Initiated 2026-10-21 · Price $255.13 (close 2026-10-21, stockanalysis.com) · Mkt cap $99.3bn (389.2mm shares) · Information technology / application software · Model: verified

Rating: Hold — Conviction: Low

Adobe is cheap on every trailing measure: about 10x this year's non-GAAP EPS guide and a ~10% free-cash-flow yield, with revenue still growing ~12% and ARR ~10%. But that price already assumes the business keeps compounding roughly as guided, and the model's Base case returns only about a tenth. The debate is whether generative AI shrinks the paid creative seat; the Bear case is a long way below the price and the filings can't yet settle it, so the asymmetry doesn't justify a Buy.

Conviction tests (3a-v-c): T1 fail (Base +1.3% at +1pp, Hold; +18.4% at −1pp, read as Buy, so Hold → Buy at −1pp) · T2 pass (Gordon alone +7.0%, exit-multiple alone +11.2%; Hold on both) · T3 pass (every FY0 fact and historical series from EDGAR XBRL, the Q3 FY2026 10-Q and release; no est. inputs) · T4 pass (the FTC subscription case settled for $150mm in April 2026; the 1 December CEO handover is not a >25% binary)

The T1 fail is a judgment: +18.4% sits between the house's Hold and Buy readings. If a reviewer reads it as Hold, the rule gives High.

Model value range vs price
Bear $157.85Base $278.31Bull $404.35Price $255.13

Business overview

Adobe sells subscription software for creating and managing content. In FY2025 (year to 28 November), Digital Media (Creative Cloud, Document Cloud, Firefly, Express) was $17.65bn, about 74% of $23.8bn revenue, and Digital Experience (marketing, analytics and customer-journey software for enterprises) was $5.86bn, about 25%. From FY2026 Adobe reports by customer group: Creative & Marketing Professionals subscription revenue was $4.65bn in Q3 (+13%), and Business Professionals & Consumers $1.91bn (+16%). About 41% of revenue is from EMEA and APAC. Three variables drive earnings:

Competition

The pressure comes from two directions. Canva, private, reached about $4bn of ARR at the end of 2025, growing ~35% with 31 million paid subscribers (February 2026 report), and is the main rival for the non-professional users that Express and Acrobat target. Figma, listed, has ~$1.28bn of TTM revenue and owns collaborative interface design. Foundation-model vendors now offer image and video generation directly. In Digital Experience, Salesforce is the closest competitor. So far the pressure shows in the multiple, not the numbers: Adobe's Business Professionals & Consumers group grew 16% in Q3 FY2026, faster than the company. Where it would show first is seat counts in Express and Acrobat, then pricing on renewals. Salesforce, the closest listed comparable by scale and model, trades at 17.8x aggregator EV/EBITDA and 16.5x forward P/E, against Adobe's 10.2x and 9.5x (stockanalysis.com, 2026-10-21 close).

Bull case

  1. AI expands the franchise. Firefly credits, AI tiers and the AI-first products add revenue per user faster than cheaper tools take seats, and growth holds at 9–10% through FY2029. Plays out if the FY2027 ending-ARR growth target is 10% or more and Business Professionals & Consumers keeps growing mid-teens. Model: rev_growth
  2. Margin returns above 40%. Semrush integration costs roll off and AI usage is priced above its compute cost, so model-basis EBITDA margin goes from ~38% in FY2026 to 41%. Plays out if the FY2027 GAAP operating margin target is above 36%. Model: ebitda_margin
  3. The multiple recovers part of the gap. The stock exits at 14x model-basis EBITDA against 10.5x today, still below Salesforce and Autodesk. Model: exit_ev_ebitda

Bear case

  1. Generative AI shrinks the paid seat. Canva, Figma and model vendors make good-enough creative work cheap; seat counts and renewal pricing fall and growth stalls to 0–1% by FY2028–29. Plays out if ending-ARR growth drops below 6% or Business Professionals & Consumers growth falls into single digits. Model: rev_growth
  2. Price cuts and compute costs compress margin. Adobe defends seats with cheaper plans while inference costs rise, taking model-basis margin to 33%, below every year since FY2021. Plays out if the GAAP operating margin falls below 32%. Model: ebitda_margin
  3. Permanent de-rating. The market values Adobe as a declining franchise: a 7x exit and a 1pp higher discount rate. Model: exit_ev_ebitda, wacc

Valuation & balance sheet

Metric (definition) Current Own history (range or 5y avg) Peers Source, as-of
EV/EBITDA, model basis (EV $100.0bn = mkt cap $99.3bn − cash and ST investments $5.64bn + senior notes $6.36bn; EBITDA = GAAP operating income + D&A; leases excluded) 10.5x FY2025 n/a (unverified) aggregator TTM: ADSK 22.01x · CRM 17.80x · FIG n/m (negative EBITDA) (ADBE 10.17x on that basis) model-inputs.json; stockanalysis.com 2026-10-21 close
P/E 10.4x the $24.45–24.50 FY2026 non-GAAP EPS guide; 14.1x the $18.12–18.17 GAAP guide n/a (unverified) forward: FIG 83.83x · ADSK 18.81x · CRM 16.49x (ADBE 9.50x) stockanalysis.com 2026-10-21; Q3 FY2026 release
FCF yield (FY2025 OCF $10,031mm − capex $179mm, over mkt cap) 9.9% (aggregator TTM 10.62%) n/a (unverified) CRM 7.63% · ADSK 5.57% · FIG 1.88% EDGAR XBRL; stockanalysis.com 2026-10-21

Model-implied value range (from model-summary.json; generic module, Gordon-growth DCF and exit-EV/EBITDA DCF, midpoints): Bear $157.85 · Base $278.31 · Bull $404.35 per share, i.e. implied returns of −38.1% / +9.1% / +58.5% vs $255.13. These ranges show how the bull and bear drivers translate into value; they are not price targets.

