I have seen numerous posts on Adobe, but no one is talking about the pivot from raising monthly subscriptions to freemium user growth. I think this is the main reason that Wall Street sold off the stock after earnings. If you listen to the conference call, the CEO says that AI is accelerating customer behavior faster than then had expected in 2026 and this has caused them to pivot to a freemium model. They are giving users free access to their apps in order to gain more users first and increase the prices later.
They decreased the projected annual recurring revenue growth from 13% (now) to 10% (end of fiscal year 2026) due to the fact that they are not raising prices in the 2nd half of 2026 and shifting more towards a freemium business model.
The CEO states that they are going after the entire creative market right now at the expense of decreasing annual recurring revenue in the short term. The reason he says that the company chose to go in this direction comes from them seeing their freemium firefly users who convert to paid plans show high credit consumptions (more money spent). He also says that the payout for all of this is for fiscal year 2027, not right now.
The monthly active user growth is definitely working. Adobe acrobat grew (from 700 million to 850 million monthly active users year over year) and the creative freemium monthly active users grew 70% (from 40 million to over 90 million year over year). The CEO says that they are trying to create a funnel and bring all of these new users into the ecosystem so they can turn them into future customers. He talks about how it worked out before with Adobe acrobat.
Another reason the stock fell. The CEO is stepping down and CFO are leaving the company. That creates major uncertainty at one of the worst possible times based on all the threats to the business. Yes, the financials look great now and the PE is dirt cheap for a company with their financials. The problem is all of the uncertainty around the company. I view this stock truly as a gamble. A lot of uncertainty but at a very cheap price that could pay off big. It feels very similar to where META is at right now, just with more risk and uncertainty. We should get more clarification in 2027 to see if this pivot works out.
How do you feel about Adobe? Are you buying shares at this price? If you have a position are you holding, selling, or buying more?