Citi Analysts Maintain Neutral Rating on Adobe

Citi analysts have maintained a Neutral rating on Adobe (NASDAQ: ADBE), expressing caution about its prospects amidst fading pricing tailwinds and competitive pressures.

> "Adobe’s upside is likely limited,” said the bank.

Citi predicts that Adobe's valuation will remain range-bound, attributing this to the company's focus on generative AI proliferation over monetization and ongoing challenges in its core business.

Q4 Expectations

Citi forecasts a modest upside for Adobe in Q4, anticipating a smaller beat on digital media net new annual recurring revenue (NNARR) compared to the previous quarter.

The firm expects Adobe to guide FY25 digital media ARR growth at around 11%, which is below the consensus expectations of $1.98 billion.

Factors Impacting Growth

Slowing web traffic and restricted monetization of generative AI are noted as significant contributors to the reduced growth outlook. The report states, "The core business is facing continued revenue leakage exacerbated by macro and competitive headwinds," also highlighting that cautious guidance may amplify uncertainties heading into FY25.

Price Target Adjustment

Citi has lowered its price target for Adobe stock from $616 to $590, indicating reduced estimates, partially offset by higher regression inputs. This suggests a valuation of 24.4x EV/FCF, which is below Adobe's large-cap peers at 30x.

Although Adobe shows some momentum in enterprise digital experience deals, Citi remains conservative on its NNARR and revenue forecasts due to slower-than-expected AI adoption and weak web traffic indicators.

The firm acknowledges potential noise in FY25 estimates due to Adobe’s new guidance methodology but sees limited near-term upside.