r/valueinvesting
Adobe is doing what’s needed to win. Market mistakes it for a loss.
Adobe's post-earnings drop is a buying opportunity; its freemium strategy and AI integration will drive user growth and margin expansion.
- Raised full-year ARR and EPS guidance despite the stock drop.
- Freemium strategy builds a massive user base, creating a data and distribution moat against AI disruptors.
- AI integration will lower costs and expand margins over time.
Adobe released earnings and the stock dived over 10% within a day to its 8-year low. All of the reasons that led to this are also those that will see it trend up.
The reasoning behind the SaaSpocalypse is simple - AI will make software development cheaper and better, leading to more competition on price and companies building out their own custom solutions.
Enterprises are actually not about to vibe code their own solutions, as anyone who’s dealt with their compliance stock will know, however the first threat of cheaper competition might be more severe.
In a world where customer acquisition becomes the key parameter if we were to imagine software to be commoditised, brand and expertise will matter significantly matter. This is why companies that have access to large cohorts of users will be able to have the largest user bases.
In focusing on a freemium user acquisition channel, Adobe is doing exactly that, by broadening the scope of its users to grow and cement brand recognition as well as acquire large cohorts of users. This is also why Adobe has raised its full year ARR guidance by 0.5 billion as well as its EPS guidance.
Market sold off as with any SaaS earnings report as it’s views a change of strategy as a sign of weakness to AI competition whereas in reality it is a sign corporations are adapting and embracing new tech developments in AI which is exactly what they should be doing.
The key part for me here is that a large freemium user cohort will allow Adobe to build better products with AI faster, having access to user data and better distribution given it an edge over any disruptor. Costs for Adobe will also trend down as AI is embraced which should increase its margins and not decrease it.
We’ve seen the same behaviour to focus on MAUs at Duolingo and in part at Salesforce as well. Elite SaaS companies understand that this is the moment to scale their business, market is sleeping on it.
my bet is dario wouldnt give a fuck. I have no sources or other facts other than a hunch.
why
fabulous read, this needs to be upvoted
Thanks. I’m not an analyst or advisor… just someone who only puts his money in industries he truly understands. Sentiments easily move markets but they also lack sophistication. Google being the most recent example.
Just like my bags that I recycled recently, some of which I should have kept but no regrets.
We cannot be a value investor without bags cluttered in the attic/closet waiting for the day to come alive and attack
There is an implicit understanding about the market that the current price is the best estimator of the future price, accounting for market/economy growth, valuation etc. This puts the "value investor" on the spot asking if their valuation estimate is superior to the market.
What I find interesting is this thesis, among academics and researchers, seems to be about price and not about financial ratios that the value investors hold to their heart. Maybe it does that implicitly claiming the current P/E, P/B, P/FCF etc is the best estimate of the future ratios - but I have not looked carefully enough. Here I am assuming the "value investor" decision framework prioritizes some notion of a financial ratio and not just price as any price-action technician would do,
I am on the side lines because I don't know how it will play out to software firms - the very-large-company I work for has agreed to add token costs (up to a threshold, in millions) to the OpEx but has ruled out any changes to SaaS contracts - I don't think that is sustainable and contract changes are inevitable.
I am prioritizing a bar-bell of AI and HALO stocks and a 6-12 month horizon to unwind the AI exposure.
Det va ett djävla tjatande om Abobe, lägg ner!
nah, they are in the cash cow phase. nothing is diverging from anything.
Bots surely must be making the majority of these adobe posts.
Basically bag holders can't accept the fact ....
I clearly don't do the second part.
But what about the legions of Adobe fans out there clamoring for more? So much brand loyalty 😂
It's traded at half the valuation of S&P 500 with a higher than average estimated EPS growth. What are talking about?
Is it acceptable to just tell Adobe posters to just please for a week or so shut the fuck up? Asking for a friend.
What makes you so sure that it’s going obsolete?