The effect of Russia’s withdrawal has proven significant for a Silicon Valley software giant, as real-money columnist Stephen “Sarge” Guilfoyle recently noted.
And the hit to recurring revenue came at a bad time.
The company is Adobe (ADBE) – Get the report from Adobe Inc. and “readers can see that the stock has been mired in a downtrend since its peak last November,” Guilfoyle wrote in a recent real money column. “On the bright side, stocks had been trying to break out of this downtrend channel and had formed a double-dip pattern over the past month with a potential pivot at $479.”
The company faced short-term setbacks, including the
However, the end of sales of its products and services in Russia and Belarus due to the ongoing war in Ukraine prompted Adobe to cut its estimate of annual recurring revenue from the digital media segment by $75 million. While still operating in Ukraine, the company also reduced its estimate of annual recurring revenue from the digital media segment by an additional $12 million. The total reduction of $87 million ARR for the quarter will result in a likely negative revenue impact of $75 million for the year.
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“Let’s face it,” Guilfoyle wrote. “The company told you that the war in Europe is a problem. I don’t like the fundamentals… not to mention the techniques. Even now, ADBE is still trading at 33 times forward earnings.
Adobe’s stock is no longer a value or growth game, he argues.
The software company can boast about its continuous generation of free cash flow. Adobe generated free cash flow of $14.37 per share for the quarter. “While slightly lower than the prior quarter, this number still eclipses what ADBE could produce just a few years ago,” Guilfoyle wrote.
One factor investors shouldn’t ignore is that Adobe’s tangible book value fell into negative territory at -$1.61 per share.
“Adobe has operated with negative tangible book value before, so it’s not that strange,” he wrote. “I just thought the company was past that now.”
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