Adobe Earnings Preview — $30 Stock Price Move Expected

Will the company avoid another disappointment like the sell-off that occurred after last quarter’s strong report?

• Adobe is scheduled to report quarterly earnings after the market closes Thursday.
• The company is expected to announce earnings-per-share of $4.97 on $5.66 billion in revenue.
• Last quarter, its stock crashed over 13% after earnings.
• The executive team will look to right the ship on Thursday, with AI initiatives in focus.

Last quarter, Adobe (ADBE)released a strong earnings report, beating earnings-per-share (EPS) and revenue estimates. But the company’s stock sold off over 13% the following trading day. This quarter, Adobe is expected to announce EPS of $4.97 on $5.66 billion in revenue. If it can post another strong quarter, it will be interesting to see if the market digests it positively or negatively. The stock price opened the year at $447.76, and it currently sits around $418 per share, down over 6% on the year. With that said, the stock has recovered mightily from the low print of $332.01 realized in April.

Many believe the stock sold off last quarter after strong earnings because AI initiatives were slipping and because Adobe may be losing out to competitors. Those sentiments certainly didn’t arise from commentary by the executive team after the earnings announcement in March.

An fact, Adobe CEO Shantanu Narayen praised the company and expressed optimism about its future last quarter: “Adobe’s success over the next decade will be driven by customer-focused innovation and new offerings for creators, marketing professionals, business professionals and consumers ... Adobe is well-positioned to capitalize on the acceleration of the creative economy driven by AI and we are reaffirming our FY2025 financial targets.”

Dan Durn, CFO of Adobe, had similar thoughts: “Our continued innovation and diversified go-to-market strategy drove a record Q1, with new AI-first standalone and add-on innovations exiting the quarter with over $125 million ending ARR book of business...Our customer- focused strategy, leading product portfolio and strong cash flow position us for sustainable long-term growth and increased market share.”

As it stands, ADBE stock is right in the middle of the trading range for the year. It's recovered well from the low, but Adobe has another hill to climb in the earnings report coming out Thursday.

Looking at the implied volatility of the options market can help us put context around this upcoming binary event. We're looking at a +/- $29.97 stock price range based on current implied volatility for this week. This is about 7% of the notional value of the stock price, which is a decent implied volatility level for a tech giant like Adobe.

Looking to the September options cycle over 100 days out, we see a +/-$ 59.94 implied range. This is even more telling because this week's implied range makes up 50% of the expected range for the next 100 days. The market is placing a large weight on this earnings announcement and we should expect to see some choppy moves after the earnings call.

Bullish on Adobe stock for earnings

If you're bullish on Adobe for earnings, you want to see a strong earnings report and strong guidance for the rest of the year. If investors and traders sold Adobe stock after the last earnings call in fear of losing AI traction to competitors, you'll want to hear more positivity in that regard from the executive team this time around.

Bearish on Adobe stock for earnings

If you're bearish on Adobe stock for earnings, you want to see an earnings miss and weak guidance. This could send the stock price back to the lower end of the trading range for the year, especially since it's had such a strong climb back from lows over the past month.

Tune in to Options Trading Concepts Live on Thursday at 11 a.m CDT for a deeper look at Adobe earnings options strategies ahead of the announcement after the close.

Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb  

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