🌈🐻📉
Alright regards, put down the crayons for 15 minutes. Actually no, keep them, you'll need them for the charts.
I've watched this sub lose money on everything from cruise lines to cannabis to a Chinese EV company that turned out to be a PowerPoint. Today I'm offering you something different: a company that is profitable, growing, buying back stock like a degenerate, and still, in my opinion, slowly dying.
Adobe. The company that has charged you rent since 2013 to crop a JPEG and then charged you a cancellation fee for the privilege of leaving.
Here's the whole thesis in one sentence, and I want you to tattoo it somewhere your wife's boyfriend can read it:
\> \\Adobe doesn't sell anything AI can't do better, quicker, cheaper, and often for free.\\
Will Adobe literally go bankrupt? Settle down. It throws off over $10B a year in free cash flow and has almost no net debt. "Bankrupt" is WSB for "terminal decline." The real thesis is less exciting and more deadly: \\AI shrinks Adobe's addressable market, kills its pricing power, stalls growth, and turns a former 40x premium compounder into a melting ice cube that deserves a value-trap multiple.\\ Not a cliff. A fade. A long, slow, Blockbuster-shaped fade.
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\## TL;DR (for the apes who only read bold text)
\- \\Growth is quietly rolling over.\\ Total ARR growth went from \\13.8%\\ (Q1 FY24) to \\11.2%\\ (Q3 FY26), and management is guiding \\10.2%\\ for FY26. Wells Fargo models about \\7%\\ for FY27.
\- \\Net new ARR is falling.\\ By my math from Adobe's own datasheet, Q3 FY26 net new ARR was about \\$0.40B\\, against about \\$0.66B\\ a year earlier. That's down roughly 39%.
\- \\Q4 has to roughly double Q3\\ to hit the full-year ARR target. Wells Fargo flagged exactly this, and even if Adobe hits it, Q4 would still come in below last year's Q4.
\- \\AI is eating the margin.\\ Subscription cost of revenue rose \\24% YoY\\ while revenue rose 13%. Non-GAAP operating margin slid from \\47.5%\\ to \\44.0%\\.
\- \\Pricing power is gone.\\ Adobe \deferred\ its planned price increase ("line optimizations") and is giving more away for free.
\- \\The stock knows.\\ It's down about \\27% YTD\\ while the Nasdaq-100 (QQQ) is up about \\18%\\, and it sits about \\63% below\\ its 2021 all-time high.
\- \\The bull case is real.\\ It trades at about \\9.7x forward earnings\\, generates about \\$10.6B\\ in TTM FCF, and has a \\$24.55B\\ buyback authorization left. That's why this is a slow fade thesis, not a "puts expiring Friday" thesis.
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\## 1. Who is Adobe (for the zoomers who only know CapCut)
Adobe makes Photoshop, Illustrator, Premiere Pro, After Effects, Lightroom, InDesign, Express, Acrobat, Adobe Sign, Adobe Stock, and a big pile of enterprise marketing software called Experience Cloud.
In fiscal Q3 2026 (ended Aug 28, 2026), Adobe did \\$6.76B\\ in revenue, up \\13%\\. That's 97% subscriptions. ARR hit \\$27.50B\\. Non-GAAP EPS was \\$6.13\\ (Adobe Q3 FY26 release \[1\]).
Adobe no longer reports the old Digital Media / Digital Experience segments. In Q1 FY26 it merged everything into one reportable segment (10-Q \[2\]). When a company stops showing you how the pieces are doing, I personally start wondering which piece it doesn't want me to look at. 🤔 Luckily the datasheet still has "supplementary former segment data," so let's look anyway.
| Q3 FY26 revenue line | $B | YoY |
|---|---:|---:|
| Total revenue | 6.76 | +13% |
| Creative & Marketing Professionals subscription | 4.65 | +13% |
| Business Professionals & Consumers subscription (Acrobat, Express) | 1.91 | +16% |
| Former Digital Media subscription | 4.89 | +11% |
| Former Digital Experience subscription | 1.67 | +22% |
Sources: Q3 release \[1\], Q3 datasheet \[3\]. YoY for the former segments is my math from the datasheet.
Notice something? The cr