Adobe is doing what’s needed to win. Market mistakes it for a loss.

Adobe released earnings and the stock dived over 10% within a day to its 8-year low. All of the reasons that led to this are also those that will see it trend up.

The reasoning behind the SaaSpocalypse is simple - AI will make software development cheaper and better, leading to more competition on price and companies building out their own custom solutions.

Enterprises are actually not about to vibe code their own solutions, as anyone who’s dealt with their compliance stock will know, however the first threat of cheaper competition might be more severe.

In a world where customer acquisition becomes the key parameter if we were to imagine software to be commoditised, brand and expertise will matter significantly matter. This is why companies that have access to large cohorts of users will be able to have the largest user bases.

In focusing on a freemium user acquisition channel, Adobe is doing exactly that, by broadening the scope of its users to grow and cement brand recognition as well as acquire large cohorts of users. This is also why Adobe has raised its full year ARR guidance by 0.5 billion as well as its EPS guidance.

Market sold off as with any SaaS earnings report as it’s views a change of strategy as a sign of weakness to AI competition whereas in reality it is a sign corporations are adapting and embracing new tech developments in AI which is exactly what they should be doing.

The key part for me here is that a large freemium user cohort will allow Adobe to build better products with AI faster, having access to user data and better distribution given it an edge over any disruptor. Costs for Adobe will also trend down as AI is embraced which should increase its margins and not decrease it.

We’ve seen the same behaviour to focus on MAUs at Duolingo and in part at Salesforce as well. Elite SaaS companies understand that this is the moment to scale their business, market is sleeping on it.