I thought this sub didn't have enough content about ADBE so I ought to add more.
Put very simply, Adobe is trading at low multiples over fears that it will lose market share to AI image generation tools. (The more complicated version involves private credit loans and forced sell offs).
In reality, AI tools generated $500m in revenue for Adobe this year, up 300% on the year prior. This is from a combination of Adobe's Document Cloud and Creative Cloud divisions. I'm going to focus on the creative side because it's what most people think of when they think of Adobe.
Adobe has its own AI model, Firefly. It's valuable because it is trained on stock photos so it's legally safe for corporate clients. It's embedded directly into the existing suite of apps and users are charged for tokens (which Adobe calls Credits). This is convenient for pro designers because they can generate and edit all in one. And people are actually using it – Firefly users have generated 24 billion assets since 2023 and it is still growing.
However, there's a problem: Firefly isn't that good. So Adobe also allows users to use the other AI models inside their suite of apps. But they have to pay more Adobe Credits to use them. Users get access to any model they want. And Adobe gets to clip the ticket on every transaction.
Until now, the only source of revenue for Adobe Creative Cloud was the standard monthly subscription fees. Now it has an additional revenue source from credit-based consumption. This is why Adobe is pivoting towards freemium products - most casual users will never sign up to a Creative Cloud subscription but might pay a few bucks for extra usage in a free tool.
Of course, the Gen AI models don't need to work with Adobe. They could create their own alternative suite and take Adobe on head-to-head. But why bother? By embedding into the Adobe suite they get their product embedded into an essential workflow used by 30 million professional designers – who are inevitably some of the highest users of tokens.