TL;DR: Wall Street has apparently concluded that because ChatGPT can generate an image of Shrek fighting Jerome Powell in the Costco parking lot, Adobe is now a dying company.
Unfortunately, Adobe has neglected to die.
Revenue: growing. Subscriptions: growing. Cash flow: growing. Users: growing. Shares outstanding: shrinking. Stock price: LMAOOOOOOOO
ADBE is around $239 and roughly 13x trailing GAAP earnings. I think Mr. Market has suffered a traumatic brain injury.
Not financial advice. I learned DCF approximately 15 minutes ago and immediately became dangerous.
I FOUND THIS SHIT BY ACCIDENT
I was looking for reasonably priced companies because apparently buying businesses based on the amount of money they make is something people used to do before we invented 0DTE options, found Adobe, opened the 5Y chart.
\-60%.
Jesus Christ.
Did Photoshop give everyone AIDS? Did Acrobat assassinate the president? Did Premiere Pro become Premiere Amateur?
I assumed something catastrophic happened.
So, against my better judgment, I did something deeply inappropriate for this subreddit: I opened the fucking 10-K.
And then things got weird. Revenue went up. Cash flow went up. Earnings went up. Subscription revenue went up. Shares outstanding went down. The company improved. But the stock got taken behind the Wendy's and shot.
So either:
A) I am missing something enormous;
B) AI is about to murder this company so violently that the financial statements simply haven't noticed yet; or
C) Mr. Market is being a fucking idiot.
Welcome to my DD.
PART I: 2021 — EVERYONE WAS ON CRACK
Adobe peaked near $688 in 2021.
This was the era when interest rates were approximately fuck all, every software company was apparently going to conquer the planet, and Jerome Powell was discovering new toner cartridges.
Let's see what you actually got for your $688.
FY2021:
Operating cash flow: $7.230B
Capex: $348M
Therefore conventional FCF: $6.882B
SBC: $1.069B
Now, some people add SBC back and pretend it isn't an expense. I have developed an innovative accounting framework called: PAYING EMPLOYEES COSTS MONEY. So $6.882B - $1.069B = $5.813B
Adobe had roughly 476M shares. Economic cash generation: \~$12.20/share. At \~$688: \~56x.
If Adobe distributed every fucking dollar to you and never grew again, you'd make your money back sometime around the heat death of the universe.
Great business. Fucking psychotic price.
PART II: THE COMPANY GOT BETTER AND EVERYONE DECIDED THEY HATE IT
Adobe FY2025:
Revenue: $23.769B
Subscription revenue: $22.904B
Operating cash flow: $10.031B
Capex: $179M
About 96% of revenue is subscriptions. This company generates $24 billion a year selling software that already exists to people who mostly already use it. Do you understand how fucking beautiful that business model is?
PART III: I PUT ON A BERKSHIRE HAT AND STARTED SAYING "OWNER EARNINGS"
Trailing operating cash flow: \~$10.8B
Capex: \~$0.2B
SBC: \~$2.1B
$10.8B - $0.2B - $2.1B = \~$8.5B
Then I rounded it DOWN to $8B because unlike an equity research analyst trying to hit his price target, I am capable of subtracting numbers from my own thesis.
Shares outstanding: \~389M
Owner earnings/share: \~$20.55
Stock: \~$239
Therefore: \~11.6x normalized owner earnings, \~8.6% owner-earnings yield. GAAP P/E: \~13x.
I checked this several times because I assumed I'd accidentally divided by the population of Nebraska.
PART IV: GENERATIVE AI HAS APPARENTLY KILLED ADOBE
🚨 BREAKING NEWS 🚨
ADOBE IS FUCKED. CHATGPT CAN MAKE PICTURES. EVERYONE PANIC. SELL PHOTOSHOP. SELL ILLUSTRATOR. SELL ACROBAT. SELL THE FUCKING OFFICE CHAIRS.
There is only one small problem.
Adobe's latest quarter:
Revenue: +13% YoY
Subscription revenue: \~+14%
Nine-month revenue: \~+13%
Monthly active users: MORE THAN ONE BILLION
AI-first ARR: +150%+ YoY
Apparently Adobe's customers have not yet received the Reddit DD explaining why they should stop giving Adobe money.