Wanted to create a post discussing every Risk that ADBE faces right now. We all know the valuation looks good, there’s no point discussing that. The investment thesis for Adobe solely rests on how well they can mitigate the risks that they face.
Disclaimer: I’m of the opinion that the risk reward ratio looks favorable.
1. Seat compression - Ai makes design so efficient that licenses compress and Adobe loses massive revenue.
A lot of people say this is the main risk we face. I don’t see this as a huge risk because Adobe should be able to get a cut of the productivity.
2. Margin risk - Adobe’s margins are so fat so it’s just screaming at competitors to come over and take a bite out of it. Like Jeff says “your margin is my opportunity “
With the availability of AI tools and design I think this is a huge risk because what if competitors arise and erode adobes pricing power? The only counter I have to this would be that Adobe subscriptions are such a small expense for enterprises that they don’t care that much. But again the margins are just so fat.
3. Lower end software like Canva breaking into enterprise and professional design.
This is a huge risk in my opinion because it seems Adobe is losing on this battleground when it really should have been a layup. What if with easier access to software development, Canva creates their own enterprise suite? It is also a marketing problem. When anyone thinks of creativity ; the first thought in their head should be Adobe not Canva. That’s concerning.
4. Execution risk
With the CEO and CFO leaving, is there something they aren’t telling us? Have they lost hope? I saw the retired CEO of UNH come back with a full hard on to bring the company back to life. But both CEO and CFO calling it quits ? Seems very sketch. This is also the time where leadership is crucial so their little transition is very bad timing. But if it’s actually just a necessary transition for the future of the company then it could make sense.
5. Customer service
You hear so much from small time designers about how they don’t like Adobe or their pricing practices. Most of adobes business comes from large enterprises. But the lack of customer care and reputation even on the lower end really rubs me the wrong way
6. Super intelligence risk
If someone creates an AI so amazing that it beats any sort of design work. Or if AI stops being a commodity and there’s a clear winner that doesn’t want to share. Adobe might be cooked here but for now this is a small risk.
Please let me know your thoughts and criticisms.