Investing.com -- Citi downgraded Adobe to Sell, saying it sees downside risk to consensus growth estimates into fiscal 2027 as a leadership transition coincides with mounting competitive and macro pressure on the company's Creative business.
"[We] see rising risk of a hard reset," the bank's analysts said, cutting their price target on the stock to $207 from $250.
Adobe shares fell more than 2% in premarket trading Wednesday.
Citi said incoming CEO Anil Chakravarthy, who takes over Dec. 1, assumes the role "amid key leadership vacancies," including the CFO and the head of Digital Media. Given those gaps and the Creative unit's evolving go-to-market strategy, the bank expects a weaker fiscal 2027 outlook when Adobe reports fourth-quarter results in early December.
"A "hard reset" would pressure shares near term but provide time to rebuild leadership, refine strategy, and establish a more achievable base to accelerate," Citi analysts wrote. They expect the new CEO to make "thoughtful, strategic changes" to Creative, potentially at the expense of near-term growth.
Adobe's recent results and industry data suggest competitive, AI and macro and small-business pressures are intensifying, the analysts noted. The team expects Adobe to lean more on top-of-funnel growth through AI and Firefly, rather than on its classic Creative Cloud suite, which has relied on price increases.
That shift in focus to monthly active users will likely weigh on total annual recurring revenue (ARR) in fiscal 2027 and 2028, Citi said, as Adobe continues to forgo price-increase-driven monetization and steers new users toward lower-priced offerings. The impact should be greatest in core Creative, compounded by weak small-business demand and competition from web-based and AI-native tools.
The bank estimates the user-growth emphasis could add 200 basis points of pressure to fiscal 2027 ARR growth, while pricing faces a headwind of about 50 basis points as Adobe laps earlier Creative Cloud increases. Additional price increases look unlikely as management prioritizes top-of-funnel growth, analysts said.
Citi cut its net new ARR estimates for fiscal 2027 and 2028 by roughly $470 million and $500 million, to $1.5 billion and $1.35 billion. That takes total ARR growth to 5.3% and 4.5% year over year, 200 to 300 basis points below Street estimates. The broker sees consensus for both years as too high.
It also lowered its fiscal 2027 non-GAAP gross margin estimate by 70 basis points to reflect unmonetized AI inference costs, partly offset by operating leverage, and sees sharply lower revenue in fiscal 2028 as well as modest margin degradation.
Original Article
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