ADBE: Reat This Before You Hit “Buy” on Adobe
For 35 years Adobe set the tempo of digital creativity. The verb “to Photoshop” lodged itself in dictionaries; Illustrator files became the bloodstream of agencies; Creative Cloud’s subscription fees rivalled some nations’ GDP. But in the past five years the battleground has shifted so quickly it feels as though someone tilted the board. New rivals have stormed the outer courts with freemium tactics and collaboration tricks, and, more alarmingly, algorithms that can conjure an illustration faster than a designer can lift a stylus. Adobe’s great stone moat is still visible, yet wander close enough and you can spot weeds and hair‑line cracks on the surface. Will it last?
Canva’s People’s Army
First dismissed as a toyish cousin of PowerPoint, Canva has blossomed into a behemoth that claims 220 million monthly users. 21 million of those users now hand over credit‑card details, producing an annual haul estimated at roughly 2.7 billion dollars. The genius of Canva was never cutting‑edge technology; it was empathy for the non‑designer. Its founders realised that a marketing intern or a biology teacher did not crave bezier curves. They craved speed and approval. Canva filled the vacuum with drag‑and‑drop templates, social‑media aspect ratios, and a “Publish” button that beams designs directly to TikTok or the school newsletter.
That foothold in the casual market has proven slippery for Adobe, because once a department standardises on Canva, the gravity is hard to reverse. The Australian company is not content with social graphics either. By acquiring Serif’s Affinity software—a respected suite that professionals have quietly hailed as a lighter, cheaper alternative to Illustrator and InDesign—Canva signalled its intent to claw at Adobe’s high ground. Executives now boast that Canva can cover “eighty percent of all marketing output”. A Fortune‑500 CMO explained the calculus to me: “Adobe is still where we build flagship campaigns, but Canva handles the daily grind. If a tool saves me ten hours a week, that licence cost is trivial.” The implication: Adobe’s crown jewels remain intact, yet the hillside beneath is slowly eroding as middle‑tier jobs migrate to Canva’s SaaS conveyor belt.
Figma’s Daring Heist
If Canva won the street fight for everyday graphics, Figma executed a jewel‑box robbery in daylight. Interface design—mock‑ups of websites, mobile apps, dashboards—was once the fiefdom of Adobe’s predecessor, XD, and before that, exotic plug‑ins for Photoshop. Figma bulldozed that model by putting the entire canvas in a browser tab and allowing dozens of collaborators to edit in real time. It felt like Google Docs for pixels, and once designers tasted that speed they never slammed shut a desktop file again. At last count Figma controls between 80-90% of the interface‑design niche, a statistic so lopsided that Adobe offered 20 billion dollars to buy the insurgent outright. Regulators in Brussels and London promptly smacked the deal down, arguing a merger would cement a monopoly. Figma walked away richer by one billion dollars—the breakup fee—and spiritually taller, cast as the plucky David that dodged Goliath’s cheque.
The failed acquisition deprived Adobe of an army inside the walls. Worse, it energised Figma’s brand: engineers and product managers now insist on Figma the way filmmakers insist on Final Draft. The platform is filing confidential IPO documents, flush with 600 million dollars in annual recurring revenue and investors eager to back an anti‑Adobe narrative. Even if Adobe retains its seasoned specialists, whole product teams can now execute from wireframe to hand‑off without touching Creative Cloud. That gap in the funnel may look small today; over a decade, it can become a canyon.
The AI Wild Cards
Generative artificial intelligence has introduced a third front in the siege—and perhaps the most unpredictable. Type a sentence describing a neon skyline at dusk, and Midjourney will render an image so moody it could hang in a concept‑art gallery. DALL·E 3 will riff on surreal juxtapositions, while open‑source Stable Diffusion spawns cottage apps that bake image generation into PowerPoints and video games. These models do not pretend to replace art direction, but they flatten the sketch‑phase timeline from hours to seconds. Midjourney alone is forecast to breach 300 million dollars in revenue this year, without a conventional user interface beyond a Discord chat.
Adobe’s rejoinder is Firefly, a suite of generative models trained exclusively on licensed or public‑domain content. The legal pedigree matters; corporate legal teams are nervous about latent copyright claims lurking inside AI artworks. During its first six months of open beta, Firefly users produced 15 billion images, a staggering figure that demonstrates both the public’s fascination and Adobe’s determination to retain traffic inside its walls. Firefly’s Generative Fill weaves seamlessly into Photoshop’s toolbar, so a retoucher can extend a photograph’s horizon or remove a lamppost without leaving the app. That integration keeps the pipeline fluid, yet analysts note a philosophical tension: if a marketer can sketch a campaign hero in thirty seconds, will they still purchase an agency’s polished retouch?
