In a note to clients released on Friday, Barclays adjusted its rating for design software company Adobe, moving it from overweight to equal weight. The downgrade follows Adobe’s announcement regarding CEO Shantanu Narayen’s impending departure, contingent upon the appointment of a successor. Narayen, having served as CEO since 2007, will continue in his role as the company’s chair. In a memo addressed to employees, he indicated his intention to remain on the board to provide support for the forthcoming CEO of Adobe.

“Mr. Narayen’s leadership at Adobe has been exemplary…but, we think it will take time for a new CEO to effect change here given ADBE’s $25B+ annual recurring revenue base, which is why we are stepping to the sidelines and lowering our price target to $275,” wrote analyst Saket Kalia. Kalia’s updated price target suggests that shares may increase by only 2% from this point onward. Adobe stock has experienced a decline of 23% year-to-date and a significant drop of 29% over the past year. Adobe has also announced a fiscal first-quarter earnings and revenue surpassing expectations.

However, Kalia noted that additional challenges included Adobe’s net new annual recurring revenue for the quarter falling short of his expectations, coupled with accelerated growth in Adobe’s freemium offerings. “Net new annual recurring revenue was below our estimate as Generative AI tools like Adobe Firefly impacted tools like Adobe Stock, as customers can now create images using text prompts rather than relying on stock images,” he said. “The acceleration in freemium users such as Firefly and Express is exerting pressure on average revenue per user, yet this may prove advantageous in the future considering ADBE’s achievements with Acrobat Reader, its inaugural freemium offering. Thus, this trend merits close observation due to the substantial subscriber base present in these freemium sectors.”