Adobe Inc (ADBE): Too much risk from generative AI?
Investment Thesis Sell
Investment Criteria
For Success:
I'm not gonna invest and am going to sell my position.
Investment Amount
$25000
Decision
Sell
Conviction Level
Medium - Wouldn't bet the farm on it... but maybe the tractor.
Your Share of Net Income
$56.94
Competitive Analysis
Competitive Advantage
They have lots and lots of companies locked in with subscriptions. 90%+ of their revenue.
BUT.
Why would you use Photoshop to manipulate an image, if you could type in a quick prompt to ChatGPT or Gemini / Nano Banana (or ANY other gen AI photo tool) and get an even better result way way faster, and way way cheaper, than what Photoshop generates for you? It just seems (to me) like several of the (non-Acrobat) business lines are under severe severe threat from Gen AI.
Key Non-Financial Metrics
Disruption of their products by AI
Declining subscriptions (probably not gonna happen anytime in the next year or two - but when it turns, will it turn sharply downward, sort of like what has happened to cable vs. streaming? I think it will look similar.
Net Income Projections
One Year Estimate
$1200.00
Net Income
CAGR: 21.8%Analyst Notes:
- Fantastic net income growth historically...
- ... but very unclear that this will continue, given that generative AI (e.g., Sora, Nano Banana, etc.) could make many adobe products obsolete???
- e.g., why would you buy photoshop when AI can do it all for you?
- I just don't see how this thing grows at anywhere near its historical norm, especially once it hits the generative AI wall where people start shifting from Adobe to AI exclusively or primarily
One Year Estimate:
$1200.00
Operating Margin Analysis
CAGR: 3.7%Analyst Notes:
- Fantastic - and rising - historical margins
What is Operating Margin?
Operating margin measures a company's profit from operations as a percentage of revenue. It shows how efficiently a company can generate profit from its core business operations, before accounting for interest and taxes. Higher margins typically indicate better operational efficiency.
Dividends
Analyst Notes:
No comments provided by the analyst.
Payout Ratio
Analyst Notes:
No comments provided by the analyst.
Revenue
CAGR: 17.0%Analyst Notes:
- I just don't have the expertise to be able to see what this company's revenue in 5-10 years looks like
- It seems to me, anyway, like this company faces tremendous risks from AI disrupting their products.
Avg Annual Growth Rate (10Y)
Balance Sheet Cash
CAGR: 20.3%Analyst Notes:
No comments provided by the analyst.
Debt
CAGR: 14.5%Analyst Notes:
Net of cash, their debt is almost zero. Very healthy balance sheet.
Free Cash Flow
CAGR: 19.3%Analyst Notes:
Amazing historical growth; but I have real hesitations / doubts about the future looking at all like the past.
Cash Flow from Operations
CAGR: 18.3%Analyst Notes:
No comments provided by the analyst.
Conclusion
Just way too much risk for my taste coming from gen AI that could disrupt their biz model. SELL MY POSITION
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