What Investors Should Make of Adobe's Announcement About Russia and Belarus

Offering guidance to Wall Street analysts can be a tricky proposition. There are downsides to being either too vague or too specific. 

In this podcast, Motley Fool analyst Tim Beyers discusses:

• Adobe's (ADBE 0.87%) first-quarter results and the $75 million hit to its business in Russia and Belarus.
• How worried Okta's (OKTA -0.69%) corporate customers should be.
• Why no one should expect Okta's public communications on its recent security breach to be highly detailed.

Motley Fool producer Ricky Mulvey talks with Alicia Hammond, a user-experience researcher at The Motley Fool and a psychology instructor at Cuesta College, about the psychological forces that encourage you to sell and some actionable ways to make calmer, better decisions about your money.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on March 23, 2022.

Chris Hill: If you are a Star Trek fan, you know, Captain Kirk doesn't believe in no-win situations. It's a good thing he's not the CEO of Adobe. If you'd like the explanation to what I just said, it's straight ahead. Motley Fool Money starts now. I'm Chris Hill, joined by Motley Fool Senior Analyst Tim Beyers. Thanks for being here.

Tim Beyers: Thanks for having me, Chris, fully caffeinated, ready to go.

Chris Hill: Same. I want to start with Adobe because there are things about Adobe today that I think we're going to be seeing and hearing from other companies. Let me be more specific. They came out with their first-quarter earnings report. On the surface, things look good, Adobe's revenue was a little higher than expected, so were their profits. Here's the part that I think we're going to be hearing more from other companies. They cut their forecast because they are expecting a hit to their business, specifically, their business in Russia and Belarus. Shares of Adobe are down eight, nine percent today, this is on a day when a decent number of Nasdaq stocks are down and so on. I say this as a shareholder, I'm not reading too much into the stock movement today. How much should I be reading into what they're saying about Russia and Belarus? How big a hit to their business do we think this is?

Tim Beyers: It's not that big. I mean, let's be clear. They're talking about a $75 million hit to their business. This is from the call, they said they've ceased sales in Russia and Belarus and this is for all new sales. It shouldn't have much of an impact on digital media. They say the impact on the digital experience side of their business is de minimis. But digital media annual recurring revenue of 75 million, that is the existing business in Russia and Belarus for that side of their business, that's going away. They also say there is a $12 million hit in other parts of their business. Total about 87 million. Remember, this is a massive company that generates billions upon billions of dollars of revenue. It's material enough that they mentioned it during the earnings call, Chris. It's not so material that you should think that this changes the thesis for Adobe. What I will say is, I think the thing that really got maybe the market spooked and analyst did not like is Adobe did give guidance for the second quarter of fiscal 2022, but then said, no guidance for the fiscal year. They're not doing that. You could see the analyst pampering management with questions about this, trying to get around it, talking about margins, trying to suss out anything having to do with figuring out what the full-year might look like. As we know, when the market doesn't get clear answers, that's when things start to get wonky and investors start to sell here. I think it's a little bit of an overreaction to be perfectly honest here, but you are right, this is the first time we've seen something where we've seen in Russia and Belarus and a number and I think that's the thing that's important. There's a big difference between like there's a lot of heartbreaking uncertainty in Ukraine and we have ceased our business in Russia and Belarus and then no number. This is yes all of those things and we're giving you a number and that feels different new. I think that spooked some people, Chris.

Chris Hill: It sounds like it did and to go back to our theme I felt a number of times nobody is getting the benefit of the doubt. You can look at Adobe's management team, it seems overdramatic to say it was a no-win situation. But if they come out and they say we're going to take a hit, but we're not going to give the $75 million figure, they don't get any credit for that. When they do, then it's like well, you gave us that number, why won't you give us a number for the full year?

