Adobe Earnings: A Good Quarter With Mixed Signals, but Document Cloud Shines

We are lowering our fair estimate to $590 per share, from $635, after wide-moat Adobe reported good fourth-quarter results and an outlook for fiscal 2025 that we believe is mildly disappointing. Based on guidance, we lowered our 2025 estimates, which also drove a smoothing over several years. While we do not see a meaningful change to our long-term thinking, we see some nicks in the firm’s armor. Given another selloff, we observe a clear disconnect between management’s excitement and the internal signs of success that they see relative to what investors are seeing. We are encouraged by recent product introductions throughout the portfolio and think Firefly leaves Adobe well-positioned in artificial intelligence. We are also encouraged by the firm’s decision to use pricing as a lever within a coming tiered pricing structure tied largely to AI for core applications. We think recent price increases, product launches, and rapid generative AI adoption should help drive growth in 2025. Considering our fair value cut and the stock selloff, we still see shares as undervalued.