Adobe upside 'likely limited', Citi says

Investing.com -- Citi analysts maintained a Neutral rating on Adobe (NASDAQ: ADBE) in a research note Monday, expressing caution about its prospects amid fading pricing tailwinds and competitive pressures.

Adobe’s upside [is] likely limited,” said the bank.

It expects Adobe's valuation to remain range-bound, citing its focus on generative AI proliferation over monetization and ongoing challenges in its core business.

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

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

Slowing web traffic and limited monetization of generative AI are seen as contributing factors to reduced growth expectations.

"The core business is facing continued revenue leakage exacerbated by macro/ competitive headwinds," Citi notes, adding that a cautious guidance approach could amplify uncertainties heading into FY25.

Citi lowered its price target for the stock to $590 from $616, reflecting reduced estimates partially offset by higher regression inputs.

The bank explained that this implies a valuation of 24.4x EV/FCF, below Adobe's large-cap peers at 30x.

While Adobe shows traction in enterprise digital experience deals, Citi remains conservative on its NNARR and revenue forecasts due to slower-than-expected AI adoption and weaker web traffic signals.

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

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