Adobe's Good News

We saw a perfect example yesterday of how Wall Street isn't so much rewarding performance as it is reacting to expectations. Adobe Systems, the San Jose-based creator of software products such as Acrobat and Creative Suite, released numbers that looked pretty weak: Adobe's profits fell from $156.4 million in the first quarter of 2009 to $127.2 million in the same quarter this year. That's a drop of nearly 20 percent. Adobe had released its latest software package in the teeth of the recession in 2008, and ended up laying off 9 percent of its workforce last year.

But Adobe shares rose 4 percent in after-hours trading once the announcement had been made. Why? Because the company had targeted first-quarter revenues in the $800 million to $850 million range, but they actually came in at $858 million. Adobe also forecast second-quarter revenues of somewhere between $875 million and $925 million, while the analysts had forecast $860 million.

This is all a reminder that the market is forward-looking. All of Adobe's past troubles had been figured into the stock price before today, as had the various analysts' expectations. In the end, what really moves a stock's price is change.