Adobe: The Next PayPal or the Next Google?

Adobe (ADBE) achieved a 10.5% revenue growth in fiscal year 2025, with its Annual Recurring Revenue (ARR) climbing steadily and the practical application of artificial intelligence technology expanding continuously. However, the market increasingly views Adobe as a mature leader with stagnant growth, assigning it ever-lower valuation multiples. Adobe is gradually being relegated to the status of a 'new generation PayPal'.

1. Fiscal Year 2025 Q4 Performance

Adobe delivered a strong all-round performance in the fourth quarter of fiscal year 2025. Revenue for the quarter rose to $6.19 billion, a year-on-year increase of 10.5%; non-GAAP earnings per share reached $5.50, up 14% year-on-year. Quarterly Operating cash flow surpassed $10 billion, while $12 billion in Stock repurchases were completed, reducing total shares outstanding by over 6%. The subscription business remains the core engine of growth. Like most tech companies, Adobe is also actively embracing Artificial Intelligence. According to the earnings call, the new annual recurring revenue driven by AI technology now accounts for more than one-third of the company's total business scale.

Generative credit usage across the three major platforms—Firefly, Express, and Creative Cloud—grew threefold quarter-over-quarter. Monthly active users (MAUs) of free-to-premium creative products (including Firefly, Express, and Adobe Premiere Pro. etc) exceeded 70 million, a year-on-year surge of over 35%. The number of major clients with annual recurring revenue exceeding $10 million grew by over 25% to surpass 150, with new order volumes reaching a historical high.

Adobe projects fiscal year 2026 revenue of $25.9–$26.1 billion, Non-GAAP Earnings Per Share of $23.30–$23.50, and an operating margin of approximately 45%. Overall, this is a company with steady growth, strong profitability and a commitment to rewarding shareholders.

However, it is evident that such performance has yet to meet investors’ expectations.

2. Is Adobe the Next Paypal?

Adobe and PayPal (PYPL) share several significant similarities:

a) Both maintain dominant platform positions within their respective core sectors (creative/marketing software for Adobe, and online payments for PayPal respectively);

b) Both generate substantial, stable recurring cash flows and possess attractive profit margins;

c) Despite their large scale, both maintain revenue growth in the high single-digit to low double-digit range.

However, the valuation multiples of both companies have contracted, as investors increasingly focus on industry competition and 'disruptive threats'.

The stock price trends of the two companies have also been highly similar over the past year.

For PayPal, the trigger for the downward valuation adjustment was the deceleration of total payment volume growth relative to historical levels, profit margins hitting a ceiling, and rising competition from Apple Pay, Stripe, Buy Now, Pay Later (BNPL) services, and banking applications becoming key points of market concern.

And Adobe is facing a similar situation. Its annual recurring revenue growth stood at around 11% in fiscal 2025, with a fiscal 2026 growth guidance of 10.2%—a healthy pace, but a far cry from the previous 15%-20% range that justified a valuation premium as a "high-growth compounding enterprise". To make matters worse, Adobe is currently facing intense industry competition: the online design platform Canva is growing rapidly, and the collaborative design tool Figma (FIG) boasts strong competitiveness. Most notably, Microsoft's (MSFT) Copilot and various large language models are attempting to replicate Adobe's core features at a lower price.

From an operational perspective, Adobe remains a high-performing leader; however, in terms of market sentiment, it has been downgraded from a 'structural winner' to a 'traditional giant vulnerable to disruption'.

But will Adobe continue to underperform the market, or is it poised for a valuation recovery similar to that of Google?

3. Adobe’s Google Moment?

Over the past year, market sentiment toward Adobe has mirrored its former perception of Google—at the time, Google was widely regarded as a primary loser in the AI wave. However, Google demonstrated through its actions that it possessed the capability to deploy, integrate, and commercialize AI technology at scale across its entire ecosystem, ultimately reversing the market narrative and driving a rapid valuation recovery.

Today, Adobe stands at a similar potential inflection point.

Adobe has quietly constructed one of the industry's most comprehensive and vertically integrated Artificial Intelligence technology stacks, encompassing Firefly large models, third-party model orchestration systems, Generative credits, agentic interfaces, enterprise-grade content automation tools, and fully closed-loop marketing workflows. The effectiveness of this AI strategy is already reflected in the financial data rather than remaining at the presentation stage: annual recurring revenue driven by AI now accounts for more than one-third of total business scale, Generative credits have grown exponentially, and enterprise-level orders directly related to AI workflows reached a record high in the fourth quarter.

Currently, the market's valuation logic for Adobe remains trapped in the narrative that 'it is struggling to survive against Canva, Figma, and Copilot.'

However, if investors could view Adobe as an AI platform company rather than a traditional giant—much like they view Google today—its valuation multiple is expected to expand significantly.

4. Adobe's Valuation and Risks

If Adobe can stabilize its annual recurring revenue growth rate above 10% and continue to advance AI commercialization, its valuation logic is expected to shift from the 15x P/E ratio associated with 'growth-stagnant software company' to a 20–22x P/E ratio associated with 'AI-empowered compounding company'.

From a free cash flow perspective, the free cash flow yield of such a high-quality company remains attractive. Unlike AI companies that require massive infrastructure investment, Adobe's capital expenditure requirements are relatively modest, allowing the majority of its operating cash flow to be directly returned to investors.

Adobe is fully capable of maintaining balance sheet flexibility while making technology investments and implementing share repurchases. As an industry leader, Adobe has diversified revenue streams with a clear AI commercialization path. With its current PEG ratio below 1 and a forward PEG ratio of 1.10, some market participants argue that Adobe's current valuation is attractive rather than overvalued. In other words, as long as management executes the established strategy step by step—achieving 10% annual recurring revenue growth, maintaining a 45% profit margin, advancing AI technology implementation in an orderly manner, and continuing share repurchases—the current valuation level will appear highly attractive in retrospect.

Comparing Adobe to PayPal also serves as a risk warning. The market's cautious sentiment actually stems from genuine, underlying risks. If a Large Language Model, when combined with low-cost tools, can generate 'good enough' creative content for numerous application scenarios, then some of Adobe's customers may pivot to more affordable alternatives. Adobe's response strategy is to take control of the entire professional workflow and content supply chain, rather than limiting itself to the provision of one-time image or document generation services. While this strategic direction is sound, whether it ultimately widens the moat or causes it to shrink remains dependent on execution effectiveness.

If the annual recurring revenue growth rate falls below the critical threshold of 10%, investors will question whether Adobe’s AI strategy is truly creating incremental value or merely serving as a defensive measure. Amid intense market competition, this issue will become increasingly prominent.