01:28 PM EDT, 09/13/2024 (MT Newswires) -- Adobe's (ADBE) fiscal fourth-quarter revenue outlook that missed Wall Street's estimates could prove to be "conservative" as there's upside potential heading into the end of the year, RBC Capital Markets said in a note e-mailed Friday.

Late Thursday, the software company posted stronger-than-projected third-quarter results, driven by double-digit revenue gains in digital media and experience. For the ongoing quarter, Adobe projected revenue of $5.50 billion to $5.55 billion. The outlook factors in "current macroeconomic conditions and year-end seasonal strength," Chief Financial Officer Dan Durn said on a Thursday earnings conference call, according to a Capital IQ transcript.

RBC and the Street were both looking for $5.60 billion, the brokerage said in a note to clients.

Adobe shares were down 9.4% in Friday afternoon trade and have lost nearly 11% in value year-to-date.

Remaining performance obligation, or RPO, exiting the quarter was $18.14 billion, growing 15% from a year earlier, while current RPO increased 12%, Durn told analysts. The results indicate "broader enterprise adoption," RBC analysts Matthew Swanson and Dan Bergstrom said in the note, adding that they see the weakness in the stock as an "overreaction."

"While the quarter itself was strong and momentum remains positive, guidance for (the fourth quarter) and implied guidance for (the full year) were weaker as management noted three large deals that pulled into the quarter disrupting the typical (second-half) linearity as well as less favorable (foreign exchange) rates than anticipated," the analysts wrote.

They said factors including strength in net-new digital media annualized recurring revenue offer upside potential. The brokerage maintained its outperform rating and a $610 price target on the stock.

"On creative, pricing headwinds in the (first half) should flip to tailwinds in (the fourth quarter) as expanded (generative artificial intelligence) features continue to be a driver for up- and cross-selling, while more explicit monetization is starting to arrive from Firefly services," Swanson and Bergstrom wrote. Excluding deal pull forward, the analysts still expect document cloud to see tailwinds from AI-assistant.

Firefly offers generative AI tools in Adobe apps

"Experience cloud remains a near-term monetization opportunity for GenAI," the analysts said. "The (return-on-investment-focused) environment positions Adobe well to monetize the content supply chain, which we feel has started to show up in consistent RPO upside."

The company's next catalyst could come from the Adobe Max conference scheduled for next month. While Adobe may not provide a fiscal 2025 guidance, details on GenAI trends will be a key investor focus, Swanson and Bergstrom said.

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