r/valueinvesting
Thoughts on $ADBE earnings?
Author supports ADBE's long-term freemium shift despite short-term margin hits, but remains skeptical of current strong earnings.
- The shift to a freemium model is a smart long-term strategy to acquire users first and monetize later, similar to Canva.
- Removing strict paywalls addresses past user friction and adapts to current market demands for casual users.
- The aggressive push for freemium indicates the current paywall setup is failing, which will negatively impact future financials.
- Short-term revenue and margins will inevitably drop due to cannibalization and giving away free access.
- Analysts on the earnings call were not on board with the new strategy, signaling Wall Street skepticism.
Just listened to the whole earnings call and wanted to see what you guys think.
I m particularly interested in this new strat where they are pushing freemium heavy. At the end of the call a lot of analysts were asking questions about it and they didnt seem on board with the move.
In my opinion removing the paywalls and cannibalizing themselves right now is actually the right play for the company long term. For sure it lowers their margins and revenue temporarily because they are giving away free access, but it seems like a total Canva move: get users first monetize later.
Everyone knows adbe has always been annoying about their paywalls and making access difficult for casual users, so this is a big shift.
I know everybody rn is focusing on the good earnings report numbers and the raised forecast, but i wouldnt give too much importance to that. Think about it if they are pushing freemium this hard there is evidently a problem with the current paywall setup that isnt working anymore and that might show up in the numbers later on.
The real strat of the company will be revealed once the new ceo is appointend eventually.(Shantanu said they want the new ceo in place for 2027 bro doesnt want to leave 😭 )
Anyways, for the upcoming er reports I will focus purely on freemium MAU growth and the conversion rate to see if this strategy is actually working.
PS: $205/share is crazy LOL
I've been very skeptical about ADBE for a very long time — it's been a great performer under solid management (say what you want about Shantanu, but he was able to steer it to very good shareholder returns), but I really didn't see more upside besides price increases.
This quarter is very interesting. They announced that they're purposely increasing the freemium funnels and delaying price increases. I think it's a small sign that internally they think they're in a period where there is going to be more competition and need to be much more aggressive about acquiring users. This likely means that there isn't going to be a quick rebound in the stock, because they're delaying price increases in favor of market share.
Strangely enough though, I think this is exactly the right move, because this can only be done in a CEO switchover (it's difficult for an existing CEO to get off the beat-and-raise train), and because with AI, they actually do need to be much more aggressive in providing more value to their customers so they don't go elsewhere. The exact reason why I've been skeptical about ADBE is precisely because they always seemed to be trying to increase monetization from existing customers rather than actually acquiring new customers in an era of technological change.
The $500M they reported in AI-first revenue is also pretty impressive. It isn't much relative to the size of their entire business, but it actually makes them one of the largest AI media companies out there. That doesn't mean it's an instant success, but it does mean that their offerings are resonating with their customer base.
I love digging into quarterly calls because it gives a lot of context when following what is going on with a company. If it helps, I found this to be a good recap of the quarter: https://research.aardvarklabs.co/research/adbe/earnings/2026-fq2/adbe-2026-fq2-recap .
Honestly, I would have wanted them to say something about training their own models. There's already been slight shifts in the creative class around AI generation. That's probably too much to ask at this current time, and is more for a new CEO. See this article about Higgsfield: https://variety.com/2026/film/features/i-saw-hell-grind-ai-generated-film-cannes-shocking-realistic-1236770720/
Long story short, I'm much more positive on them, but it's going to take a while to recover. They're purposely delaying monetization increases, and it'll take a new CEO to do more product changes, and after which it'll probably be the right time to start to actually start to "harvest" the monetization again.
They have built their own models and are working with Nvidia to continue down this road, though I was also surprised that no analyst asked about this. But the other thing is that there is no barrier to creating a model other than cash, so we’re going to see the model space get continually commodified. Which is a bad thing for the frontier model companies but a good thing for companies like Adobe since they own a suit of tools that can sit on top of their models and do more than the models alone can.
