The lawsuit by the Federal Trade Commission (FTC) against Adobe comes at a very inopportune time. The agency accuses the company of making it too difficult for customers to cancel their subscriptions.

Already in December, Adobe had to abandon its planned 20 billion dollar acquisition of competing design software company Figma due to regulatory concerns in the UK and Europe. Despite paying a 1 billion dollar termination fee to Figma, the termination of the deal could prove to be a blessing in hindsight.

The deal was expensive and valued Figma at 50 times its annual recurring revenue, twice as high as its last private valuation. However, since the announcement of the acquisition in 2022, the world has drastically changed: ChatGPT and generative AI are now ubiquitous.

As AI is now at the center of investor interest, Adobe saw a 77 percent increase in its stock price last year thanks to its AI strategy. By foregoing Figma, Adobe can now focus on further developing Firefly, an AI tool for generating images from text descriptions, and integrating AI features across its entire product range.

There were concerns that free text-to-image and video products from providers like OpenAI could challenge Adobe's market share. However, Adobe's recent quarterly results give cause for cautious optimism. The company has raised its revenue forecast for fiscal year 2024, as more users are utilizing Adobe's AI-powered editing tools. Although Adobe does not disclose how much of its revenue is attributable to AI, the net annual revenue in the digital media sector, a key indicator for the creative software business, is expected to reach $1.95 billion this year, up from $1.91 billion the previous year. Adobe's EBITDA margin, which had declined in the past two years, is expected to be significantly above 50 percent this year.

The FTC's lawsuit, however, could disrupt Adobe's upward trend. Subscriptions accounted for 94 percent of Adobe's revenue in 2023, and recurring income is the backbone of the software business. Adobe stated that the cancellation process is simple and will contest the FTC's allegations in court. Nevertheless, the regulatory battle will cast a shadow over the company’s aspirations for an AI-powered future.