Great article. Looking at the stock also. My thinking on your risks:
Risk #1: The Seat-Based Pricing Trap - With increased usage you get increased cost, so this is a problem only for weekend users which are probably not average customers. Fixed subscripion has a breakeven sooner or later (and here I think very soon)
Risk #2: The “Hidden Tax” of Compute: isn't this the same for everyone running ai?
Risk #3: The Moving Goalposts: that is why ADBE should behave as market leader and not look to make comparisons where not needed.
Risk #4: The Low-End Squeeze: I do not get this fully. So saas with implemented ai is technically behind native ai in a way that UI is obvisously less competative? Or is this cost related?
Risk #5: The Value Trap (”Cheap stays Cheap”) - For me this is a big risk. We should run a simple DCF with minimal growth and see where the value is.
What I do not like with adobe that they are behaving as a market participant instead of leader. Be ing afraid and trying to buy everything that seems to be a competition instead to focus more on evolving itself. Also with their business model they should not be a only a growth stock anymore, shareholders should see some dividends. If they can not pay them means their ROI is too terrible ot their moat is just not what we all think it is.
My biggest bull cases:
- where saas is cheap because of volume, how can pricing be an issue if different products are basically similar
- business is sticky and brand is strong, companies and serious user need a big incentive to switch - if not service (which I think it can not be, there is only price (and we are at point 1)
My general take-ADOBE valuations should be lower no matter the Saas crash. If their moat needs so much investments to be protected all the time, company will loose its primacy, it is only a question of time. That does not mean capitulation, it means having less, but still happy users. Cashflow should remain strong and some money should flow back to shareholders. So this AI is a serious test for ADBE.
That means a lot Oeste! My main goal is always to cut through the narrative and stick to the raw facts, so I really appreciate you recognizing that. I completely agree regarding the broader SaaS landscape. Many companies are being painted with the same broad brush right now, so the scrutiny is necessary.
Great article!
Great article. Looking at the stock also. My thinking on your risks:
Risk #1: The Seat-Based Pricing Trap - With increased usage you get increased cost, so this is a problem only for weekend users which are probably not average customers. Fixed subscripion has a breakeven sooner or later (and here I think very soon)
Risk #2: The “Hidden Tax” of Compute: isn't this the same for everyone running ai?
Risk #3: The Moving Goalposts: that is why ADBE should behave as market leader and not look to make comparisons where not needed.
Risk #4: The Low-End Squeeze: I do not get this fully. So saas with implemented ai is technically behind native ai in a way that UI is obvisously less competative? Or is this cost related?
Risk #5: The Value Trap (”Cheap stays Cheap”) - For me this is a big risk. We should run a simple DCF with minimal growth and see where the value is.
What I do not like with adobe that they are behaving as a market participant instead of leader. Be ing afraid and trying to buy everything that seems to be a competition instead to focus more on evolving itself. Also with their business model they should not be a only a growth stock anymore, shareholders should see some dividends. If they can not pay them means their ROI is too terrible ot their moat is just not what we all think it is.
My biggest bull cases:
- where saas is cheap because of volume, how can pricing be an issue if different products are basically similar
- business is sticky and brand is strong, companies and serious user need a big incentive to switch - if not service (which I think it can not be, there is only price (and we are at point 1)
My general take-ADOBE valuations should be lower no matter the Saas crash. If their moat needs so much investments to be protected all the time, company will loose its primacy, it is only a question of time. That does not mean capitulation, it means having less, but still happy users. Cashflow should remain strong and some money should flow back to shareholders. So this AI is a serious test for ADBE.
Sorry for so much ramble, was not the plan:)
What is your take on Autodesk then?
Great write up. Do you share your portfolio holdings anywhere. ? More curious.
Thanks Jeff! Yup, you can find my portfolio here: https://www.atomicmoatresearch.com/p/the-atomic-portfolio
Honestly—this is probably the most honest and fact-based assessment you can find.
I think most of the individual points can be used to scrutinize other SaaS companies that are being penalized! Excellent work!
That means a lot Oeste! My main goal is always to cut through the narrative and stick to the raw facts, so I really appreciate you recognizing that. I completely agree regarding the broader SaaS landscape. Many companies are being painted with the same broad brush right now, so the scrutiny is necessary.
Great piece. 👏👀
Thank you, Montana. Glad you found it valuable 🙏
Great analysis. I added to my Adobe position after the last earnings report. I still think it has a lot of upside potential.
Even cheaper now :)