Totally agree with you. This may actual be a good opportunity if they execute it well enough
Great write up OP, and great response u/colgatepalmolive
I like the willingness to delay monetization, and it doesn't seem likely the core earnings engine from those big, hefty enterprise contracts are meaningfully churning, at least not yet.
Bullish Adobe, I can't help but feel that this is a very assymetric bet at 11x GAAP earnings at ~8x FCF.
I didnt listen to it. I just follow trump and he owns it. His portfolio returns 100 percent a year so Im thinking following him is a good idea.
really 100% a year? any proof? also where can we see portfolio updates?
This is from google 'During his second term as President, his active financial disclosures revealed an immense uptick in personal stock trading. These investments have often beaten the market. A basket tracking his reported stock picks (which have featured tech and mining companies like Intel, MP Materials, and Dell) surged over 50% in roughly a half-year period.'
The only way to see his portfolio is off his filings which are 3 months delayed. Some sites track it and his entry prices. Adobe is below his entry from feb.
Guidance was increased not decreased. The CEO is leaving until 2027, seams like he doesn’t wants to go.
And he’s staying on as board chairman.
Q2 GAAP EPS of $4.25 missed the $4.45 estimate
FY2026 GAAP EPS forecast lowered to $17.90 - $18.00
If you aren't buying Adobe at a forward p/e of 8.5 what are you even doing here?
It looks cheap on paper but I think will fall for another few months. No CEO, no CFO, lots of insider selling, now trying to gain more users with freemium, that's going to hurt revenue and margins. At least AI revenue is going up, $500m tripling YOY. That's a good sign. But near term I don't see any catalysts coming. So with all those negative stories I think I may still wait on the sideline and continue to monitor. But it is getting cheap so I may start a small position and then wait to see what happens with price action. Wonderful price, fair business, slowing growth
I agree with your timeline (though the CEO is staying on as board chairman and is still in place). The stock will go up slightly because of buybacks, but we don’t expect it to see any huge upside breakout until the AI narrative mania subsides, which could be six months or could be multiple years.
The stock would have likely been up post earnings if it weren’t for the CFO leaving.
Such a great company, they can't even find anyone who wants to be CEO or CFO. If that wasn't a warning sign, then I don't know what is. Adobe bulls are a special bunch.
I want to wait until they have a CEO and CFO in place until deciding to buy. Until then, I see further downward share price momentum, with no catalysts in site. If it falls somehow to $150, while continuing this growth rate, it gets way too cheap to ignore. But I thought $200 was not likely and here we are. So anything could happen. Now down 65% from 2024, unbelievable fall
This may be the wisest decision. Reaction > Speculation
Not shilling memory stocks or anything but on that spectrum, theres customer wars and price increases and long term contracts
Adobe is lower prices to free and there is wars with competitors and risk to its revenue growth and margins.
I dont understand . I guess this is what hopium looks like. The way they win is if the competitors get fed up and give up. But literally the competition doesnt have much to lose. Only adobe has these cushy high priced multi-year contracts that are actually decreasing value propositions given how good Ai is becoming.
For me the move away from seat based subscription will take away some of that premium attach to SaaS companies.
When ServiceNow started moving away from it, I think that and he SaaS Apocolypse narrative led to a re-rating of it's stock price. The same will happen for Adobe if it's moving away from the seat based subscription.
It seems like they’re moving toward a hybrid model of seats / token metering.
Firefly and their AI need high quality creative content to train on. Freemium users generate that.
So this might be a data flywheel play as much as a user acquisition play.
Your MAU conversion focus sounds good, current numbers are backward-looking, 2
leadership vacancies mean nobody's making long-term calls with conviction, and the
real thesis won't be testable for 2-3 quarters.
As for their earnings, i had ADBE flagged as elevated risk heading into this report with my earnings-risk prediction model - moved 6% down despite the beat. Story stocks move on narrative, not EPS.