Key Takeaways
- Following its abandoned acquisition of Figma, Adobe has pivoted towards an exceptionally aggressive capital return policy, underscored by a new $25 billion share repurchase authorisation announced in March 2024.
- The company’s repurchases over the trailing twelve months have exceeded 100% of its free cash flow, a pace that stands in stark contrast to more balanced peers like Microsoft.
- This strategy presents a core dilemma: it either signals management’s profound belief that its shares are undervalued or suggests a potential shortage of compelling internal reinvestment opportunities in the face of intense AI competition.
- The ultimate verdict on this financial engineering will depend not on the buybacks themselves, but on the ability of Adobe’s generative AI products, chiefly the Firefly suite, to reignite top-line growth and defend its creative software moat.
Adobe has embarked on one of the most aggressive capital return programmes in its history, a strategic pivot that is forcing investors to question whether the software incumbent is signalling deep value or a deficit of growth opportunities. With a fresh $25 billion share buyback authorisation initiated earlier this year, the company is now deploying capital at a rate that exceeds its free cash flow generation. This manoeuvre, occurring in the shadow of its terminated pursuit of Figma, represents a critical juncture for a firm navigating the crosscurrents of AI disruption and a maturing core business.
A Buyback Programme of Unusual Scale
The headline figures surrounding Adobe’s buybacks warrant careful inspection. While some forward-looking projections have suggested a buyback yield approaching unprecedented levels for the company, a look at the trailing twelve months provides a more grounded perspective. Based on recent financial filings, Adobe has repurchased approximately $8 billion of its stock over the past four quarters. Against a current market capitalisation of roughly $245 billion, this equates to a trailing buyback yield of approximately 3.3%.1
However, the pace is accelerating dramatically. The new $25 billion authorisation, announced in March 2024, replaced the previous $15 billion programme from 2020 and signals a clear intent from management.2 This war chest was effectively funded by the capital that had been set aside for the $20 billion Figma acquisition. When that deal was abandoned due to regulatory hurdles, Adobe was left with a significant cash pile and a strategic imperative to placate investors. The decision to channel this into buybacks, rather than another large acquisition or a massive increase in research and development, is a defining choice about the firm’s future.
The Capital Allocation Conundrum
To understand the magnitude of Adobe’s strategy, it is useful to place it in the context of its software-as-a-service (SaaS) peers. While returning capital to shareholders is standard practice for mature technology firms, the proportion of cash flow being dedicated to the effort at Adobe is a notable outlier.
| Company | Market Cap (USD, approx.) | TTM Buyback Yield | TTM FCF Allocation to Buybacks |
|---|---|---|---|
| Adobe ($ADBE) | $245 billion | ~3.3% | ~115% |
| Microsoft ($MSFT) | $3.7 trillion | ~0.8% | ~42% |
| Salesforce ($CRM) | $300 billion | ~3.2% | ~95% |
Note: Figures are approximate, based on publicly available financial reports as of late 2024.
As the table illustrates, Adobe is spending more on repurchases than it generates in free cash flow, funding the difference from its balance sheet. This contrasts sharply with Microsoft, which maintains a more conservative approach, preserving ample capital for strategic initiatives like its partnership with OpenAI. Salesforce has also become more aggressive with buybacks, particularly under pressure from activist investors, but Adobe’s commitment appears more structural following the Figma collapse.
Growth Engine or Financial Engineering?
The central debate is whether these buybacks are a prudent use of capital or a form of financial engineering designed to mask slowing growth. The bullish interpretation is that management sees a disconnect between the company’s intrinsic value and its public market valuation. By repurchasing shares, they mechanically boost earnings per share (EPS) and signal confidence in the long-term earnings power of the business, particularly its generative AI-driven products like Firefly and GenStudio.3
The more sceptical view is that this is a defensive move. The competitive landscape for creative software is intensifying, with AI-native challengers emerging. If Adobe lacks compelling, high-return internal projects to invest in, returning cash to shareholders is the default, if uninspired, option. It supports the share price in the near term but does little to address the fundamental challenge of innovating at a pace that justifies a growth-stock valuation.
Ultimately, the success of this strategy is inextricably linked to the performance of Adobe’s product pipeline. The buybacks create a supportive floor for the stock, but only genuine, AI-fuelled growth in Annual Recurring Revenue (ARR) can provide a lasting ceiling. If the company’s new AI features fail to translate into meaningful revenue acceleration and pricing power, the buybacks will eventually be seen not as a sign of strength, but as a tacit admission that the company’s best growth days are behind it.
For now, the market appears willing to give Adobe the benefit of the doubt, buoyed by strong earnings and guidance. The speculative hypothesis, however, is that the efficacy of this buyback programme is a lagging indicator. The true test will unfold over the next 18 months. Should ARR growth begin to stagnate despite the AI product cycle, the market’s perception could shift rapidly, re-evaluating Adobe not as an undervalued innovator, but as a value trap transitioning into a mature, low-growth utility.
References
1. Analysis based on Adobe Inc.’s quarterly filings (Form 10-Q) for the periods ending in 2023 and 2024. Total repurchase value calculated from reported shares repurchased and average stock prices in those periods.
2. Adobe Inc. (2024, March 13). Adobe Authorizes New $25 Billion Stock Repurchase Program [Press Release]. Retrieved from Adobe’s investor relations website.
3. D’Onofrio, D. (2024). Adobe: Deeply Mispriced, Entering Growth Mode With AI. Seeking Alpha. Retrieved from https://seekingalpha.com/article/4800188-adobe-deeply-mispriced-entering-growth-mode-with-ai
fiscal_ai. (2024, October 2). [Post indicating Adobe is trading at its highest buyback yield ever]. Retrieved from https://x.com/fiscal_ai/status/1939353209795183007
