William Heard pitches Adobe at Sohn 2025

Summary

• William Heard of Heard Capital pitched Adobe at Sohn with a $700 price target, arguing the market wrongly assumes “AI will disrupt rather than further entrench Adobe’s competitive position.” He points to Adobe’s 45M-plus subscribers, underpenetrated enterprise TAMs, demonstrated pricing power, and positioning to win the generative-AI arms race. The target uses 25x EBITDA, 33–34x P/E, and 33x FCF — all “in line with Adobe’s historical range” — versus Adobe’s 19x P/E and 10-year average of 33x.
• The workflow argument is the thesis’s core: “large language models excel at ideation but lack the precision of Adobe software to finalize content.” Firefly’s pixel-level control and “licensed, ethically sourced data” are intended to produce commercially viable, rights-cleared outputs as enterprises face IP-infringement scrutiny on AI content.
• Heard says Adobe’s deliberate AI rollout is already working: over $3.5B in AI-influenced ARR, and Creative Cloud “accelerating from 6% growth in 2023 to 24% growth this year,” driven by AI and Express. He believes consensus estimates are too low over the next three years; most AI products have been in market for less than a full year, and management reaffirmed guidance at the 2025 Investor Day.
• Canva concerns “miss the mark”: Adobe defends the low end with competitive offers while pushing price at the high end where its tools are “unmatched” — “this is not a zero-sum game.” Heard cites a 58% rule of 40 and Adobe’s near-top peer profitability despite its lowest forward relative P/E multiple.
• Capital allocation and management pedigree round out the call: management has repurchased almost 10% of the current market cap, with $14B of a $25B buyback remaining. The CEO has been at the helm for about 17 years; Heard said the company bought back about 54% of its market cap during that period while the CEO grew Adobe from $27B to $170B. Asked by the host’s Perplexity-generated question “what can go wrong,” Heard answered: “it’s not if; it’s when” — and “valuation is a continuum, not a point in time.”

Deep dive

1. The mispricing: 45M+ subscribers discounted as AI roadkill

• Heard framed Adobe as a widely used digital-content leader whose 45M-plus subscriber base is being discounted because the market assumes AI will disrupt rather than entrench its position.
• At the enterprise level, he said Adobe’s TAMs are not fully penetrated and that the company has demonstrated pricing power on a larger installed base. He believes Adobe is positioned to win the generative-AI arms race.
• His workflow counter is that critics “misunderstand the basics”: LLMs ideate, while Adobe’s precision tools finalize content. He called the deliberate rollout a strategic product sequence rather than a defensive crouch and said it would not impair value; Adobe’s prior cloud and subscription transitions support that management judgment.

2. Firefly and IP safety as the enterprise moat

• With hundreds of millions of AI-generated content pieces created daily and regulatory scrutiny rising, enterprises need tools that integrate AI into creative workflows while addressing IP risk and scattered, incompatible processes.
• Heard said Firefly’s “licensed, ethically sourced data,” pixel-level control, and cleared use cases and usage rights make outputs commercially viable.
• He also highlighted Adobe’s three segments — Creative Cloud, Document Cloud, and Experience Cloud — and a subscription model supported by content digitization, mobile-first workflows, and rising video consumption.
• Proof that the rollout is monetizing, in his view: more than $3.5B in AI-influenced ARR and Creative Cloud growth accelerating “from 6% growth in 2023 to 24% growth this year.”

3. Valuation and competitive positioning

• Heard said Adobe ranks at or near the top of its peer set on free cash flow, gross margin, and EBITDA margin, yet trades at the lowest forward relative P/E multiple. At 19x P/E versus a 10-year average of 33x, he characterized the multiple as trough-level.
• Management has bought back almost 10% of the current market cap, with $14B remaining on a $25B buyback program. The rule of 40 is 58%.
• Canva concerns “miss the mark,” he said: Adobe can defend the low end with competitive offers while raising prices at the high end, where its tools are “unmatched.” The creative market is expanding, so “this is not a zero-sum game.”

4. Growth, monetization and the risk question

• Heard believes consensus estimates are too low over the next three years. Most Adobe AI products have been in the marketplace for less than a full year, management reaffirmed guidance at the 2025 Investor Day, and AI-influenced ARR is already supporting retention, usage, and upgrades.
• He expects margin expansion as monetization scales. His $700 target applies 25x EBITDA, 33–34x P/E, and 33x FCF multiples, all within Adobe’s historical range.
• In response to the host’s Perplexity-generated question, “what can go wrong?”, Heard said Adobe has proven “it’s not if; it’s when this is going to occur,” adding that “valuation is a continuum” rather than a point in time. He cited a CEO at the helm for about 17 years, during which the company bought back about 54% of its market cap while growing from $27B to $170B.