Core Viewpoint - Adobe has delivered strong quarterly performance with double-digit revenue growth and a steady increase in Annual Recurring Revenue (ARR), yet the market perceives it as a mature company facing growth stagnation, leading to declining valuation multiples [1][2][6]. Financial Performance - In Q4 of FY2025, Adobe's revenue reached $6.19 billion, a 10% year-over-year increase, with non-GAAP earnings per share of $5.50, up 14% [4]. - The company generated over $10 billion in operating cash flow and completed nearly $12 billion in stock buybacks, reducing the number of outstanding shares by over 6% [5]. - The subscription business remains the core growth engine, with AI-driven revenue now accounting for over one-third of total business [5][15]. AI Integration and Growth - Adobe has fully integrated AI technology into its product suite, with a significant increase in the usage of generative credits, maintaining an ARR growth rate above 10% [2][5]. - The number of large customers with over $10 million in ARR has grown by over 25%, exceeding 150, and new order volumes have reached historical highs [5]. Market Position and Valuation - Adobe is compared to PayPal, as both companies hold leading positions in their respective fields and generate stable cash flows, yet both have seen valuation multiples contract due to competitive pressures [8][11]. - Adobe's ARR growth rate is projected at approximately 11% for FY2025 and 10.2% for FY2026, down from previous rates of 15%-20%, which supported higher growth valuations [11][12]. Competitive Landscape - Adobe faces intense competition from platforms like Canva and Figma, as well as Microsoft's Copilot and various large language models, which threaten its market position [11][12]. - The market's perception of Adobe has shifted from a "structural winner" to a "potentially disrupted traditional giant" [12]. Future Outlook - If Adobe can maintain an ARR growth rate above 10% and continue to commercialize AI effectively, its valuation could shift from a "stagnant growth software company" with a 15x P/E ratio to an "AI-enabled compounding business" with a 20-22x P/E ratio [17]. - The current P/E ratio relative to growth is below 1, indicating that Adobe is an attractive investment opportunity [18]. Strategic Direction - Adobe's strategy focuses on controlling the entire workflow and content supply chain rather than just providing one-off services, which is seen as a correct direction [20]. - The success of this strategy will ultimately determine whether Adobe can expand its competitive moat or if it will diminish [20]. Conclusion - Labeling Adobe as the "new PayPal" reflects an overly pessimistic market sentiment, while its core business fundamentals remain strong [23]. - If management executes its strategy effectively, maintaining a 10% ARR growth and a 45% profit margin, the current valuation may appear highly attractive in hindsight [24].