Adobe reports its earnings today. What to expect.

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Adobe

Systems reports financial results after markets close Thursday, but the stock is more likely to move on news the company is sharing about its push into artificial intelligence and the status of its pending $20 billion acquisition. from collaborative design software company Figma.

Adobe stock (ticker: ADBE) has soared 42% since mid-May as investors believe generative AI will drive Adobe’s growth, rather than pose a major new competitive threat.

In March, a week after its last earnings report, Adobe announced the launch of Firefly, a “generative AI co-driver” that will leverage the company’s suite of content creation tools. He launched a website to give people the chance to try out the tools, including image synthesis software similar to DALL-e, offered by OpenAI, creator of ChatGPT.

Adobe also unveiled new generative AI features for Photoshop, the company’s popular photo editing product. And earlier in June, Adobe announced plans to offer a retail version of Firefly and charge for it.

This news triggered a new stage in Adobe’s recent rally.

Meanwhile, Adobe has pledged to aggressively defend its ongoing deal for Figma, which is under intense scrutiny from regulators in the European Union and the United Kingdom. Earlier this year, the Justice Department intends to take legal action to block the deal.

Jefferies analyst Brent Thill wrote in a research note providing an overview of the last quarter that he expects positive results given a resilient economy and “strong checks” with channel partners. Adobe sales. But he agrees that the focus is on AI and Figma.

Thill said that while investors are skeptical of the Figma deal, the company is likely to increase share buybacks if there is no deal. And he noted that while there’s still debate on the streets about whether AI will help or hurt Adobe, the consensus has shifted to a positive view.

Thill maintains a buy rating on the stock. He recently raised his price target to $530 from $440. Shares closed Wednesday at $479.53.

TD Cowen analyst Derrick Wood is also upbeat, noting that a recent survey of Adobe partners “finds stability in end-market conditions” after a strong first quarter. “We expect solid momentum and modest growth, and a very optimistic tone around the innovation in monetizable GenAI that is unleashed in the market in [the second half]“Wrote Wood.

For the second fiscal quarter, Adobe forecast revenue of $4.75 billion to $4.78 billion, with non-GAAP earnings of $3.75 to $3.80 per share and GAAP earnings of $2.65 to 2. $.70 per share. Adobe projects net annualized recurring revenue from new digital media, a closely watched measure of the health of the company’s subscription software business, of $420 million.

Wall Street’s estimates are roughly in line with management forecasts. The consensus call among analysts is for revenue of $4.77 billion, up 8.8%; non-GAAP earnings of $3.79 per share; and a net new digital ARR of $422 million.

For the fiscal third quarter ending August, analysts polled by FactSet see sales of $4.86 billion, with earnings of $3.88 per share.

Adobe’s most recent guidance for the November 2023 fiscal year calls for non-GAAP earnings of $15.30 to $15.60 per share.

Write to Eric J. Savitz at eric.savitz@barrons.com