QS Research · Michael Burry's Scion Capital analyst template · 2006
ADOBE INC. (ADBE)
As of 2026-11-08 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction medium · base case +29% · downside -25% · upside +61%
At $239.30 the market pays the given 9.4x EV/EBITDA, 12.8x P/E and 11.4% FCF yield for a TTM business with $10.04B EBITDA, $10.59B FCF and $9.29B of buybacks, while Q3 FY2026 revenue grew 13% and FY2026 targets were raised. The fear is AI competition and 10.2% ARR growth, not current operating deterioration. On a 12.0x EV/EBITDA base (12.0 x $10.04B = $120.5B EV, less $0.724B net debt = $119.8B, /389.20M = $307.7, +28.6%), 7.0x downside ($178.7, -25.3%) and 15.0x upside ($385.1, +60.9%), reward/risk is about 2.4:1 but the base is just under +30% and the downside is 0.3pt below -25%, so it is a watch rather than a long. A Q4 print that holds ARR/AI ARR and margins would make the base case clear the long rule.
Key numbers
- Share price: $239.30
- Market cap: $93.14B
- Latest financial period: TTM to Aug 28, 2026
- Revenue (TTM): $25.97B
- EV / EBITDA (TTM): 9.4x
- P/E (TTM): 12.8x
- Price / book: 7.92x
The 15 boxes
- ✓ 1. Long-form business notes
Adobe sells subscription access to creative, document and marketing software across three FY2025 reportable segments (Digital Media, Digital Experience, Publishing and Advertising), which the company says will be merged into one reportable segment from Q1 FY2026. Revenue compounded from $12.87B in FY2020 to $23.77B in FY2025 while operating income rose from $4.24B to $8.71B, and operating cash flow from $5.73B to $10.03B. The business has shifted between the FY2020 and FY2025 10-Ks from a Creative Cloud/Document Cloud story built on Adobe Sensei to a Firefly foundation-model, AI-agent and GenStudio/Experience Platform story, sold through freemium-to-subscription funnels (Acrobat Reader to Acrobat Studio, Creative Cloud Pro, Firefly tiers) plus enterprise direct sales and channel partners. Capital return is large relative to earnings: $11.28B of buybacks in FY2025 against $7.13B of net income, leaving total equity at $11.62B and diluted shares at 427.0M.
- ✓ 2. Competitive advantage
The supplied filings show a scaled, cash-generative software business: revenue rose from $12.87B in FY2020 to $23.77B in FY2025, gross profit from $11.15B to $21.22B, and operating cash flow from $5.73B to $10.03B. But the 10-K describes intensely competitive markets with limited barriers to entry, customer price sensitivity and AI-native entrants, while its brand/category-leadership claim is not backed by quantified retention, share or switching-cost data. Competitors span software, AI, hardware, OS and social-media companies across productivity, creative and marketing tools. The sources support scale and cash generation, not a clearly durable pricing moat.
- ✓ 3. 10-Q takeaways
Q3 FY2026 (quarter ended Aug 28, 2026) was a 13% revenue-growth quarter: total revenue $6.760B, subscription $6.582B (+14%), ARR $27.50B (+11.2%), with GAAP operating income up to $2.354B on revenue growth that outran opex (+15%) but not cost of revenue (+19%, hosting/AI infrastructure). Cash generation was strong (Q3 operating cash flow $2.523B, nine months $7.646B) and $2.232B went into buybacks in the quarter, while cash fell to $4.359B and working capital turned negative $(2.730)B as $1.35B of notes were reclassified current. The earnings release carries numeric Q4 and FY2026 targets (Q4 revenue $6.80–6.85B, FY2026 non-GAAP EPS $24.45–24.50) and says the FY targets were raised; the 10-Q's Item 1A continues to frame AI competition and AI innovation as core risks.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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