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Price: $251.67
Fair value: $344.00
Discount: 26.8%
Uncertainty: High
LSEG rating: 2.77
Moat: Narrow
Next earnings: 2026-12-10
Next earnings is estimate: Yes
Company name: Adobe
Sector: Creative & marketing software
About: Adobe makes software for creative work, documents and digital marketing. Its Creative Cloud apps include Photoshop, Lightroom, Illustrator and Premiere, and its Acrobat products create, edit and sign PDF documents. Its customer experience products, such as Adobe Experience Manager, help companies make and deliver content and run marketing campaigns. Adobe adds generative AI features, such as its Firefly models, to these products and also sells AI-first products. Almost all revenue comes from subscriptions, which were $6.58 billion of $6.76 billion in revenue in Q3 FY2026. Adobe reports two customer groups: Business Professionals & Consumers, and Creative & Marketing Professionals. In April 2026, it bought Semrush, a platform for search and brand visibility.
Thesis: The market fears that generative AI tools from other companies will make Adobe's creative software less necessary. If people can make images, video and designs with simple AI prompts, demand for paid Creative Cloud seats and their prices can fall. Changes in leadership add doubt. The CFO left on June 15, 2026, the head of the creativity and productivity business left on September 27, 2026, and Anil Chakravarthy becomes CEO on December 1, 2026. The results so far do not show a decline. In Q3 FY2026, revenue grew 13%, total ARR grew 11.2% to $27.50 billion, AI-first ARR grew more than 150%, and Adobe reached 1 billion monthly active users. For the gap to close, four things must be true. Total ARR must keep growing at about 10% or more, as in the FY2026 target of 10.2%, also without the help of acquisitions such as Semrush. AI-first ARR must keep growing fast enough to replace any lost seat revenue. The new free and low-price users must turn into paid subscribers. The non-GAAP operating margin must stay near the 45% target for FY2026. The first evidence comes with the Q4 FY2026 report, estimated for about December 10, 2026, which should also give the FY2027 targets under the new CEO. The question about AI is a long one, so the gap can close only slowly, over the next two to three years of results.
Risks: Generative AI tools from other companies can make images, video and designs with simple prompts. They can reduce demand for paid Creative Cloud seats or force lower prices. Adobe names AI and cloud-native companies among its competitors. Leadership changes at the same time. A new CEO starts on December 1, 2026, the CFO role has had an interim holder since June 15, 2026, and the head of the creativity and productivity business left on September 27, 2026. A change in strategy or execution can follow. Part of the reported growth comes from acquisitions. Semrush added about $480 million of ARR in Q2 FY2026, so ARR growth without acquisitions is lower than the reported 11.2%. A slowdown in the core business can be hidden for some quarters. Adobe has $1.35 billion of senior notes due in February and April 2027 and plans to refinance them. Higher interest rates would raise the cost, but the amount is small against its cash flow.
Balance sheet: Cash: $5.6B Debt: $6.4B Net debt: $761M Interest cover: 36× Undrawn credit line: $1.5B, to June 2027 Debt due within 12 months: $1.6B Adobe funds itself mainly with its cash flow and has a small amount of debt. At August 28, 2026, it had $6.15 billion of senior notes at par and $250 million of commercial paper at a rate of 3.77%. The notes due on February 1 and April 4, 2027, $1.35 billion in total, are current debt, and Adobe plans to refinance them on or before their due dates. Interest rate swaps convert the fixed rate of some notes to a floating rate. Cash is cash and short-term investments. The $1.5 billion revolving credit facility was not used and runs to June 30, 2027. Interest cover is operating income divided by interest expense for the first nine months of FY2026. Operating cash flow was a record $2.52 billion in Q3 FY2026. Adobe spends most of its cash on buybacks: it paid $6.82 billion for its own shares in the first nine months of FY2026 and has a new $25 billion authorization through April 2030. As of 2026-08-28.
Checkpoints: Dec 10, 2026 (estimate): Q4 FY2026 earnings and FY2027 targets. Pending. Watch: Total ARR growth of about 10.2% for FY2026 and FY2027 targets with continued double-digit ARR growth pass; ARR growth below target or FY2027 targets with slower growth fail. Mar 15, 2027 (estimate): Q1 FY2027 earnings: first quarter under the new CEO. Pending. Watch: AI-first ARR that keeps growing fast and a non-GAAP operating margin near 45% pass; slower total ARR growth or a falling margin fail.
Recent events: 2026-09-10: Adobe reported record Q3 FY2026 results. Revenue grew 13% to $6.76 billion. GAAP EPS was $4.62 and non-GAAP EPS was $6.13. Total ARR was $27.50 billion, AI-first ARR grew more than 150%, and users passed 1 billion a month. Adobe raised its FY2026 targets to revenue of $26.576 billion to $26.626 billion and non-GAAP EPS of $24.45 to $24.50. 2026-09-03: Adobe announced that Anil Chakravarthy, the head of its Customer Experience Orchestration business, becomes President and CEO on December 1, 2026. Shantanu Narayen will then retire as CEO and become Executive Chair. David Wadhwani, President of the Creativity & Productivity business, stepped down on September 27, 2026. 2026-06-24: Adobe agreed to buy Topaz Labs, a private company with AI models that improve video and images, for about $340 million, mostly in cash. Adobe expects the deal to close in Q4 FY2026. 2026-06-11: Adobe reported Q2 FY2026 results. Revenue grew 13% to $6.62 billion, and total ARR was $27.10 billion, including about $480 million from Semrush. GAAP results included a $70 million goodwill impairment for the Publishing & Advertising unit. CFO Dan Durn resigned, effective June 15, 2026, and Steve Day became interim CFO. 2026-04-28: Adobe completed its purchase of Semrush Holdings, a brand visibility platform, for $1.87 billion, mostly in cash. 2026-04-21: Adobe's board approved a new share repurchase program of up to $25 billion, which runs through April 30, 2030.