Fair to say the Adobe post is getting a lot of heat ahead of Q2 Earnings later today
Here's part 2/2 of the free deep dive analysis into the bear cases, so you can be fully prepped
!TLDR is:!<
Part 1 - bull cases
- Adobe’s stickiness in enterprises is huge — its tools have been used daily for decades, even by those that hate the brand, and their file formats (.ai and .indd) are non-negotiable * Retention rate remains at ~95% — Creative headcounts are shrinking but it’s not weakening Adobe’s moat * Nothing has to go right at this valuation — it just can't go hugely wrong. 10%+ FCF yield and 25%+ of shares being bought back suggests big returns * Competition is heating up — to be expected as there’s huge margins up for grabs
Part 2 - theoretical bear cases
- Myth busting bear cases! 1. Adobe's customers are huge enterprises not beginners/freelancers ; 2. there are no signs of pricing power erosion ; 3. Adobe file formats are patented ; 4. Adobe doesn't need to get back to historical levels even single digit growth over 5 years would give huge investor returns * What could slow growth? low-end tools make a move to compete upward (e.g. Affinity) ; competition has been successful at taking share in certain tasks (e.g. Figma) ; headcounts will shrink and eventually that could catch up to Adobe seat counts $ * The real risks to know: consumption-based model destroys the quality of the business ; AI tools develop into full-stack automation loops ; competition takes share of individual tasks until Adobe ecosystem is no longer worth it * The Adobe Killer? The launch of Apple’s Creator Studio is probably the most worrying (if unlikely) prospect . 90% of Pro's use Mac's , apps would make switching low friction. Right now, its limited and the low-pricing targets content creators -- will it stay that way?
My take from inside the industry
- I’m willing to bet that humans will always be needed in creative work. Perhaps even more so than in a world with AI agents. Creativity is a 12x multiplier on marketing spend. * If humans are needed - Adobe is needed! Barring HUGE changes in the competitive landscape which we should be seeing more signs of by now * Even a reasonable bear case valuation gets you to ~$300 a share , giving you a 20% margin of safety * I'm buying buy NOT loading up the truck . These next few earnings calls are crucial