$ADBE - Why everyone should buy at $310

Yes, I know, yet another post about Adobe for the nth time but please, this is a fantastic opportunity - I am opening my position today. At $310 you are buying $10 billion in annual FCF, positive net debt, 40 quarters of consecutive Revenue growth, and aggressive share buybacks with a strong Moat. AI this, AI that, everyone is terrified of AI making Adobe’s software obsolete, but I just can’t see how. Since AI has really become any good at image / video manipulation, let’s say the last 4 quarters, revenue hasn’t even budged, and the margins have been slowly growing up to 89% during this time. The kicker - AI-influenced ARR (from plans and memberships specifically enhanced with AI / extra credits) has crossed $8 billion and is going to keep growing. The brilliance of it is that it doesn’t matter which model is the best, because Adobe can substitute them in and continuously charge a fee to integrate them into their software…they are selling the pickaxes and AI looks more like an asset than a threat. Now what about the consumers who hate Adobe? yeah not gonna lie I got spooked when I saw nearly 7,000 reviews on Trust Pilot averaging 1.1 stars, that’s pretty shocking. However, despite being loud, how big is the ‘retail / independent’ consumer segment for Adobe really? There aren’t published figures but if we estimate between 70-90% of revenue comes from Enterprises then even if every single independent consumer cancelled their subscriptions overnight, Adobe would be making record revenues again within 12 months (this assumes 25% users cancelled). That wouldn’t be ideal, but as a worst case scenario it’s not a bad place to be. The retail users don’t really have much weight, and because Adobe is the de-facto industry standard they are so incredibly sticky that they are not really going anywhere with the large Enterprises that pay the big bucks. Moat looks good, 7/10 to me. Now let’s look at more reviews. Glassdoor has an 82% satisfaction rate with a 4.1 star rating from over 11,000 employees. The CEO has an almost 90% approval rating - employees love Adobe because they pay well and know what they are doing. Don’t confuse simplicity with being idle. I’ve seen many people say they have no vision but last quarter they bought Semrush, and they continue to implement more AI tools and features driving their top line growth (11% YoY). Now Adobe are pushing into GEO territory (Generative Engine Optimisation rather than traditional SEO). Okay, well then what about the lawsuit from 2024 regarding trapping consumers in difficult contracts? Yeah this also scared me, but there’s a lot to consider. Firstly, Trump is generally pretty business-friendly and considering he has a neutral / good rapport with CEO Narayen, it’s unlikely to be particularly punitive. Moreover, only a few days ago the FTC dismissed a lawsuit against Rytr LLC which shows the administration is hesitant to punish AI players. I’m sure that there will be a fine, worst case scenario it’s on the higher end around $800m, but it will probably take a while to go through, and Adobe has $8 billion cash at hand to make it go away. For additional context - $800m is around 1 month FCF. Okay but what about Figma? Well, sure they are growing quickly and pose a threat, but the key understanding is in the user market. There is crossover, but Figma dominates in UI/UX design space where Adobe offers XD. However, the majority of Adobe’s revenue is in the visual market and Asset Creation (around $18/23bn) where Figma has no real advantage other than price. Good for some individuals, not worth it business. So: $310 is roughly 18x forward earnings, for an effective monopoly with 39/40 consecutive quarters of growth, very capable management, net positive debt with a large cash stock pile, and a $10 billion FCF printing machine. In my opinion they should not bother with a dividend as it locks them in and can be punishing long term, but these buybacks are gonna keep happening whether you like it or not, and it’s not gonna sit around 300 for long. Please, don’t miss out!