Adobe stock price had a rough year as it became one of the worst-performing technology companies. ADBE plunged to a low of $445, its lowest level since July 2023, and 30% below its highest level this year. So, what next for the stock?
Adobe’s growth momentum has eased
Adobe is one of the best players in the technology industry, offering multiple design and marketing solutions. While it is best known for its Photoshop product, it has other key solutions like Illustrator, Lightroom, Firefly, and Premier Pro.
Adobe is also one of the biggest companies in documents solutions through its PDF business. It has also evolved into one of the biggest players in the marketing industry, offering solutions like Adobe Commerce, Marketo, and Workfront.
Adobe’s business has gone through a rough patch this year as competition in its key segments intensified. Most of this competition comes from companies like Canva and Figma, which have attained valuations of $50 billion and $12.5 billion, respectively.
The most recent results showed that Adobe’s revenue rose by 11% in the fourth quarter to $5.6 billion, bringing its annual figure to over $21.5 billion. That was a strong performance since it has almost doubled its revenue from $12.8 billion in 2019.
The digital media segment had $4.15 billion in revenue, while the new digital media and digital experience segments made $578 million and $1.40 billion, respectively.
ADBE is still doing well
While Adobe’s financial results missed analysts’ estimates, it is still a solid company that performed fairly well in the last financial year.
Its annual revenue rose by 11%, while its operating income was over $10.02 bullion. Non-GAAP net income rose to over $8.28 billion.
Analysts expect that Adobe’s business will continue doing well this year, with the average revenue estimate being $23.56 billion. That figure will represent a year-on-year growth rate of 9.44%, a fairly good number for a company that has been around for decades.
Adobe will cross the $25 billion revenue figure in 2026, when it is expected to make $25.9 billion. The company’s revenue for that year may even get to $26 billion since it has a long record of doing better than estimates.
Adobe’s valuation has also come down downwards in the past few years. Its forward non-GAAP P/E ratio was 21.9, slightly higher than the sector median of 25.50 but lower than the five-year average of 35. Adobe’s forward GAAP P/E ratio of 28 is lower than the sector median of 31 and the five-year average of 45.
These valuation metrics happened as the stock continued moving downwards in 2024, in what I believe is a reset.
Still, Adobe’s rule of 40 metrics of 37 means that, to some extent, the company needs to strike a balance between growth and profitability.
Adobe is also returning billions of dollars to investors through share buybacks. As a result, its outstanding shares have fallen from over 483 million in 2020 to 445 million today, a trend that will continue.
Adobe stock price analysis
ADBE chart by TradingView
The daily chart shows that the ADBE share price has been in a strong downtrend in 2024, making it one of the worst-performing mega-cap companies. It recently dropped below the support at $474, its lowest swing on November 1.
The stock has moved below the 200-day and 50-day MA. A closer look shows that it has found support at $433, which was its lowest point on March 31st.
Adobe has also moved below the 50% Fibonacci Retracement level. Therefore, the path of the least resistance for the stock is lower, with the next level to watch being at $400. This view will be confirmed when it drops below $433. Adobe stock will then rebound in 2025 since all it needs is to report a strong quarter.
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