Sohn Conference Foundation · 2025-05-20 · 7 min

William Heard pitches Adobe at Sohn 2025

William Heard

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TL;DR

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.”

Digest · the substance, structured for research

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.

William Heard

Good afternoon, everyone. Thank you for having me. I'm William Heard from Heard Capital, and I'm excited to share my best idea.

This is a company most of you know, have heard of, and use multiple times a day. Yet it remains misunderstood. It is a leader in the digital content arena, and we believe it has significant upside.

1. AI Is Reshaping Content Creation

AI has unlocked a new era of content innovation. Hundreds of millions of pieces of AI-generated content are created daily, with use cases spanning advertising, marketing, entertainment, and social media platforms. Creatives and enterprises need advanced tools to transform raw AI material into competitive IP while seamlessly integrating the latest AI capabilities into the creative workflow. As regulatory scrutiny increases, enterprises face mounting pressure to ensure AI-generated content does not infringe on IP.

Finally, scattered workflows drain creative momentum as teams wrestle with compatibility issues and manual fixes. This chaos demands a comprehensive solution—one that innovates, unites, and safeguards creativity at scale.

2. Adobe Is The Investment Idea

Our investment idea is Adobe. We believe the market is discounting an installed base of 45 million-plus subscribers, assuming AI will disrupt rather than further entrench Adobe's competitive position. At the enterprise level, Adobe's TAMs are not fully penetrated, and Adobe has already demonstrated pricing power on a larger installed base. We believe Adobe is well positioned to win the generative AI arms race in the digital content creation arena.

3. Adobe's AI Rollout Is Deliberate

We understand investors have grown impatient with Adobe's pace of modernization. However, we believe prioritizing an understanding of AI workflow adoption patterns is the right sequence for a few reasons. To begin with, critics misunderstand the basics of the creative workflow: large language models excel at ideation but lack the precision of Adobe's software needed to finalize content. Second, the market has misread Adobe's deliberate approach to AI modernization as defensive, rather than as a strategic product rollout that will further consolidate its already strong competitive position.

These actions will not impair value. Third, Adobe's management team has a track record of navigating complex technological shifts, such as the move into the cloud and the switch to a subscription-based model. These decisions were not accidental.

4. Firefly Protects Adobe's Moat

Adobe has 3 segments: Creative Cloud, Document Cloud, and Experience Cloud. Adobe's subscription model ensures revenues are built on strong pillars such as content digitization, mobile-first workflows, and surging video consumption. GenAI is powerful for ideation, but refining content still requires Adobe's precision editing tools. Firefly, Adobe's GenAI model, has pixel-level control and is trained on licensed, ethically sourced data, ensuring outputs are commercially viable and that use cases and usage rights are cleared.

5. Adobe Trades Below Its History

Looking at any measure of profitability—free cash flow, gross margin, or EBITDA margin—Adobe ranks at or near the top of its peer set, yet trades at the lowest forward relative P/E multiple. On the capital allocation front, management has bought back almost 10% of the current market cap, with $14 billion of a $25 billion buyback program remaining. Despite strong fundamentals, at 19 times P/E, Adobe is trading at trough multiples relative to its 10-year average of 33 times, reflecting investors' concern over muted growth. With that said, the rule of 40 for Adobe is 58%, offering a great risk-reward.

6. AI Is Reaccelerating Growth

Driven by AI and Express, Adobe's Creative Cloud is accelerating from 6% growth in 2023 to 24% growth this year, proving Adobe's AI rollout is working. Concerns regarding low-end competitors such as Canva, in my opinion, miss the mark. Adobe's strategic pricing allows it to defend the low-end cohort with competitive offers while pushing pricing at the higher end, where Adobe's tools are unmatched. The creative market is expanding.

This is not a zero-sum game. Adobe's monetization is gaining traction, and engagement is driving margins up across the platform. Adobe recently disclosed over $3.5 billion in AI-influenced ARR, meaning AI is already positively impacting retention, usage, and upgrade cycles. Growth is at an inflection point. First, we believe consensus estimates are too low over the next 3 years.

Second, most of Adobe's AI products have been in the marketplace for less than a full year. Third, at the 2025 Investor Day, they reaffirmed their guidance. Finally, our $700 price target implies substantial upside using 25 times EBITDA, 33–34 times P/E, and 33 times free cash flow multiples, all of which are in line with Adobe's historical range. With meaningful AI ARR, the potential for margin expansion as monetization scales will drive upside to current EPS estimates and provide multiple ways for Adobe to win. Thank you.

Speaker 1

Thank you, William. Thank you. At Sohn, we always try to be on the latest theme. I'm sure you haven't heard of AI before, but we're going to fix that. There's a fireside chat with the CEO of Perplexity and with Sebastian Mallaby, who's actually writing the book on AI.

So, I recommend you pre-order that. I asked Perplexity, “What is the best question for William?” And it was, “William, what can go wrong?”

William Heard

Yeah. I think Adobe has proven it's not if; it's when this is going to occur. We have a saying at Heard Capital: valuation is a continuum. It's not a point in time. If you look back, the CEO has been at the helm of this company for about 17 years. They bought back about 54% of their market cap during that time period.

And he's grown the company from $27 billion to $170 billion. Over time, I think we'll wait for slow, profitable growth in any environment. Adobe is literally embedded in everything you do. So, thank you.