Adobe's Potential In Generative AI Era: Analyst Highlights New User Adds, Recurring Revenue Growth

BMO Capital Markets analyst Keith Bachman reiterated the Outperform rating on Adobe Inc. ADBE, with a price target of $645.00.

The analyst highlights ADBE as his top pick, highlighting the generative AI era that has created a new growth potential for Adobe across its clouds. Over the near term, Bachman believes Adobe will focus more on new user adds and up-sell into the Creative Cloud and less on leveraging pricing, though all areas can help drive sustainable long-term growth. 

Adobe offers freemium products for Adobe Firefly, Adobe Express, mobile apps, Acrobat Web, and Acrobat Reader, the analyst highlights. 

Firefly and Express have notably been introduced/enhanced in the past year. Bachman thinks these products meaningfully expand Adobe's potential user base, including knowledge workers who use PowerPoint.

Bachman thinks Adobe has about 30 million Creative Cloud users versus about 380 million Microsoft Corporation's MSFT Microsoft Office Commercial seats. The analyst notes this represents a large market for Adobe to go after.

Adobe did not increase the price of Adobe Express when it announced price increases in September despite adding value to the product with gen AI over the past year. The analyst thinks this reinforces the focus on user growth. 

Adobe management disclosed data points such that 90% of Firefly web application users are not paid Adobe subscribers. 

Hence, if even a portion of these users can become paid Adobe customers over time, the analyst adds that this could help net new ARR (annual recurring revenue) growth over the medium term.

Adobe also announced expansions of partnerships, including with Alphabet Inc. GOOG GOOGL Chromebook to have Express installed natively. 

Bachman thinks this partnership can help with the education market.

Price Action: ADBE shares are trading higher by 3.23% to $549.94 on the last check Wednesday.