What happened
Photoshop and Adobe Premiere maker Adobe (ADBE 0.06%) reported first-quarter results on Tuesday evening, sparking a sharp correction. The stock fell as much as 10.4% on Wednesday morning, recovering slightly to a 9.5% decline as of 1:35 p.m. ET.
Image source: Getty Images.
So what
In the first quarter of fiscal year 2022, Adobe's top-line sales rose 9% year over year to $4.26 billion. Adjusted earnings landed at $3.37 per diluted share, 5% above the year-ago period's result. Your average analyst would have settled for earnings near $3.34 per share on revenue in the neighborhood of $4.24 billion, so Adobe exceeded the Street's Q1 expectations across the board.
However, Adobe's management issued Q2 guidance below the current analyst consensus. Due to the Russian invasion of Ukraine, Adobe doesn't expect any new sales to Russia and its ally Belarus until further notice. The company is also not collecting subscription fees in these three markets. Ukrainian customers continue to have access to the Creative Cloud and other cloud-based products, while clients in Russia and Belarus have seen their access to the software-as-a-service (SaaS) tools blocked. Adobe's full-year sales are taking a $75 million hit from these adjustments.
Now what
Beyond the geopolitical conflict, Adobe's business is firing on every cylinder. Tools for digital media production and document management systems are in high demand worldwide and across many different industries. Therefore, despite the war-based revenue reductions, Adobe's guidance points to double-digit sales growth in every category and a 13% year-over-year boost to the top line.
While the human toll from the war in Ukraine is terrible, the financial impact on Adobe's projected results is less than 0.5% of Adobe's annual sales.
Adobe's stock is trading near 52-week lows, nearly 40% below November's all-time highs. Shares are changing hands at the lowest price-to-sales (P/S) and price-to-earnings (P/E) multiples seen in several years, and the price drop looks like an overreaction.