Tim Beyers: Exactly. I don't think you're wrong. I don't think it's wrong to say that this is a little bit of a no-win situation. I'm going to say I applaud Adobe's management for being a little bit conservative here because the Street always likes when management gives guidance, but as Fools, we tend to say this a lot. We like it when management sticks its thumb in the eye of Wall Street and says like look, we don't know everything yet, and so we're not going to give you clear guidance on this, and you know what, that's actually better. We want them focused on the business. Tell me what you can tell me, but don't make something up because you're trying to satisfy me and that feels like what this is. For clarity's sake, just to be on what maybe did give the Street some pause. For the fiscal second quarter, Adobe gave guidance of $3.30 per share, Street's looking for 3.35. On a revenue basis, gives guidance 4.34 billion, Street's looking for over 4.4. That in and of itself is probably a little bit wonky, Street doesn't like to see that, you couple it with some uncertainty in the comments about Russia and Belarus and ceasing business in those regions. I think that adds up to something. But Chris, I think you're right, this feels like Adobe being very conservative, appropriately conservative in my view, and getting like, well, you didn't give us enough. We're going to sell your style. It does feel a little bit like a no-win, I'm going with you. I think it feels like a no-win situation. I agree with you.

Chris Hill: For context, it's a $220 billion software company. They're profitable. This is not some of the companies that we've seen taking a hit recently.

Tim Beyers: Right. Let's be clear. The segment we're talking about where there was an $87 million hit, which is digital media, let's be clear about what we're actually talking about. The digital media segment in the fiscal first-quarter reported revenue, just in that segment of 3.11 billion. That's nine percent year-over-year growth. I think that's pretty good, Chris.

Chris Hill: That seems pretty good. I want to go back to Okta. I know Asit and Auri talked about Okta yesterday, but I wanted to discuss this with you. This is the ID management and authentication software company. If you didn't catch yesterday's show, they had a security breach, and how big and impactful the security breach was, appears to be a little bit up for grabs at the moment because a group posted pictures online saying they hacked Okta. Okta's management says, "We've investigated, we found no evidence of ongoing malicious activity." They've got 15,000 customers, and by the way, one of them is the company you and I worked for. Before I talk to the people that our company is responsible for cybersecurity, I'm going to ask you, generally, if you're a customer of Okta, aren't you reaching out to them? I'm like, aren't they getting calls and emails from all of their customers saying, "Okay, I know what you are saying publicly, but I'm not other people. I'm actually paying you money. "

Tim Beyers: Right. They are 100 percent getting calls. I think in some of the response to this. Let's be clear on what Okta does, Okta does what's called single sign-on, SSO, and what signal sign-on means is that you sign into Okta, Okta allows you to sign into other apps. It's a warehouse for passwords, authentication, it's a way to manage authentication, authenticating you to use apps inside say like your company's environment. You work for a company, company has an Okta license, you get orchestrated into your computer, all of your permissions, and a lot of that gets orchestrated through other services. But also Okta, which allows you to do logins across the company network. If Okta gets compromised, the worry is that, well, geez, a lot of other things are going to get compromised. That's very bad. What seems to have happened here, the way Okta described it is that there was a third party in January, it may have been compromised and so this third party, one of our security engineers, Aaron Torgerson says, it sounds like an incident of social engineering. Basically, an attacker tricks someone into giving some credentials that attacker shouldn't have. Then once they do that, then they get in and that may be where the screenshots, where the hacking group called Lapsus$came from. They posted a bunch of screenshots. They're worrying screenshots and then you had some other companies, Chris, like Cloudflare, which is not in the same business, but is a security provider and so the CEO, Matthew Prince, going online, going on Twitter and saying, "We're resetting the Okta credentials of any employees who have changed their passwords in the last four months out of an abundance of caution." Does that not sound bad to you?

Chris Hill: It sounds appropriate to me.

Tim Beyers: It sounds appropriate, but it also sounds like this is a big deal. When the CEO of a security company says something like that publicly, I think that's why Okta felt like, "Okay, we need to respond swiftly." What they've said is, here's what happened in January, looks like an unsuccessful attack. None of our stuff was compromised. But there may be some security holes here, the fact that there was maybe some successful social engineering might reveal some holes here. This is both, I think, a problem of product for Okta. Maybe some things they need to patch up and reaffirm a bit and also a little bit of managing the narrative here as well.

