First published: December 9th 2025, latest update: December 9th, 2025

$25B buyback: lower multiples, higher long-term value

In March 2024, Adobe announced a new $25 billion stock repurchase program, authorized by its board of directors and scheduled to run through March 14, 2028. The initiative reinforces Adobe’s long-term strategy of returning capital to shareholders, offsetting stock-based compensation dilution, and supporting earnings-per-share growth over time.

Executing the remaining $8.4 billion of Adobe’s authorized share repurchase at today’s compressed earnings multiple represents a materially attractive capital-allocation opportunity. Repurchasing shares at this valuation enables Adobe to retire equity at a discount to intrinsic value, thereby enhancing the long-term accretion profile of the program.

As the share count declines into next years and beyond, long-term shareholders will hold a greater proportional claim on Adobe’s future per-share earnings and free cash flow. For investors focused on disciplined capital deployment and intrinsic value creation, the ability to complete buybacks at current valuation levels is strategically advantageous.

The real dilution cost of stock-based compensation and buybacks

Stock-based compensation (SBC) is a widely used and constructive tool. SBC helps attract and retain top leadership by aligning management incentives with long-term company performance. While SBC is treated as a non-cash expense on the income statement, it ultimately results in real economic dilution unless targeted buybacks are deployed, with the shares granted today offset through cash-funded share repurchases.

This dynamic becomes problematic when the repurchase of those shares occurs at significantly higher valuation multiples than when the compensation packages were originally awarded. If Adobe grants shares when the company trades at, say, below 20x current earnings, but later must repurchase them at, say, 35-40x, long-term shareholders bear the economic cost of that gap. In essence, SBC converts into a cash obligation priced not at the valuation when compensation was awarded but at the valuation prevailing when Adobe ultimately buys the shares back.

However, as long as Adobe executes buybacks at multiples below approximately 20x, the weighted-average repurchase multiple applied across all SBC-related share retirements remains constructive. This ensures that, over time, the aggregate cost of offsetting SBC dilution stays within a value-accretive range, even as individual grants vest across different market conditions. Put differently, if buybacks are consistently conducted below this relative valuation threshold, the effective multiple at which shares are repurchased – either to offset management compensation or to fulfill a certain capital allocation strategy – remains aligned with intrinsic value, preserving long-term shareholder returns and minimizing the economic drag of SBC.

Remember that it is a transfer of value: sellers exiting at elevated multiples capture the upside (i.e. an exuberantly optimistic counterparty accords the seller a disproportionately elevated exchange value), while the company – the buyer – deploys shareholder capital at prices that may exceed intrinsic value. As a result, SBC and generally buybacks can erode long-term value if not paired with a disciplined buyback strategy.

Why valuation discipline matters

Buybacks are most value-accretive when executed at lower valuation levels, typically in the below-20x earnings threshold for a healthy company with a clear competitive advantage. Operating within this band implicitly assumes that:

• the company is healthy and financially resilient,
• the growth rate is stable and credible, and
• the interest rate environment supports that valuation framework.

When these conditions hold, repurchases in this zone efficiently enhance long-term EPS and create value for shareholders.

However, once the stock trades materially above these thresholds, aggressive buybacks can become zero effective and instead destructive of value, because they transfer shareholder value to market participants selling at valuation levels that may embed unrealistic growth projections. In such cases, even when buybacks ostensibly offset dilution, they ultimately represent a deployment of shareholder capital to repurchase portions of a high-quality-yet-irrationally-overvalued company. The underlying economic burden remains, as shareholders are effectively financing the reversal of dilution at valuation levels unreasonably higher than those at which the equity awards were originally awarded.

When fundamentals deteriorate, the valuation framework breaks down

If a company’s fundamentals were to deteriorate sharply, the entire logic behind the below-20x repurchase threshold collapses. Earnings visibility weakens, growth assumptions become uncertain, and the cost of capital shifts. Valuation becomes more complex and scenario-driven, producing a wider valuation spectrum and, consequently, greater stock-price volatility.

In this environment, buybacks can no longer be relied upon as a straightforward tool for offsetting SBC dilution. Instead, capital allocation requires a deeper reassessment of intrinsic value and long-term earnings power. The potential for value destruction rises when repurchases occur at inflated multiples – multiples that, in this case, would be unsupported by a correct and sound predictability of the underlying fundamentals.

Implications for Adobe shareholders

For Adobe – a company with strong recurring revenue, high margins, robust cash generation, and a disciplined financial model – the key is valuation-aware capital allocation. In periods where the stock trades at below-intrinsic-value valuation levels, repurchases can efficiently neutralize SBC dilution, return capital to shareholders, and support EPS accretion. But in a rerated environment – when valuation detaches from realistic growth expectations – buybacks must be approached with caution.

Managing SBC and buybacks through a rigorous valuation lens is essential for translating Adobe’s fundamental strength into durable long-term shareholder value.

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