The Bear and Bull Case for Adobe Stock in 2024

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The Bear and Bull Case for

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Stock in 2024

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(NASDAQ:) keeps following through with a consistent AI rollout. Will this be sufficient to fortify investor confidence?

On Thursday, March 14th, at 2 PM Pacific Time,

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(NASDAQ: ADBE) is scheduled to report Q1 2024 earnings. Following the announcement of the Sora text-to-video model from OpenAI, ADBE stock took an 11% ***** in the last 30 days.

However, long-term ADBE holders have done well, as ADBE shares gained 72% of value over a one-year *******. Based on a Zacks Investment Research forecast of 11 analysts, the consensus for

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’s earnings per share (EPS) is $3.57 vs. the reported $2.97 in the year-ago quarter.

In the last Q4 ‘23 quarter,

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beat the estimated EPS of $3.32 at $3.52. In terms of forecasted revenue growth, the company should track at least a 10.5% year-over-year increase to instill investor confidence, from last quarter’s $5.048 billion to forecasted $5.14 billion.

So far,

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has beaten EPS estimates for the last three consecutive quarters. But does the company have what it takes to compete with the next generation of generative AI?

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’s Business Model Examined

Similar to OpenAI,

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generates revenue from recurrent subscription streams. With the launch of

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Creative Cloud in July 2013, the company transitioned from a licensing model to a software-as-a-service (SaaS) model. This left the company with two main divisions: Digital Media and Digital Experience.

By September 2020,

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phased out its advertising Cloud segment’s managed service ad network. At the time,

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CEO Shantanu Narayen called the process a necessary transition toward eliminating “all the inefficiencies” and moving to “profitable growth as we invest in the Digital Experience business.”

In the last Q4 2023 report, the company placed a $3.35 – $3.40 earnings per share target for Q1 2024. The target for the Digital Experience segment revenue was $1.27 – $1.29 billion, while the target for the Digital Media segment revenue was $3.77 – $3.80 billion. The target for

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’s total revenue in Q1 ‘24 was set within the forecasted $5.14 billion, at $5.10 – $5.15 billion.

Overall,

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’s transition to a subscription-based SaaS model was highly successful, having generated an operating cash flow of $7.30 billion in FY23. Although not as high as $7.84 billion in 2022, it points to

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’s strong core business model, leaving the company with plenty of financial flexibility to pursue research and development.

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’s AI Rollout

Much like Nvidia (NASDAQ:) dominates the data center market share for generative AI,

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cornered the global graphics software with three main products:

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Photoshop (41.74%),

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InDesign (26.13%) and

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Illustrator (12.25%).

In September 2023, the company rolled out its Firefly suite of generative AI models, integrating across

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Creative Cloud. One of the groundbreaking features is Generative Fill and Generative Expand in Photoshop. By simply typing words and marking a certain area, users can seamlessly swap objects within an image, drastically increasing productivity and breaking down barriers to entry.

Likewise,

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AI-boosted Illustrator with Generative Recolor, cutting down repetitive and tedious tasks. In February 2024,

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announced another milestone, conversational AI Assistant for Reader and Acrobat. Still, in beta, users can access an add-on subscription plan to instantly generate document summaries, navigation, intelligent citations, and insights.

The AI Assistant generates questions and answers via the conversational interface based on the document’s content. This is a massive breakthrough for mainstreaming AI because PDF has become a document standard. Moreover,

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’s new internally integrated AI Assistant will also be able to digest Word and PowerPoint documents.

Does OpenAI’s Sora Threaten

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?

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Premiere has been the company’s long-standing suite for professional video editing, including motion graphics with templates. Sora’s text-to-video generation represents another barrier to entry demolition, as users’ skills are contained to their imagination, depicted by words.

However, such generative services suffer inherently from a lack of control. Just as with generative AI images, users have to go through hundreds of iterations to find the match they had envisioned. More often than not, their vision is curtailed by the AI model’s training set and intentionally set limits for “AI safety,” as demonstrated by the

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(NASDAQ:) Gemini debacle.

Considering

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’s AI integration so far, it is safe to say that the company is likely to bring an AI video generative capability, one that will bridge the gap between content randomness and fine control.

What is the

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Stock Price Target?

Based on 33 analyst inputs pulled by Nasdaq, the average ADBE price target is $647.83 vs. the current $558, suggesting a 16% valuation rise twelve months ahead. The high estimate is $705, while the low forecast is $465 per share.

In 2023,

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repurchased 11.5 million shares, returning $1 billion in quarterly shareholder value. After terminating the $20 billion merger deal with competitor Figma in December,

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has been left with ~$6 billion in cash for AI expansion and stock buybacks into 2024.

In the long term, Figma’s competitive products could reduce

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’s market share, especially after the launch of FigJam AI in November. At the same time, users are typically reluctant to switch to new work environments, making Figma’s growth parallel to

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’s the most likely scenario.

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our

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prior to making financial decisions.

***

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