Designers themselves are conflicted. Some compare AI tools to a turbocharged mood‑board assistant. Others worry the assistant will be promoted to creative director. A veteran illustrator told me, “We used to joke that clip‑art would take our jobs. Clip‑art just grew a brain.” Adobe’s bet is that human judgment plus AI grunt work will yield better, faster results—provided the judgment happens on Adobe’s subscription meter.
2028 and Beyond: Will the moat hold?
Looking three years out, one can sketch three plausible futures:
In the optimistic case, Adobe’s Firefly models achieve parity with or surpass Midjourney’s visual fidelity, Adobe Express finally wins hearts among small businesses, and Canva’s advance stalls at the gates of high‑end video, 3D, and print. Growth returns to the mid‑teens, and the moat stabilises.
In the more likely “Shared Throne” scenario, the market stratifies. Career professionals remain loyal to Creative Cloud, but the next generation of freelancers, teachers, and startup founders conduct most of their daily work in Canva, Figma, and AI chatbots. Adobe retains profitability yet cedes cultural leadership, a fate not dissimilar to Oracle’s relationship with modern app developers.
In a downside scenario AI achieves one‑click publishing pipelines, Canva masters advanced video editing and real‑time collaboration in 3D, and Figma expands into content authoring. In that case Adobe risks IBM‑like status: profitable, indispensable to some industries, yet no longer considered the place where the future is forged.
Reading the Balance Sheet
Financially, Adobe remains a colossus. Creative Cloud counts 37 million paying subscribers, double the tally from 2019, even if growth has cooled from high‑teen surges to the low double digits. Diversification cushions the slowdown: Experience Cloud and Document Cloud now supply just over 40% of topline, spreading risk beyond pure design software.
More striking is Adobe’s cash‑generating muscle. Free cash flow topped seven billion dollars in fiscal 2024 and, on current sell‑side models, is set to surpass ten billion by 2026. At today’s valuation that pencils out to a free‑cash‑flow yield north of 5%, and a forward 2025 P/E multiple of just 18–20x—very cheap for a software company and barely half the 40–50x band Adobe enjoyed for much of the past decade. The balance sheet carries no net debt, granting Adobe enviable flexibility in an era of costlier capital. On a tangible‑invested‑capital basis, the company’s return on invested capital hovers near 100%, a reminder that for all the competitive drama, Adobe still converts every incremental dollar of spend into nearly a dollar of economic profit.
With that war chest the firm can bankroll Silicon‑Valley‑scale AI research, rain cash on engineers, and still have ample dry powder to court promising start‑ups—assuming regulators allow any future marriages.
Conclusion
Adobe still charges fifty‑five dollars a month for full Creative Cloud access, offering more than twenty apps forged over decades. Canva collects a tenth of that per user for its Pro tier yet touches a community more than five times larger. Figma charges fifteen dollars per editor each month but dominates the product‑design conversation to the point that job postings now list “Figma proficiency” above “Photoshop competence”. Midjourney, charging up to sixty dollars for unlimited GPU time, has proved a hobby project can mint real cash when the outputs mesmerise.
Adobe’s fortress is weather‑beaten but far from fallen. The company still commands the professional summit, with the richest plug‑in ecosystem and the world’s deepest archive of creative know‑how. Yet gravity is tilting toward tools that privilege accessibility, instant collaboration, and AI‑first ideation—territory where upstarts moved earlier and faster. To keep the sceptre, Adobe must prove it can be more than the final coat of varnish; it needs to be the place where the next wave of creators starts, experiments, and finishes their work without peeking over the parapet. It needs to grow; tech investors don't value melting icebergs.
A senior art director phrased it in a late‑night Slack exchange: “My interns concept in Midjourney, refine in Figma, schedule in Canva, and open Photoshop only when they hit a wall. If Adobe wants its crown in five years, it can’t just be the last step. It has to be the playground.” That single line captures the crossroads: stay a polishing studio for the masters, or reinvent as the playground for everyone else. The moat is still wide, but the smartest generals know: moats matter less when the sky is full of drones. See our latest portfolio update to find out whether the stock has secured a spot in our wide-moat quality portfolio.