Chris Hill: If they and their customer relations team spend the next few weeks being overly communicative with customers and walking them through how this is not a problem and they keep all those customers and continue to gain more, then everything is fine. I found it interesting that you mentioned the hacking group Lapsus$, I found it interesting that they said they didn't access or steal any databases from Okta, but instead was focused on accessing its customers. Which to me is like, "Tim, I'm going to break into your apartment. I'm not stealing any of your stuff, I'm just breaking into your apartment so I can steal stuff from your neighbor's apartments."

Tim Beyers: Right. Because I know that you have the spare key to your neighbor's apartment, and so because of that, when I steal from your neighbor, they're going to think it's you or whatever. I don't know what the actual intent there is. But the value of Okta is that it has a lot of credential data for a lot of people, which makes it a right target. I think the worry for Okta here if I had to paint the picture, not trying to be bleak here, Chris, but this is the worrying picture. The worrying picture is now that this is out there, we hear, say, three months later, that there has been some compromised data from an Okta customer or maybe multiple Okta customers, and then that is deeply, deeply problematic. If there's a worrying scenario here, it's a little like the Chipotle scenario of years ago, people got sick and then they're like, "Nah, that's OK, it's a one-off thing." Then they're like, "Oh, more people got sick. What's going on here?" Then it became a thing. That's the worry.

Chris Hill: A one-off thing is fine as long as it remains a one-off thing.

Tim Beyers: Exactly.

Chris Hill: If it becomes a two-off thing or a three-off thing, now you got real problems.

Tim Beyers: That's exactly right. The way that Okta communicates to its customers, I don't think publicly, we shouldn't expect to hear this publicly, but for customers, for sure, and if you are an investor and you work at a company that uses Okta, you know what you could do? Talk to your security engineers. "Hey, what is Okta telling you? Are they being really communicative? Have they given us some patches, things to fix things up?" That will tell you a lot about the response of the company because as a security company, the one thing you should expect Okta not to do is to say a lot of things publicly about what it's doing to give information to people who would like to know what those things are. [laughs]

Chris Hill: I'm going to go talk to our security team. Tim Beyers, thanks for being here.

Tim Beyers: Thanks, Chris.

Chris Hill: If you're looking to understand the psychological forces that encourage you to sell or just some actionable ways to make calmer decisions about your money, this next segment is for you. With more, here's Ricky Mulvey.

Ricky Mulvey: Thanks, Chris. We often talk to investors about psychology, but today, we are taking a little bit of a different spin, we're talking to a psychologist about investing. A concept called conformity, why it's a little different than the herd behavior you often hear investment analysts talk about. Joining me now is Alicia Hammond, a user experience researcher at Fool and a psychology instructor at Cuesta College. Alicia, I thought, great, we're going to have a psychologist talk about herd behavior and what that means for you as an investor, but you bristled against that term why?

Alicia Hammond: Well, Ricky, I'll be perfectly honest, I have never heard anybody say the words herd behavior across my 10 years of studying, teaching, and researching psychology. Humans are very social creatures and the term herd behavior is comparing us to animals such as sheep, typically. But let's be honest, there's a huge difference between a human and a sheep just on the most basic level. Our brain ratio to our body is just way bigger, we have much bigger brains and sheep, there's a lot more going on when we make decisions, whether those decisions are conscious or non-conscious. When a psychologist is talking about humans changing their behavior in order to align with a group standard, we're talking about conformity. This is different than herd mentality because conformity encompasses a wider range of human behaviors rather than just changing your mind. Sometimes, we change our behavior because we simply want to gain acceptance by the group, but that's not usually what's happening when we are investing. When we're investing, what we are trying to do is we're trying to gain resources, gain money, and the social resources are not exactly, they don't translate one to one to the emotional resources that we usually think about when we're engaging in a certain type of conformity called normative social influence.

