Adobe shares are trading lower after-hours: here’s why

Adobe Inc (NASDAQ: ADBE) reported its financial results for the third quarter on Tuesday that beat Wall Street estimates. Shares of the company, however, fell about 4.0% in after-hours trading as investors focused on recurring revenue that barely topped expectations.

Financial performance

Adobe said its net income in the third quarter printed at $1.21 billion that translates to $2.52 per share. In the comparable quarter last year, its net income was capped at $955 million or $1.97 per share.

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On an adjusted basis, the American multinational earned $3.11 per share versus the year-ago figure of $2.57. Adobe generated $3.94 billion in revenue – an increase from $3.23 billion last year, as per the earnings press release.

According to FactSet, experts had forecast the company to post $3.01 of per-share earnings on $3.89 billion in revenue.

Annual recurring revenue

Annual recurring revenue came in at $11.67 billion for digital media, $9.87 billion for Adobe’s creative segment, and $1.79 billion for its cloud segment. In comparison, analysts had called for $11.65 billion, $9.86 billion, and $1.79 billion in ARR from the three segments, respectively.

Last week, Adobe jumped into eCommerce payments to deepen its rivalry with Shopify.

Future outlook

For the fiscal fourth quarter, Adobe raised its forecast to about $3.18 of adjusted EPS on $4.07 billion in revenue. This compares to the FactSet consensus of $3.08 of per-share earnings on an adjusted basis and $4.04 billion in revenue.

Earlier this year, Walmart partnered with Adobe to sell its marketplace software to other retailers.

CEO Shantanu Narayen’s remarks

Commenting on the financial update, CEO Shantanu Narayen said:

Adobe had another outstanding quarter as Creative Cloud, Document Cloud, and Experience Cloud continue to transform storytelling, learning and conducting business in a digital-first world.

The $308 billion company now has a price to earnings ratio of 55.83.