Why Is Adobe Stock Down Today?

Adobe (NASDAQ: ADBE) experienced its second-largest stock drop in a decade yesterday following the issuance of an underwhelming outlook for 2022. The software company plummeted by over 10%, only being outdone by a 15% drop in March of last year following a COVID-19 induced stock fire sale. 

This leaves the firm down almost 16% for the month of December, putting it on course to have its worst single-month decline in over ten years.

Why has the stock dropped?

Despite meeting analyst expectations for fourth-quarter earnings, Adobe reported a relatively bleak 2022 outlook. The company is predicting adjusted earnings per share (EPS) of $3.35 on sales of $4.23 billion for the fiscal first quarter of 2022. Analysts, however, were expecting loftier numbers, projecting the company to earn $3.39 per share on sales of $4.33 billion.

When expanding out to the entire year, the company's outlook still comes in below expectations. Adobe's prediction of full-year sales of $17.9 billion lags behind the analyst consensus of $18.16 billion. The key reasons behind these conservative estimates seem to be the current levels of inflation and concerns surrounding rising interest rates.

So is Adobe still a solid investment?

It's important to remember to examine the wider market when analyzing Adobe's current troubles. Concerns around inflation and interest rates will typically push investors away from high-growth stocks and towards perceivably safer assets.

Nothing has changed regarding Adobe's underlying value to investors. It still offers market-leading software in an industry that will continue to expand. The firm expects a total addressable market of roughly $205 billion by 2024, which is far from insignificant.

Volatility is to be expected for growth stocks, even more so when taking into account the ever-looming shadow of the COVID-19 pandemic on the market. By investing long-term in a company you believe in, you're able to mitigate these periods of uncertainty and volatility and come out the other side a winner. Adobe looks set to continue to be a leading innovator in the digital space for years to come, one bad month won't change that.