Adobe (ADBE) says its freemium creative apps now draw more than 100 million monthly active users, a base up over 70% in a year. Management chose to chase that growth rather than take the “short term relief” that pricing actions might have delivered. Over the same stretch, the shares lost 28% in the year to September 11. At 14 times net income for the four quarters through May, the stock sells for less than half its three-year average multiple of 30.8.
Operating income kept growing. It reached $9.1 billion for the four quarters through its second fiscal quarter, up from $8.2 billion a year before. At its old multiple, the same net income would put the stock above $500, more than double today’s price. So the real issue is how Adobe converts those users into paying customers, and whether that is enough to restore the old multiple.
Why Is Adobe’s Valuation Suppressed?
Shrinking profits are not the explanation. Revenue rose 11.5% over the four quarters through May. Operating margin came in at 36.1%, a touch above its three-year average of 35.7%.
Net margin, the figure today’s multiple rests on, was 28.7% against a three-year average of 27.9%. Across ten years the multiple has swung between 11.4 and 61, which leaves 14 close to the floor. When margins look normal and the multiple does not, investors are questioning future growth rather than current earnings.
That questioning was plain on Adobe’s September 10 call for fiscal Q3 2026. Net new annual recurring revenue was down 36% to 37% year-over-year, according to one analyst. A second pointed out that growth in contracted revenue not yet recognized had fallen to single digits for the first time since early fiscal 2023. A third read the fiscal Q4 guidance as implying only “modest sequential revenue growth” for the creative and marketing professionals business.
Price targets tell a similar story. Targets published over the year to September 11 averaged about $314. Those from the three months to September 11 averaged about $273, not far above the stock’s close of roughly $252 that day.
Where Will Revenue Growth Acceleration Come From?
The main source is the freemium funnel: bring in users first, then turn them into paying customers. Anil Chakravarthy becomes chief executive on December 1. He said Adobe first deepens how those users engage, then converts them “at the right time” into revenue. Management said monthly active users across all businesses grew over 20% year-over-year to over 1 billion.
The second source is AI. Management linked a 40% quarter-over-quarter rise in annual recurring revenue from the Firefly apps and Firefly credit packs to heavier usage. AI-first products now carry more than $650 million of annual recurring revenue, growing over 150% year-over-year. Management added that AI credit consumption is accelerating.
Still, set against $27.5 billion of total Adobe annual recurring revenue, the AI-first business remains small. A third lever is the Creative Cloud pricing changes Adobe put off. One analyst asked when they would resume, and management gave no date.
That analyst recalled that June guidance had flagged “headwinds from doubling down on the freemium strategy” and from deferring pricing. Chief executive Shantanu Narayen said he was pleased Adobe had not leaned on pricing actions. Such moves might have offered “short term relief,” in his words, but new user adoption mattered more.
So the freemium bet has not failed, but it has not yet stopped the drop in net new recurring revenue. Is that dip the intended cost of the strategy, or a sign of softer demand? That puzzle soon passes to Chakravarthy, with Narayen staying on as executive chair.
How Does Adobe Stock Rise From Here?
Getting to $500 needs more than rising earnings, which are the slower of two paths. Analysts see adjusted earnings of about $24.48 a share this fiscal year, rising to about $27.71 in fiscal 2027. At a constant multiple, that growth leaves the stock far from doubling.
Those forecasts also bake in wider margins, since earnings are projected to outpace revenue. The quicker path is a higher multiple. Investors would pay up again for Adobe’s profits only if they saw growth returning.
The strongest evidence would be net new recurring revenue rising while the freemium base keeps expanding. Adobe’s fiscal Q4 2026 results, expected in December, are the next checkpoint. For that quarter, management is aiming for revenue of $6.80 billion to $6.85 billion. Its shares slid over the two sessions following five of its six reports from March 2025 through June 2026.
It has been a bumpy ride, too. From a September 2025 peak to a June 2026 low, the stock dropped 47.4% within the past year. On September 11, it was still about 31% under that high.
So Does The Doubling Case Hold Up?
Right now it is a calculation, not a forecast. Put the old multiple back on current profits and the stock more than doubles, and margins are not what stands in the way. The missing piece is evidence that freemium users are paying at a scale big enough to move net new recurring revenue.
Should that number start climbing while the freemium base grows, investors have room to move back toward the old multiple. If it keeps sliding, an earnings multiple near 14 times may reflect investor consensus for a slower-growing Adobe, making a path back to prior highs significantly more challenging.
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