Markus Moxham
LongMedium convictionOpen

Adobe Inc

ADBENASDAQ

Long. Deep-moat creative standard mistaken as a disrupted legacy monopolist.

Thesis
Adobe is trading near 10-year valuation lows despite best-in-class profitability (top 5% operating margins and elite ROIC) due to market anxiety surrounding generative AI disruption, regulatory scrutiny (DOJ subscription lawsuit, blocked Figma merger), and slowing top-line growth. However, embedded enterprise switching costs, aggressive share repurchases, and the successful integration of proprietary and partner AI models (Firefly, Google Cloud) directly into existing creative workflows suggest the business can easily clear its modest 10.9% reverse DCF growth hurdle without succumbing to commoditization.
Key assumption
I assume that workflow integration and high switching costs defend against standalone GenAI threats: I assume enterprise creative professionals will not abandon decades of muscle memory, file formats, and complex Creative Cloud pipelines for standalone AI wrappers (e.g. Midjourney, Canva), allowing Adobe to monetize AI as a value-add feature rather than suffering displacement. I assume that the DOJ cancellation lawsuit will not impair enterprise retention or ARR: I assume the legal fallout over early-termination fees on annual-billed-monthly subscriptions will result in modest operational friction and civil fines rather than a material increase in customer churn or structural pricing model destruction.
What would prove me wrong
Direct displacement by next-generation native multimodal tools: emerging foundation models offering full, professional-grade timeline editing, vector manipulation, and precision asset generation directly inside competitive platforms, causing widespread churn among creative freelancers and agencies. Secondly, severe regulatory remedies dismantling recurring billing models: the DOJ enforcing strict bans or forced friction on auto-renewals and cancellation fees, causing an immediate spike in customer churn and compressing digital media ARR visibility.
Entry$344.69
Price now$254.86marked 10 Sep 2026
Return−26.1%
Benchmark+10.7%S&P 500
vs benchmark−36.7 pp
Held9 monthsopen
Download Markdown
  • Three segments: digital media (Adobe Creative Cloud subscriptions), digital experience, and publishing and advertising.
  • AI integration within existing subscriptions and AI assistant. Product orientated growth. Adding new features and AI to existing IP.
  • Digital experience refers to Adobe’s marketing cloud business which helps businesses to manage customer experiences through a suite of apps and services. Originally known as Adobe Marketing Cloud. Has Adobe Analytics, Adobe Experience Manager etc. I believe it is a Salesforce competitor.
  • Publishing and advertising: legacy platforms including eLearning, web conferencing, printing technologies and the Adobe Advertising Cloud, which is an advertiser management platform.
  • Adobe controversy surrounding requiring payment to cancel yearly plans before the year is over (so called yearly billed monthly plan). They are being sued by the DOJ currently. Also controversy historically surrounding anti competitive practices with acquisitions, most recently with the failed acquisition of Figma and most infamously FreeHand. Recently acquired Semrush.
  • Worth noting: pirated versions and also that people who know and have learned how to use Photoshop etc. find it hard to migrate (switching costs).
  • Adobe is partnering with Google Cloud to enhance AI capabilities and integrating advanced AI models into Adobe apps (e.g. Gemini Image in Adobe Firefly).
  • Financial strength (8): overleveraged DOE values vs industry and in the red vs history. Growth is less natural at the moment. 7 F-Score, very safe Z-Score. Creating value (ROIC > WACC).
  • Growth (10): strong 3Y revenue growth rate vs industry, average vs history. Average EBITDA, EPS growth rates vs industry and history, however, strong considering size of the company. Most concerning is the 3Y book growth rate vs history at 0.9%. Future 3-5Y EPS without NRI growth rate estimate at 12.44%. Total revenue growth rate at 9.48%, both below average vs industry.
  • Momentum (4): RSI suggests overvalued and stock has massively underperformed the market.
  • Liquidity ratio: below average current and quick ratios (still above 1) vs industry and history. Days sales outstanding (days it takes the company to collect revenue from debtors).
  • Dividend & buy back: 3Y average share buyback ratio excellent vs history and history. Shareholder yield % excellent vs industry and history.
  • Profitability rank (10): excellent margins vs industry and history. At all time highs historically and vs industry within the top 5% of all. Major selling point. ROE, ROA, ROIC same story. Top 10% ROIC vs industry and history. Strong 3Y ROIIC (stars in a BCG matrix). 10 years of profitability in last 10. 8 moat score, 9 tariff resilience.
  • Valuation (4): all ratios historically at undervalued prices. Most at 10Y lows or near lows. Most are average vs industry. Very poor PB ratio, but average vs history. Good PEG ratio, and forward PE ratio. Excellent price to DCF ratios vs industry and history. Very strong earnings, FCF yield and forward rate of return.
  • Strong revenue growth. Net income declined from 2020 to 2022, but has recently rebounded and stabilized. EBITDA has grown however.
  • Stock based compensation is rising, FCF is too, and so is operating cash flow.
  • ROIC has consistently been higher than WACC, demonstrating that debt is not a limitation.
  • Has been buying back shares consistently since 2016, even more consistently in recent years.
  • Total assets are increasing at a slow pace recently and total shareholders equity has decreased slightly from year to year and then increased higher than the previous high. But this money is being invested well.
  • High R&D and tax rates. R&D and SG&A growing nominally.
  • Digital experience is growing rapidly, digital media is growing fairly significantly while the legacy segment publishing and advertising continues to decline, likely to obscurity/sale. US is growing significantly and representing more and more of revenue as a %.
  • Almost trading at Peter Lynch Earnings Line. Insiders consistently sell. Gurus mixed.
  • 10.9% EPS growth rate required to maintain DCF valuation (fair value). Currently estimated at 11% EPS growth rate.
  • Concerns raised about IP and generative AI, also facing pressure from competitors on this front.

Updates

The note above is unedited. Anything that changed goes below it, dated.