ADBE Adobe Inc.
A cash machine priced for decline: 6% growth beats the 3% implied price if AI only dents the moat.
The business
Adobe sells subscriptions to professional creative software (Photoshop, Illustrator, Premiere, Creative Cloud), document software (Acrobat, PDF, Sign), and enterprise marketing and analytics software (Experience Cloud). Nearly all revenue is recurring, gross margins are close to 90%, and very little capital is needed, so most of the profit turns into free cash that goes largely to buybacks.
Quality gate · 96/100
Moat & management
| Moat | wide moat |
| Source | switching costs |
| Trajectory | eroding |
| Management | adequate |
Decades of professional workflows, file formats (PSD, PDF), training, and agency and enterprise standardization make Adobe very sticky for high-end users, and Acrobat/PDF is close to a global standard. But generative AI is lowering the skill barrier that made professional tools essential, and Canva, Figma, and AI-native tools are taking the low and mid market. The moat is still wide at the professional core but is getting narrower at the edges.
Disciplined margins and heavy buybacks (share count down about 3.7%/yr) are owner-friendly, and the debt is modest. However, the attempted $20B Figma purchase at a rich price showed a willingness to overpay out of defensiveness, and stock-based compensation (roughly $1.8-2B a year) offsets part of the buyback.
Owner-earnings inputs
| Owner earnings (TTM) | 7.84B |
| Owner-earnings yield | 8.0% |
| Free-cash-flow yield | 10.8% |
| Growth used (normalized) | 6.0% |
| Market-implied growth (reverse DCF) | 3.5% |
| Terminal growth | 3.0% |
| Discount rate (hurdle) | 11.5% |
Projected owner earnings
| Yr | Owner earnings | Growth | PV |
|---|---|---|---|
| 1 | 8.31B | 6.0% | 7.45B |
| 2 | 8.79B | 5.8% | 7.07B |
| 3 | 9.28B | 5.6% | 6.70B |
| 4 | 9.77B | 5.4% | 6.33B |
| 5 | 10.28B | 5.1% | 5.97B |
| 6 | 10.78B | 4.9% | 5.62B |
| 7 | 11.29B | 4.7% | 5.28B |
| 8 | 11.80B | 4.5% | 4.95B |
| 9 | 12.30B | 4.3% | 4.64B |
| 10 | 12.81B | 4.1% | 4.33B |
| 11 | 13.30B | 3.9% | 4.03B |
| 12 | 13.78B | 3.6% | 3.75B |
| 13 | 14.26B | 3.4% | 3.48B |
| 14 | 14.71B | 3.2% | 3.22B |
| 15 | 15.16B | 3.0% | 2.98B |
Key risks
- Generative AI commoditizes content creation and shrinks the number of paid professional seats or Adobe's pricing power
- Canva, Figma, and AI-native tools take the prosumer and next-generation user base, so the future pro pipeline erodes
- Firefly/AI monetization fails to offset seat pressure, while stock-based compensation dilution limits real per-share gains
Catalysts
- Evidence that AI credits and premium tiers lift average revenue per user and net new ARR re-accelerates
- Continued buybacks of about 4%/yr at an owner-earnings yield of about 8% add to per-share value even if growth is modest
⚠ maintenance capex ≈ min(capex, D&A), capped at FCF · Price pays for ~3%/yr owner-earnings growth over 15y (reverse DCF); model credits 6%.