Adobe Q4 Earnings Loom: Buy, Sell or Hold the Stock Ahead of Results?

Adobe ADBE is set to report fourth-quarter fiscal 2025 results on Dec. 10.For fourth-quarter fiscal 2025, Adobe projects total revenues between $6.075 billion and $6.125 billion. The company expects non-GAAP earnings between $5.35 and $5.40 per share.The Zacks Consensus Estimate for revenues is pegged at $5.39 billion, suggesting growth of 12.06% from the year-ago quarter’s reported figure. The consensus mark for earnings has been unchanged at $5.39 per share over the past 30 days, indicating 12.06% growth from the figure reported in the year-ago quarter.ADBE’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average earnings surprise being 2.54%.Adobe Inc. Price and EPS Surprise  Adobe Inc. price-eps-surprise | Adobe Inc. QuoteLet us see how things have shaped up for ADBE stock prior to this announcement.Factors to Note Prior to ADBE’s Q3 EarningsAdobe faces stiff competition in the AI and Generative AI (GenAI) space from the likes of Microsoft MSFT-backed OpenAI, Alphabet GOOGL, Salesforce CRM, Midjourney, Canva and others. This, along with a challenging macroeconomic environment, has been a headwind for Adobe’s prospects.However, Adobe’s strategy to infuse AI across its applications targeting both Creative and Marketing Professionals Group, as well as Business Professionals and Consumers Group segments, is expected to have driven top-line growth in the to-be-reported quarter. For the fourth quarter of fiscal 2025, Adobe expects Digital Media segment revenues between $4.53 billion and $4.56 billion. Digital Experience segment revenues are anticipated to be $1.495-$1.515 billion. The Creative Professionals business has been benefiting from increasing demand and use of AI in Photoshop, Premiere Pro and Illustrator as part of the new Creative Cloud Pro offering. The addition of Firefly and third-party models in Creative Cloud Applications is driving Gen AI usage. The Marketing professionals’ business benefits from the strong demand for Adobe Experience Platform and native applications. The integrated GenStudio solution exceeded $1 billion in annual recurring revenues and grew more than 25% year over year in the third quarter of fiscal 2025. The momentum is expected to have continued in the to-be-reported quarter. Infusion of AI into Adobe Experience Manager (AEM) and the launch of Adobe LLM optimizer for Generative Engine Optimization are expected to have strengthened Adobe’s footprint among marketers. Launch of Adobe Studio that includes PDF Spaces, AI Assistant and integrated Express is expected to have driven ADBE’s footprint among Business Professionals and Consumers Group. Rapid adoption of Adobe Express has been a key catalyst. AI-influenced ARR surpassed $5 billion in the third quarter of fiscal 2025 and the momentum is expected to have continued in the fourth quarter of fiscal 2025.ADBE Shares Underperform Sector, IndustryAdobe shares have declined 40.5% in a year, underperforming the broader Zacks Computer and Technology sector’s return of 25% and the Zacks Computer Software industry’s appreciation of 1.1%. Adobe shares have underperformed Microsoft, Alphabet and Salesforce. Over the same time frame, Microsoft and Alphabet have returned 8.4% and 81.8%, while Salesforce shares have dropped 31.6%.Adobe Stock’s Performance Image Source: Zacks Investment Research The ADBE stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.In terms of the forward 12-month price/book, Adobe’s shares are trading at 11.69X, higher than the sector’s 10.7X, Microsoft’s 9.84X, Alphabet’s 9.91X and Salesforce’s 3.84X.Adobe Stock’s Valuation Image Source: Zacks Investment Research Can a Strong Portfolio Boost ADBE’s Prospects?An expanding AI-powered portfolio bodes well for Adobe. The latest Adobe Firefly Foundry solution enables businesses to create tailored generative AI models that are unique to their brand. Adobe Firefly Foundry models can support all major asset types, including image, video, audio, vector and 3D. The availability of AI agents, powered by the AEP Agent Orchestrator, is helping businesses to manage and customize agents from Adobe and across third-party ecosystems.The Semrush acquisition will boost Adobe’s expanding portfolio of AI-driven customer experience solutions, including AEM, Adobe Analytics and Adobe Brand Concierge. Semrush brings more than a decade of search engine optimization expertise and GEO capabilities that will help Adobe customers improve their brand visibility and expand audience reach.However, Adobe’s AI business is minuscule compared with the likes of Microsoft, Alphabet and Salesforce. Microsoft’s Intelligent Cloud revenues are benefiting from growth in Azure AI services and a rise in the AI Copilot business. Alphabet’s focus on infusing AI heavily across its offerings, including Search and Google Cloud, has been a major growth driver. Salesforce’s strategy of continuous expansion of Gen AI offerings is helping it tap growth opportunities.ConclusionAdobe’s prospects benefit from strong demand for its creative products. However, Adobe is suffering from increasing competition in the GenAI space. A stretched valuation is concerning.Adobe currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable time to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Quantum Computing Stocks Set To SoarArtificial intelligence has already reshaped the investment landscape, and its convergence with quantum computing could lead to the most significant wealth-building opportunities of our time.Today, you have a chance to position your portfolio at the forefront of this technological revolution. In our urgent special report, Beyond AI: The Quantum Leap in Computing Power, you'll discover the little-known stocks we believe will win the quantum computing race and deliver massive gains to early investors.Access the Report Free Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT): Free Stock Analysis Report Salesforce Inc. (CRM): Free Stock Analysis Report Adobe Inc. (ADBE): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks