r/valueinvesting
ADBE and the Freemium Pivot
Adobe's post-earnings drop stems from its freemium pivot sacrificing short-term ARR for AI user growth, worsened by CEO/CFO departures.
- Freemium model successfully driving massive MAU growth (Acrobat to 850M, Creative to 90M+).
- High conversion and credit consumption from freemium Firefly users indicate strong future monetization.
- Current financials remain strong and the PE ratio is considered very cheap relative to fundamentals.
- Short-term ARR growth guidance was cut (13% to 10%) due to delayed price hikes and freemium pivot.
- Impending departure of the CEO and CFO creates major leadership uncertainty during a critical transition.
- AI accelerates customer behavior changes faster than expected, delaying strategic payoffs to FY2027.
I have seen numerous posts on Adobe, but no one is talking about the pivot from raising monthly subscriptions to freemium user growth. I think this is the main reason that Wall Street sold off the stock after earnings. If you listen to the conference call, the CEO says that AI is accelerating customer behavior faster than then had expected in 2026 and this has caused them to pivot to a freemium model. They are giving users free access to their apps in order to gain more users first and increase the prices later.
They decreased the projected annual recurring revenue from 13% to 10% due to the fact that they are not raising prices in the 2nd half of 2026 and shifting more towards a freemium business model.
The CEO states that they are going after the entire creative market right now at the expense of increasing annual recurring revenue in the short term. The reason he says that the company chose to go in this direction comes from them seeing their freemium firefly users who convert to paid plans show high credit consumptions (more money spent). He also says that the payout for all of this is for fiscal year 2027, not right now.
The monthly active user growth is definitely working. Adobe acrobat grew (from 700 million to 850 million monthly active users year over year) and the creative freemium monthly active users grew 70% (from 40 million to over 90 million year over year). The CEO says that they are trying to create a funnel and bring all of these new users into the ecosystem so they can turn them into future customers. Will it work? Who knows. He talks about how it worked out before with Adobe acrobat.
Another reason the stock fell. The CEO and CFO are leaving the company. That creates major uncertainty at one of the worst possibly times based on all the threats to the business. Yes, the financials look great now and the PE is dirt cheap for a company with their financials. The problem is all of the uncertainty around the company. I view this stock truly as a gamble. A lot of uncertainty but at a very cheap price that could pay off big. It feels very similar to where META is at right now, just with more risk and uncertainty. We should get more clarification in 2027 to see if this pivot works out.
How do you feel about Adobe? Are you buying shares at this price? If you have a position are you holding, selling, or buying more?
Will AI displace Adobe? Look at the AI cost of generating or editing a picture (video is another level up). Right now, AI is subsidized. At true cost, it's hard to imagine that AI will be a no brainer choice over dedicated solutions. Also, the UI is important. People say that Anthropic or OpenAi can just slap a mouse-based interface to do graphical editing. It's not that easy. In essence, they'd have to create a new Adobe. Are they going to do that? It's too simplistic to say AI will kill Adobe. The easier path is for Adobe to integrate AI in its products than the other way around of AI companies recreating Adobe.
the funny thing is, AI agents are inherently software with an AI decision layer. Its why crap like openclaw or manus gets billion dollar buyouts. Its buying the software layer that can turn AI models into agents.
Any corporate level AI software, is going to need a team of software engineers to maintain, add features, and support. Just like regular software...
But others entering the market who are trying to gain additional investment to compete will also struggle when they can’t show as much user growth. Adobe’s competitors in this space are losing money to try to gain marketshare. Adobe is competing by offering freemium to attempt to undercut the competitors’ ability to attract capital. Will it drag on short term margins? Yes. Is it the right business move? Yes.
It also has been shown that early marketing on freemium does improve adoption in future — it’s a branding cost. It is not a direct upsell from freemium to paid.
The point is not to say it is a bad company, but to try to understand why the stock is getting cheaper and cheaper. So many people just wipe the concerns away by saying the market doesn‘t understand that this is a great investment opportunity. Maybe it is, but people are saying this already for several years. I appreciate that OP put some thinking into the equation and doesn‘t just tell the same old stuff so many ate repeating every day.
AI bulls doth protest too much.
AI as a replacement will not work, at least for a long while. AI assistance or as an augmentation tool is what the reality of AI is, like all technologies before it AI claims to be too much and it has little proof of concept making it even more similar to the .com bubble. AI is already a part of the Adobe suite and I have used it with mixed results, where this shines is conceptual generation or prototyping, also some specific image editing or generative fills. You need to edit AI after with Adobe but it can get you 40% of the way started. Buy the technicals, sell the hype.
Keep buying a falling knife 🤡
100 %. Also, you can use google’s AI on Firefly already; they’ve hinted that this will only accelerate. Being the App Store of creative tools would be a very logical next step for Adobe
Adobe becomes the pipeline/marketplace/toll booth of third party ai models. If I’m making frontier models, I would want to partner with Adobe for its distribution.
Exactly. And there’s more content creators than ever before. Those YouTube videos aren’t going to cut themselves. Nor are we anywhere close to an ai being able to do it
Yeah. And it’s not fully one way or the other. We went from acoustic guitars to electric ones to electronic music to AI prompted music — and people still play acoustic guitars.
I’m a video editor and think these things are not mutually exclusive. AI is very handy but also knowing how to use the instrument that is editing software is part of the creative process. You’re not going to edit a television series by telling an AI “make this coherent and exciting” lol.
People still ride horses too, but buggy companies aren't in the sp500
'make this coherent and exciting'
That won't stop them, so we'll get AI slop on TV, and the movies, too (probably already do; that would explain things).
I suspect what will happen is that the low to low-medium effort will be handled by AI, but it becomes to cost-prohibitive beyond that.
People are in for an awakening when they have to start paying for the real usage.
War: is this positivo or adobe
A new pandemic: is this positive for adobe
Is there just a team of people being paid to pump ADBE stock. I keep seeing post.
Or maybe people genuinely think the price doesn't make sense at all