Fundamental Analysis Case Study: Adobe Inc (Shariah) – Adobe Keeps Printing Cash, But Where Will It Go?
•By Mahersaham Team
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This article is not investment advice. The author does not hold any position in Adobe stock at the time of writing.
The purpose of this article is purely educational and informational.
Adobe Inc. (NASDAQ: ADBE) is no ordinary company. It is capable of converting more than 35% of its revenue directly into free cash flow (FCF), generating approximately $9.4 billion over the trailing twelve months. That is an extraordinary achievement for a technology company — among the very best in the industry. With that much cash at its disposal, the question is: will Adobe continue aggressively buying back shares, or begin investing heavily in strategic AI companies?
Adobe operates with highly efficient margins. Out of every dollar that comes in, more than 35 cents becomes net cash flow that can be used for investments, share buybacks, or acquisitions of other companies.
With an FCF yield of around 6–6.3%, Adobe sits in the top tier compared to other software companies. This gives them the power to plan their future with flexibility — whether it is adding value for shareholders or strengthening their position in the increasingly competitive field of AI.
In March 2024, Adobe''s board of directors approved a massive plan: $25 billion for share buybacks, valid until 2028. Prior to this, they had already repurchased shares worth $5 billion in 2023 — equivalent to 119% of that year''s FCF.
With an estimated annual buyback return of approximately 7.2%, it is clear that Adobe views its own shares as a worthwhile investment. When a company begins buying back shares on this scale, it is typically a sign that they believe the true value of their stock has not yet been recognised by the market.
Adobe has made bold moves in the past, such as attempting to acquire Figma for nearly $20 billion (although it was ultimately halted due to regulatory issues). They have also acquired Frame.io and Workfront — all to strengthen their creative ecosystem.
So, do not be surprised if Adobe makes an AI company acquisition that complements or accelerates their products — particularly in the field of generative AI, which is currently red-hot. However, they also need to be cautious — any large acquisition will likely face scrutiny from antitrust authorities.
In the near term, share buybacks are likely to remain dominant — as Adobe has a large budget and management may consider the current share price ''undervalued''.
However, in the medium term, smaller AI acquisitions remain a possibility — provided they help Adobe maintain its position as a leader in the digital creative and automation space.
Adobe is sitting on a gold mine — with very healthy cash flow, a mega buyback programme, and a disciplined track record of capital management. For now, investors can expect two things:
The combination of these two strategies not only strengthens Adobe''s position today, but also ensures they remain relevant in a future increasingly driven by AI technology.
Fundamental analysis is a method of evaluating the true value of a company based on financial data such as revenue, cash flow, debt, and growth.
Yes, Adobe Inc. is categorised as a Shariah-compliant stock. Investors should always check the latest Shariah status as it may change over time.
A buyback programme means Adobe repurchases its own shares on the open market using the company''s cash to increase the value of each remaining share.
Yes, Malaysian investors can invest in Adobe stock through broker platforms that offer access to the US NASDAQ market.
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