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