ADBE faces high AI disruption risk with temporary pricing power; trades at 10x forward PE and 10% FCF yield; needs to show organic volume growth to change market view.
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I'll be going over some expectations for this as well as Adobe that will also be reporting earnings later this week.
Another company reporting earnings this week is Adobe. Adobe will undoubtedly post great numbers, but they need to show some way that AI is not disrupting the business. They need to create a stronger defense for that.
Right now, Adobee's looked at as a company that has temporary pricing power and a high probability of being disrupted by AI. It trades at a 10 forward PE ratio, a 10% free cash flow yield.
It is by the numbers one of the cheapest high-quality companies in the market simply because of the theme of AI disruption. So Adobe management needs to work on convincing investors that AI is not disrupting the business by showing organic volume growth of products and seats.
It's a hard story to tell and the market has pivoted directly against them.
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Joseph Carlson has 2 calls on this stock; only the adjacent ones are shown.