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In 2021, Adobe shares ended their decade-long rally with a sharp drop in price. We have already reported on this in 2022 and discussed whether the stock could be a buy. The conclusion at the time: the valuation has become significantly cheaper, but the stock was still considered expensive.
Since then, the share price has risen by 21 per cent, but compared to the market as a whole, it is clearly underperforming. In addition, a sideways movement seems to be setting in.
Source: Development of the Adobe stock price
Over a year, there is even a minus of 30 per cent. There are reasons for this: In the meantime, new threats have emerged from AI. The following update of the Adobe stock analysis reveals how the stock is doing in this challenging environment and whether it could currently be a buy.
Adobe stock company profile in brief – leading provider of software for publishers
Adobe's business model is based on the development and distribution of software solutions for creative work processes, digital marketing and document management. The San José-based company generates a significant portion of its revenue through subscription models as part of the Creative Cloud, which includes programs such as Photoshop, Illustrator and Premiere Pro. The company, with the red A as its logo, focused on this distribution channel early on and, as one of the pioneers, benefited greatly from the market boom in flexible distribution forms for software.
The offering is complemented by Document Cloud, which provides digital solutions for document management and electronic signatures. With Experience Cloud, Adobe also offers platforms and services for digital marketing and personalised customer experiences. The company caters to both individual users and businesses – primarily creatives, small businesses and medium-sized companies – with comprehensive licensing models and tailored solutions.
Latest Adobe quarterly figures and outlook
In fiscal year 2024, Adobe generated revenue of $21.5 billion, an 11 per cent increase over the previous year. The revenue growth is respectable, but it also shows no serious momentum. At least revenue growth was maintained and margins were consistently increased.
Source: Development of revenue growth and EBIT margin of Adobe stock
Rather, growth is only just above the 10 per cent mark. And there are reasons for this: not only is the market slowly approaching saturation, but there are now also concrete threats from the technological side. For example, there are good AI tools from OpenAI, Runway or Leonardo that support content production. They can be used to produce campaigns at a tenth of the cost of Adobe products.
The Australian company Canva is also still on the fast track with its visual editing app of the same name. The company was ultimately interested in acquiring its competitor Figma for 20 billion US dollars. However, the expensive deal failed due to internal resistance.
Although Adobe also offers AI-based products such as the generative AI platform Firefly or the AI framework Adobe Sensei, the new technology offers newcomers to the industry in particular the chance to break through Adobe's deep moat. So far, this is not very apparent in Adobe's figures. Sales continue to grow.
Source: Financial data from Adobe, StocksGuide
The earnings side looked better. Here, EBIT increased by 19 per cent to 7.8 billion US dollars. However, EPS growth could not keep pace and rose by only 14 per cent on an adjusted basis. In particular, the continued high share-based compensation weighed on reported earnings, reducing them by 1.9 billion US dollars.
Fortunately, however, the company is now buying back more of its own shares through large share buyback programmes, which more than offsets the dilutive effect of employee shares. Over the last six years, almost 10 percent of outstanding shares have been repurchased in the market. But shouldn't Adobe be investing in innovation to increase growth?
Source: Development of Adobe's number of shares; StocksGuide Charts
In the Digital Media segment, revenue rose to $15.9 billion, with Annual Recurring Revenue (ARR) increasing by $2 billion. Document Cloud also saw strong growth to $3.2 billion, an increase of 18 per cent. Not to be forgotten are the revenues in the creative sector. They rose to $12.7 billion (+10 per cent), while the digital experience segment generated revenues of $5.4 billion (+10 per cent). The subscription business in the digital experience sector grew by 12 per cent to $4.9 billion.
Outlook for 2025
The upward trend is expected to continue in 2025. The Americans consider revenue of up to $23.6 billion possible in the following year. In the ideal case, however, this would only be growth of less than 10 per cent. Non-GAAP earnings per share, i.e. adjusted, should be $20.50 in the best case. In relation to 2024, this would correspond to a slightly disproportionate growth of 11 per cent – probably also thanks to the reduced number of shares.
Source: Adobe Earnings Release Q4/2024
Analysts are also optimistic about the future. They consider revenues of up to 30 billion US dollars to be possible by 2030. This means that revenue growth would continue to be stubborn in the forecast model and only sustainably reach single digits from 2027.
Source: Expected revenue and EBITDA growth of Adobe until 2030
At the same time, margins are likely to continue to increase due to the scalability of the business model. The EBITDA margin should increase from 40 per cent to over 48 per cent.
Important key metrics for Adobe stock from HGI analysis
In the strategy analyses, Adobe shares are still only among the top scorers in the High-Growth Investing strategy.
Source: Adobe stock in investment strategies
Here, Adobe shares impress with several strong key figures. Particularly positive are the high gross margin of 88 per cent, the low leverage of 0.43 and the solid rule-of-40 score of almost 48 per cent. These values indicate good profitability and financial health. And indeed: the balance sheet shows almost eight billion US dollars in cash and short-term investments – and rising.
Source: HGI score of Adobe stock
By contrast, the EV/Sales multiple of 8.9 and the PEG ratio of just under two show a valuation level that is only appropriate in relation to growth. In contrast, revenue growth of around 11 per cent is comparatively moderate and does not score any points – too little for a true high-growth stock.
Valuation of Adobe stock
The valuation of Adobe shares thus remains at a demanding but appropriate level. With an expected P/E ratio of 27 for the 2025 fiscal year and an EV/FCF multiplier of 24, the future profit potential and free cash flow tend to be fairly valued based on double-digit EPS growth.
Source: Valuation of Adobe stock
But it is future expectations that are traded on the stock market. And they could look bad for Adobe if the threats from AI tools and mobile apps continue to grow. Meanwhile, the market is likely to continue to be seen as a future market that will benefit from digitalisation in general. Adobe's high moats tend to prevent more severe market share losses.
Conclusion on Adobe stock
Adobe shares remain a top pick in the technology sector. However, the inventor of Acrobat Reader is slowly running out of steam. Analysts expect double-digit revenue growth rates for a few more years, after which it could finally be in the single digits. A lack of willingness to invest in innovation is primarily responsible for this. The focus here is now on large acquisitions and share buybacks.
However, the biggest problem is likely to be the pressure on market share and prices due to AI. Although there are proprietary solutions for playing in this market, the risk remains that the integration of new AI technologies like Firefly will not meet market requirements or fully convince users, and investors will have to live with this risk for the time being. In this context, the valuation with an FCF multiple of 24 on the enterprise value does not appear to be a bargain at all.
Source: Analysts' opinions on Adobe stock
