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.
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.
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.
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