The effect of withdrawing from Russia has proved significant for a Silicon Valley software giant, as Real Money Columnist Stephen “Sarge” Guilfoyle noted recently.
And the hit to recurring revenue came at a bad time.
The company is Adobe (ADBE) – Get Adobe Inc. Report and “readers can see that the stock has been mired in a downtrend since peaking last November,” Guilfoyle wrote in a recent Real Money column. “On the bright side, the shares had tried to break out from that down channel, and formed a double bottom pattern over the past month with a potential $479 pivot.”
The company has faced some short-term setbacks, including the
However, ending sales of its products and services in Russia and Belarus due to the ongoing war in Ukraine prompted Adobe to lower its estimate for the digital media segment’s annual recurring revenue by $75 million. Although it is still conducting business in Ukraine, the company also decreased its estimate for the digital media segment’s annual recurring revenue by another $12 million. The total reduction of $87 million ARR for the quarter will wind up as a probable negative revenue impact of $75 million for the fiscal year.
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“Let’s face it,” Guilfoyle wrote. “The company has told you that the war in Europe is a problem. I don’t love the fundamentals… not to mention the technicals. Even now, ADBE still trades at 33 times forward looking earnings.”
Adobe’s stock is neither a value or growth play now, he argues.
The software company can tout its continuous production of free cash flow. Adobe generated free cash flow of $14.37 per share for the quarter. “While slightly lower than the previous quarter, this number still dwarfs what ADBE could produce just a few years ago,” Guilfoyle wrote.
One factor that investors should not skip over is that Adobe’ tangible book value fell into negative territory at $-1.61 per share.
“Adobe has run with a negative tangible book value before, so this is not so strange,” he wrote. “I just thought that the firm was past that by now.”