Despite reporting a revenue growth of 11% year-over-year and a boost in adjusted net profit margins, Adobe anticipates a revenue increase of only 9% in the upcoming quarter. This deceleration in revenue growth, coupled with a substantial one-time termination fee from the Figma deal, underlies Chew's cautious stance on the stock.
This delayed revenue potential, along with a valuation that Chew implies might not fully reflect these headwinds, leads to the recommendation to reduce holdings. The unchanged discounted cash flow target price of US$465, with a weighted average cost of capital of 7.3% and a growth rate of 4%, suggests that the expected future cash flows do not justify the current market price, reinforcing the Sell rating.
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