r/valueinvesting
ADBE - To cheap to ignore?
Author considers buying ADBE after recent earnings drop, citing strong FCF, low PE, and buybacks despite AI fears.
- Strong financials: 13% revenue growth, 12x PE, and $10B annual FCF.
- Aggressive share buybacks returning value to shareholders.
- Current valuation does not reflect the AI threat narrative, offering high upside potential.
- AI disruption threat could potentially make the company's core products obsolete.
- Recent earnings and subsequent stock price drop indicate underlying market concerns.
Before I get attacked as "Bag Holder", I'll preface this by saying I do not own a single share of ADBE, but I'm seriously considering after this most recent earnings and subsequent drop.
Bears will be quick to point out the threat of AI as making this company obsolete, and maybe they're right? But the numbers currently do not reflect that. The stock is flirting with $200/share and has 13% revenue growth, a 12 PE, $10B/year in FCF, and is buying back boatloads of shares. Narratives talk, but numbers scream.
At what point does something become so cheap that it's worth at least a small allocation of a portfolio? Seriously thinking of buying in at these levels to make it just 1% of my portfolio. If it goes lower from here, I'd be willing to DCA into it up to 3% of my portfolio. Not enough to get burned if it goes south and the Bears are right, but if they are wrong, this thing could easily 3-5x from these levels in a short period of time and it wouldn't surprise me one bit.
What do you think? Is the Risk/Reward right on this company?
Let me offer a different perspective here. Adobe is the industry standard in the creative sector. I’m not talking about low-budget social media marketing, where anyone can have a say because they’re all putting together posts, but rather high-quality creative work, such as complex designs that ultimately go to print. None of these tasks are done using Figma, Canva, or any other open-source tool. Adobe is the absolute industry standard here because no other tool matches its quality. Additionally, many companies have specific fonts or designs (corporate designs) that they can only access using Adobe. On top of that, there’s the high-margin Creative Cloud business. Overall, Adobe is indispensable in this space, and it will take years to even build a capable alternative here. I think Adobe’s moat is being completely underestimated, just as it was during the dot-com era, and sentiment is heavily influenced by young people who are only familiar with social media and have no insight into the design departments of companies that do this professionally.
Ignore the noise. It’s still maintaining 10-12% rev growth. This whole narrative is overblown . The valuation is too cheap to ignore.
So far, have ADBE's revenue and profits really been affected?
You can't discuss the company's revenue and profits one minute and then discuss the stock price the next.
There is no signal on the fundamentals about decline.. I’ll stop buying when there is signal that the company is starting to decline..
Thats great but in the mean time we are at multi year lows despite these fundamentals. You could have been buying for the past few year with the same hypothesis and be down massively
Yep, still catching this falling knife cuz I think fundamentals are right, Mr. Market is wrong. The thesis didn’t change. The price got cheaper.
I wish you luck sir
Saaspocalypse is not about the creative process but about the business model.
Subscription models are dead. Usage token maxing is in now. When Adobe switches to charging agents per usage lol that’s going to piss everyone off. Cuz right now it’s all being subsidized
And they go to what then? Paying for more tokens so they can ai slopify a new 'replacement' app?
People who use ADBE and have built the habits around it are going to continue using it unless something better comes out imho.
Not a bag holder so don't really care just trying to understand the narrative here
Idk what direction Adobe is going to take. It’s uncertain. Prolly why the stock has been hit. There’s no clear direction from Adobe to grow subscribers or to switch to token maxxing. Only time will tell what happens.
My friend works in the industry too and says exactly the opposite.
It’s not about the creative process. You are right to n that It’s about the “design tool’s” end product.
5 years ago people would say that had to be photoshopped. Now people say that had to be AI.
Unless Adobe pivots somewhere they are done
Adobe is SO much more than Photoshop, though. And I’m not even talking about the creative process, I’m talking about the tooling.
In the graphic industry there is not a substitute. Period. Just pdf print engines alone, also you need adobe to fix the shitty ass graphics you get out of AI. People only see one thing, I see money in Adobe now more than ever
That's not the negative thesis. The negative thesis is that AI will result in fewer designers doing the same work, thus fewer seats bought from Adobe.
Adobe trading at $1000 per share (5x) would be ludicrous even within a few years
They raised guidance
This sub been saying that for months now and its down even more
You realize ADBE \does\ AI right? Like, it’s partnered up with industry leader NVDA to bring the technology to life. The complete lack of understanding by the average investor is a failure of ADBE to communicate what they actually do. Hopefully they choose a competent new CEO.
What about meta at $88 before 2 years? Was it a cigar butt?
ADBE is not a value stock, it can still drop so it is not cheap enough
I’m worried about long term prospects for consumer subscriptions. Most of enterprise is still safe imo, but I think investors are looking 12-24mos ahead at better graphic design ai tools and models.
Total revenue and net income are UP, independent if share buybacks.
So why the stock is down?!
Story
This thread and others show why the quote "be greedy when others are fearful" is harder than it sounds. If you aren't buying ADBE here you're not a value investor. Yeah, it can go down another 50%, but then you should be buying even more. Reminds me of meta a few years back.
I started an adobe position right now. I avoided it for a long time but it just gets cheaper and cheaper.
However, I would not expect a 3X in a short time. Yes, if the business can navigate the current situation there is significant upside.
But, it will probably take a while for their new AI parts to get properly monetized and their cost structure lowered.
Eps might have gone up but thats just cause of buybacks, if you look at the net income it barely grew, hence the need for monetization and cost management on their AI options.
That being said, revenue growth is still solid and if they can manage their transition (execution risk!) Then the upside at these prices is huge.
There is an argument for just waiting for them to show more signs of managing this situation and only getting in when it starts going up again. You might miss out in the initial pumo but there is lots of runway. It wint 3X in 1 day or week.
Remember when intel was going to go bankrupt and sub $20, that was last year
This is my thinking. Adobe is where the AI actually gets put to work, yet the market seems to think that they derive no value from deploying the tools.