Balance sheet: net leverage 0.08x FY2025 EBITDA (gross 0.67x); interest coverage 34.0x. Nearest material maturity: $1,597mm of notes due in 2027 (2.15% and 4.85% tranches), covered by $5.64bn of cash and short-term investments. The rest, $4,766mm, runs 2028–2035. Ratings: n/a (unverified).

Model note: tier full, status built, verification verified (3,207 formula cells matched in LibreOffice). No unverified inputs and no assumptions without a basis. Scenario consistency is OK on all 14 rows.

Relative value vs peers
MetricADBECRMADSKFIGPeer medianvs median
P/E (TTM)14.2x22.5x31.7xn/a27.1x−47%
P/E (forward)9.5x16.5x18.8x83.8x18.8x−49%
PEG0.7x0.9x1.2x5.8x1.2x−41%
EV/EBITDA (TTM)10.2x17.8x22.0xn/a19.9x−49%
EV/Sales (TTM)3.9x5.2x6.5x8.4x6.5x−40%
P/B8.5x5.2x15.2x8.2x8.2x+5%
FCF yield10.6%7.6%5.6%1.9%5.6%+5.0pp
P/E (TTM)ADSK31.7xCRM22.5xADBE14.2x
P/E (forward)FIG83.8xADSK18.8xCRM16.5xADBE9.5x
PEGFIG5.8xADSK1.2xCRM0.9xADBE0.7x
EV/EBITDA (TTM)ADSK22.0xCRM17.8xADBE10.2x
EV/Sales (TTM)FIG8.4xADSK6.5xCRM5.2xADBE3.9x
P/BADSK15.2xADBE8.5xFIG8.2xCRM5.2x
FCF yieldADBE10.6%CRM7.6%ADSK5.6%FIG1.9%

As of 2026-10-21. One source and one definition for every company: aggregator TTM and consensus-forward multiples, EV netting reported cash and including lease liabilities in debt. Not the model's own EV basis (see the report's valuation table). Pages fetched 2026-10-21 after the close; quotes are the 2026-10-21 close (4:00pm ET). Dashed line = peer median. Source: stockanalysis.com /stocks/<ticker>/statistics/, fetched 2026-10-21.

Notes. PEG as given by the source, resting on its consensus growth estimates. Figma is loss-making on a TTM basis, so its P/E is null. Figma's TTM EBITDA is negative (null). ADBE's 10.17x uses the source's $9.92bn TTM EBITDA; on the model's basis (FY2025 GAAP operating income + D&A, leases excluded) it is 10.5x.

Scenario stress test

Reasoned from the bull/bear drivers above. The model column comes from the scenario overlays (Base case + shock).

Scenario Effect Mechanism Magnitude Model Δ value vs Base ($/sh)
S1 Fast equity crash − Liquidity de-rating of a 1.42-beta large cap; tiny net debt, no funding channel Med −$19.18
S2 Slow bear / recession − Enterprise seat cuts, SMB and consumer churn, marketing budgets cut in Digital Experience; subscriptions cushion it. Milder than Base − Bear ($120) because it is a two-year cycle, not a permanent loss of seats High −$35.73
S3 Rapid rate shock − Higher discount rate compresses a long-duration software multiple; debt is fixed-rate High −$25.86
S4 Slow rate grind − Rates weigh on the multiple and marginally on SMB demand Med −$13.92
S5 Soft-landing cuts + Lower discount rate, firmer seat and marketing spend Med +$16.68
S6 Recession-driven cuts − Seat and marketing cuts, mostly offset in value by lower rates Low −$7.96
S7a Credit liquidity shock − De-rating only; net debt ~0.1x EBITDA Low −$9.59
S7b Slow default cycle − SMB and agency failures lift churn modestly Low −$7.43
S8 Stagflation − Wage and compute inflation, weaker real spend, higher rates High −$23.52
S9a Dollar spike − ~41% of revenue outside the Americas with mostly dollar costs: translation loss falls to profit Low −$4.10
S9b Dollar slide + Mirror image: translation gain Low +$4.10
S10 Melt-up + A de-rated, high-beta large cap re-rates in a risk-on tape High +$24.68
S11 Energy supply shock − Indirect only: marketing budgets and rates; no direct energy exposure Low −$7.79
S12 Mega-cap/AI derating ± Software multiples de-rate with AI leaders, offset by less VC-funded AI competition on creative tools Low −$2.66

Currently active/on watch per the playbook: S3 partially active (price-level leg only); S8, S10 and S11 on watch.

Model value change vs Base, by scenario
S2 Slow bear / recession−$35.73S3 Rapid rate shock−$25.86S8 Stagflation−$23.52S1 Fast equity crash−$19.18S4 Slow rate grind−$13.92S7a Credit liquidity shock−$9.59S6 Recession-driven cuts−$7.96S11 Energy supply shock−$7.79S7b Slow default cycle−$7.43S9a Dollar spike−$4.10S12 Mega-cap/AI derating−$2.66S9b Dollar slide+$4.10S5 Soft-landing cuts+$16.68S10 Melt-up+$24.68

What would change the call

Upgrades to Buy if: the FY2027 targets (due with Q4 results) guide ending-ARR growth at 9% or more with GAAP operating margin at or above 35%, while the price stays near today's; or the price falls toward the midpoint of Bear and Base with the numbers intact. Downgrades to Sell if: ending-ARR growth is guided below 6%, Business Professionals & Consumers growth drops into single digits, or Adobe cuts list prices to hold seats.

Watch items

Sources