r/valueinvesting
Adobe is down to 2018 levels, and is trading 5x to 2030 earnings
Adobe's stock hit 2018 levels on freemium fears, but the author sees undervalued AI growth and historical success in similar plays.
- Historical success with freemium model (Acrobat Reader) leading to massive MAU and monetization.
- Undervalued AI metrics not priced in: Creative Agent in ChatGPT/Claude, 70B daily AEP activations, and 3x YoY AI-first ARR growth.
- Extremely low valuation at 2018 levels and 5x 2030 earnings, presenting a strong value opportunity.
- Transitioning to freemium could cause a concerning $500 million ARR step-down.
- If Q3 MAU growth and Firefly ARR do not hold, the revenue step-down may mask underlying structural weakness.
Adobe stock is going through a massive selloff, and trading at 2018 levels. I think the market is being a little panicky with Adobe and I partially agree that a $500 million ARR step-down by going freemium would obviously be concerning to shareholders.
But Adobe has done this before, and it's paid off well. Acrobat Reader was free for decades and became 850M+ MAU that now monetizes through AI Assistant and premium plans.
Adobe is has a very strong record at this very playbook. They are willing to bet that they can make Firefly and Express follow the same playbook at larger scale.
The following are not being priced in, in my opinion:
\- Adobe's Creative Agent is already inside ChatGPT and Claude.
\- AEP processes 70 billion profile activations a day.
\- AI-first ARR is growing 3x year-over-year above $ 500M.
I will be watching Q3 MAU growth and Firefly ARR sequentially. If those two numbers hold, the bet is paying off. If they don't, the step-down masks structural weakness. Thoughts?
Should be AdobeBagholder9058
That is what investing is about. Predicting the future.
If he thinks that earnings number is achievable, then it won't be on 5x pe, it will be on 10x p/e (probably) and he will have made 100%.
So its more about how confident he is on that number.
Right, but that's specifically what this sub avoids, right?
Short, snippy comments seem to do better than nuanced takes. So then you get guys saying it doesn't make sense to look at earnings 3.5 years away...
lol 2030 earnings. I think it’s 1x 2075 earnings, time to buy
That might have worked before the 2000s with consumer staples companies.
On your logic we should just ignore DCFs, earnings forecasts, management guidance, economic forecasts. It's all in the future after all.
Don't you understand a share price is the value of a company based on its FUTURE prospects / earnings (and that is over all time periods).
I can't debate this with you. You don't know the fundamentals. Read a few books and get back to me.
That E stands for earnings. You know future earnings, i.e. earnings PREDICTIONS.
So yes you do. All forward valuations are predictions.
the ways and the speed at which the world changed after 1999 is not comparable to 100 years earlier.
Dear god.
You can’t call this bottom. FOMO will kill you guys in this sector. Same arguments have been made since $380. Also there are legitimate problems with ADBEs future in particular that might be completely rational given competition from Apple Creative Studio forcing them back into freemium pricing.
Clearly this stock is not being priced by the market logically, but also no one can call the bottom. People should look for opportunities elsewhere rather than repeatedly touching the stove.
Agree. AI image create has so much legal liability to it, I think the tried and true will return to a prominent role.
It can go down more. Stop it with these posts.
Hey man, huge fan of your work - cerulean rays is one of my favorites. I remember listening to it as part of one of the ASOT warmup sets (maybe the 550 one?) more than 10 years ago - been listening to prog ever since.
I think the missing c-suite is more cause for alarm
C Suite doesn’t do shit.