Deutsche Bank cuts Adobe stock rating to Hold, slashes target

EditorAhmed Abdulazez Abdulkadir
Published 01/08/2025, 07:11 AM
© Reuters.
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On Wednesday, Deutsche Bank (ETR:DBKGn) analysts adjusted their stance on Adobe stock (NASDAQ:ADBE), downgrading it from Buy to Hold. Accompanying this change, the price target was significantly reduced to $475.00 from the previous $600.00. The stock currently trades at $422.63, down about 27% over the past year.

According to InvestingPro data, 15 analysts have recently revised their earnings estimates upward for the upcoming period, suggesting mixed sentiment among Wall Street experts. The revision reflects the analysts' anticipation that the stock will likely not see major price movements in the near term until there is clearer evidence of successful monetization of Adobe's AI initiatives.

The analysts expressed a cautious outlook due to the lack of visible financial impact from Adobe's AI product, Firefly. Despite optimistic discussions from Adobe's management about the potential of Firefly, this has not yet translated into tangible benefits in the company's financial performance. However, InvestingPro analysis shows Adobe maintains impressive gross profit margins of 89% and receives a "GOOD" overall Financial Health score, with particularly strong profitability metrics.

Adobe's full-year constant currency net new annualized recurring revenue (CC NNARR) has experienced a deceleration for the third consecutive year in fiscal year 2024. Furthermore, projections for fiscal year 2025 suggest this slowdown might continue.

The report also noted that while Adobe management has pointed out that the second half of fiscal year 2024 showed healthier growth for Creative Cloud than what might be apparent at first glance, the lack of specific details and quantifiable impacts from certain factors make it challenging to gauge the true health of the core Creative segment. These factors include the allocation of revenues from Document Cloud and the timing of Cyber Monday, which fell in the first quarter of fiscal year 2025.

The analysts' decision to downgrade Adobe's stock rating is rooted in the current uncertainties surrounding the company's future performance. With Adobe's management not providing concrete figures to clarify the effects of these variables, as well as the ambiguous outlook for fiscal year 2025, there is limited confidence in the potential positive contributions from Firefly to Adobe's overall financial health. Based on InvestingPro's Fair Value analysis, Adobe currently appears overvalued, with the stock trading at a high P/E ratio of 33.9x and an elevated EBITDA multiple of 21.4x.

Subscribers can access 16 additional ProTips and comprehensive valuation metrics in the Pro Research Report.

In other recent news, Adobe's earnings and revenue results have prompted several analyst firms to adjust their outlooks and price targets.

Stifel, RBC Capital, Oppenheimer, Piper Sandler, and Mizuho (NYSE:MFG) all reduced their price targets for Adobe, following the company's fiscal year 2025 guidance that fell short of market expectations. Despite the lowered price targets, the firms maintain positive ratings on Adobe, reflecting confidence in the company's long-term prospects.

TD Cowen, however, downgraded Adobe to Hold, citing concerns about the company's 2025 guidance and a decline in Digital Media growth. Despite this, Goldman Sachs and BofA Securities maintained their Buy ratings, albeit with lowered price targets, emphasizing the company's consistent history of meeting or exceeding its guidance and potential growth from improved upsell and cross-sell opportunities.

Adobe's fourth-quarter total revenue was $5.61 billion, surpassing the Street's estimate of $5.37 billion and marking a 10.91% growth over the last twelve months. However, the full-year revenue guidance was lower than expected, prompting the adjustments in outlooks and price targets. The company's shift towards the adoption of artificial intelligence over immediate monetization efforts has also been a focal point in recent analyst notes.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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