Normative social influence is when we as humans are more interested in gaining acceptance from others. But when we're investing, we're typically engaging in a process called informational social influence. Now, this type of conformity is a little different because we're seeking information from others, we're not just blindly accepting like, "Oh, it's time to sell this stock because everybody else is selling this stock." We are looking at other people and we're seeing that they are changing their behavior and the little voices in our head go, "Oh no, they know something we don't know, they have information that I don't." Instead of just accepting like this is the cool thing to do, informational social influence allows us to leverage the fact that humans have been good sources of information for us generally over the course of our lives. It's not quite the same as just following the herd, it's the other people have information that I don't and I don't want to be left behind.

Ricky Mulvey: Conformity can be beneficial to us as a society. What's outside of investing a real-world example of where you might see conformity in a group of humans?

Alicia Hammond: To be honest, humans are engaging in conformative processes all the time. Let's say you get in your car right now and you go drive to Target. Imagine if you were going to be like, "Oh, I don't want to be a conformist to these norms of driving on the right side of the road." Can you imagine the chaos that, that would create just immediately, like it would be so dangerous. There are so many norms that we adhere to in society because others do because that allows us to live in a social group, to cooperate, to engage in social harmony, and be able to live our lives without having to overthink every decision in order to maintain our own safety.

Ricky Mulvey: There's been some specific research on how conformity affects us as investors. Alicia, what was that research?

Alicia Hammond: A 2021 study out of Zhejiang University had people rate how willing they were to invest in a crowdfunding project and right after they showed them the group's level of interest in investments. First-round research, these participants were rating how interested they were in investing in a project. Then right after that, each decision they made about investing, they showed that person how willing the group was to invest, and the group, in this case, is just all the other participants, but all the other participants, it wasn't a real number, it was just some imagined group, it was something that was manipulated by the researchers. But that manipulation affected the participants when they went through a second round of rating the exact same projects, the researchers found that people whose interest was very different from the group's, either it was much higher than the group standard or much lower than the group standard. Changed their willingness to invest in order to align with the group's willingness to invest. What this shows us is that these conformity processes, even when the group is removed, really impacts the decision-making process. What's likely going on here is that sort of the fear of not having the right information starts to affect your decision-making and when we don't have a lot of information, we really heavily rely on those social processes to give us more information. These people had just seen these crowdfunding projects for the first time, it's not like they were given an in-depth analysis where they can make a really balanced decision, they read a little blurb about the project and then moved on.

Ricky Mulvey: I think there might be some real-world implications of this which, let's say, you're thinking about buying or selling a stock and then you see what people are doing on Twitter, whatever Fintwit is saying, you see a couple of users on there saying, "Oh no." Let's say I'm selling Shopify. Regardless of what you know about the stock, whether or not you think that it's a great company, you would say, "Okay, these people on Twitter might know something I don't know, so that way, I'm going to use whatever information I think that they have." Is that a fair interpretation?

Alicia Hammond: Yeah. Absolutely. When we feel fear, it becomes a lot harder to make the balanced decisions that we are hoping to make. It's really important to take yourself out of that fear to really remove yourself from those negative feelings in order to reduce the narrowing effect that fear has on attention.

Ricky Mulvey: Let's look at some actionable ways to reduce fear and anxiety as an investor. There's a psychological theory that we talked about in previous conversations called broaden and build. What is that and why is that important for an investor to know?

Alicia Hammond: Broaden and build is actually a theory of emotions. Basically, what I just told you about fear and negative emotions, narrowing the attention span, broaden and build is the opposite. Broaden and build is positive emotions broaden your attentional processes and your mindset, which allows an individual to build upon the physical, social, and intellectual resources that person has. Those resources allow the person to improve the odds of successful coping. This theory came out of the University of Michigan by a researcher named Barbara Fredrickson. It's a really cool theory because a lot of times in psychology and in the media in general, a lot of the information we're always focused on, is very negative. That's a byproduct of our mind. Human have negative attentional bias, because generally, the negative information is the stuff that could potentially harm you and we want to avoid harm. However, there is so much research out there that if we move past just avoiding harm and we start to look at the strengths in the human experience, that's just as important because it allows us to broaden our view of humanity and of what humans are capable of and more conscientiously utilize those resources. Broaden and build theory is really cool because it gives you a response, a next step, you're feeling scared, you're feeling negative, you're feeling bad, and you know that that's impacting your emotions, your decision-making, how do you make better decisions then? Make yourself feel better?

Ricky Mulvey: Let's talk about some actionable ways to do that because it's very easy to say make yourself feel better. It's a little bit tougher in practice. Right now, investor anxiety is up, check your blood pressure, and you have some actionable ways to reduce that stress. The most common being meditation, something that Ray Dalio, he's a big fan of. He does transcendental meditation, which is focusing on a mantra for 10 to 20 minutes, two times per day. Is this something investors should try?

Alicia Hammond: Absolutely. Meditation is great because it allows you to really understand how your body and how your mind feels in the present moment. When you practice meditation, when you do it regularly, it allows you to utilize those skills in the moment when your emotions are changing. You see that stock sell-off, you feel your stomach start to drop and you feel the little hamster wheel in your brain start to go faster. Those are clues to you. Those are clues that your emotions are changing and you can use that to be like, ''Well, I need to stop and take a step back and change my mindset before I make a decision about whatever's in front of me.'' This has been shown to be really helpful in investing. Research out of the Wharton School of Business at the University of Pennsylvania shows that a 15-minute mindfulness meditation improved decision-making by reducing sunk cost bias in investment decisions. That research really showed that meditation just a 15-minute right before can really help in making a better, more informed decision about selling a stock or do investing in some asset. But not everyone is into meditation. I personally don't find it very helpful. I'm more into more physical practices of mindfulness. Things like yoga incorporate mindfulness aspects, and so does nature savoring walk, which is a type of mindfulness meditation that takes you outside.

Ricky Mulvey: Let's talk about the mindfulness walk for a second. Because we both worked from home and I think it can be difficult to just say the way I'm going to relax is to just sit in another part of my apartment or my house and then close my eyes for 15 minutes. Literally, what is this mindfulness walk and how can it make you a better investor?

Alicia Hammond: A mindfulness walk is when you go and it doesn't have to take very long, anywhere from five minutes to 20 minutes. Whenever you have, you can practice this mindfulness walk. Basically, you go outside and you take a walk and anytime you see something that promotes awe in you, that makes you think like, wow, that's a really nice thing that I am experiencing. You see a really pretty flower. Really, you take a stop, you take a moment to appreciate that flower and you are like, wow, that's a great flower. Or as you move on, you see a cold tree, and you are like that's a great tree. You're really present, you're listening to whatever sounds you have, maybe it's dogs barking or cars humming, or in my case, I live near cows, cows mooing. That's mindfulness practice and consciously directing your attention to what's around you, helps you build those resources that you need for later, when you are seeing something change in front of you that causes fear. Just knowing how your body changes into those circumstances is really helpful for making a better decision. But in that moment, you can also go, oh, wow, I sense myself tensing up because of fear, maybe I'll go on a five-minute mindfulness walk before I take any action and then I can reevaluate if taking an action is actually what I want to do at this time.

Ricky Mulvey: Any final thoughts for investors feeling scared, anxious right now?

Alicia Hammond: Absolutely. There's a lot going on in the world right now, and so you might be thinking, Alicia, how can I possibly feel good right now? There's just too much going on. It's scary, I'm worried about people in other parts of the world. You don't have to feel good right now if you can't, it's OK to not feel good right now. When you're thinking about your personal finances and your financial future, just trying to take yourself out of that, feeling bad for a moment. [MUSIC] Start with just less bad. [laughs] If you can't get to good, less bad is an OK place to be right now.

Ricky Mulvey: Alicia, thank you so much.

Alicia Hammond: Thank you, Ricky.

Chris Hill: That's all for today, but coming up tomorrow, we're going to talk about interest rates and we're going to do everything we can to make sure you don't fall asleep while we do. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.