Adobe is a strong short-term buy (A-tier) due to entrenched agency usage, but faces long-term uncertainty (B/C-tier) from AI competition and business model shifts.

So basically what that means is we could say okay well let's put Adobe here between S and 80 right just as an example um that would mean okay in 10 or 20 years time we believe Adobe will be still existing and will be a stronger company than today

and then we also have a value today tier list where simultaneously to some extent we'll discuss the same companies but with the premise of saying well do we believe Adobe will be a good company in the next I would say Sean give me your thoughts but I would say like one to four years.

um if we say okay well Adobe is so cheap that we think it's an even better buy um for the next let's say two or three years we'll put it into S tier.

That's good because we have Adobe on the list today. So you will get our opinion on what we think about it. Um especially for the long term. Sean, why do you give us your opinion on Adobe right now?

I feel like we talk about that company every single week.

let me caveat this by saying if we were doing the current valuation, I would I would probably have I would have a much more optimistic take. Um, I I still feel good about Adobe long term.

Uh, you know, just recently I was in Chicago and I I met with um a director of a creative ad agency and so uh you know they work with uh large brands uh to create ads you know ad creatives for them.

Uh and so obviously a lot of what they do goes through the Adobe ecosystem.

Uh, so basically they do the mockups in chat GBT and then everything, you know, the final designs all go through Adobe still. Uh and so for the short term that definitely tells me that Adobe's business I don't think is is going anywhere.

Uh creative ad agencies uh still see Adobe as the gold standard for quality and brands uh basically expect that quality.

If we look out on a 10-year horizon um probably I'm probably less certain to be to be you know fully candid. Um again I I think if you ask me you know at the current valuation is the riskreward favorable over maybe the next couple years yes u but if we're talking about you know 10 years and beyond where does Adobe stand? Um I have I have big question marks there.

Uh so I would probably I don't know I would probably put Adobe between like the B and C tier um on the 10ear horizon. Um but on Adobe I think I agree with you that in the long term I have more doubts than in the short term.

Um especially you know the story you just told is basically telling me people still need it.

Um, still if you now, you know, you have an ad agency and you have customers, they still want all of these graphics and videos to go through Adobe because in the end it's sort of like a stamp of approval that you know the work has been done the right way if you still use Adobe in the end.

Um, but to me it's really about how much of the value creation generally if you think about you know going from zero to 100%. How much of that will go to AI in the long term and then not necessarily to Adobe.

You could obviously use Adobe or the Adobe AI tools. Um, but I just have my doubts that people will do that. I mean, they talk a lot about their own AI tools and they're growing fast, but also from a very low base.

I think if you compare that to AI use for video or photo creation outside of Adobe, um, that's a way bigger part and apparently also for companies by now even though it has to go through Adobe still.

Um so I would agree that I think value today I mean it's also gone up I think 40 50% just in the last you know six seven eight weeks.

a value today I would put it as an A for sure. Yeah that that's what I wanted to say. I think value today um definitely still an A. Um I think I hopped in and out of that position um simply because you know we cover so many companies sometimes I just need a bit of money if I want to add to another company.

Um, but I hopped into Adobe again um because I think especially now the momentum is kind of better.

Although if you still look at software, I feel like they all move in tandem. Um, if you would look at the stock charts, they still all move in tandem, which I don't think is a great thing.

Um, because it shows you that people don't necessarily think about just Adobe and their outlook generally, but it's more about the entire sector.

Um, so I think value today it's an A tier. And then personally, I think you said B2C, right? Um, in terms of uh the long-term horizon, I agree. um it was just objectively more uncertainty around um you know design and and obviously that's not entirely um Adobe's business too right uh they they have a strong analytics uh business you know they really um serve the advertising industry from end to end so it's not all just the creative process but um that is probably the highest margin uh you know that's that's the cash cow

Um, so yeah, it's a good point. Revenue is is um slowing, but I mean it's still pretty it's still been pretty strong. And uh you know, I I don't think we can really grade uh Adobe's growth prospects until we better understand um how that probably this new billing model uh with AI is going to change things.

So what you know about 15 years ago Adobe went through this huge shift where they sold uh oneoff uh software subscriptions and then they moved to these recurring cloud subscriptions and it temporarily hit revenue.

Um but ultimately it ended up being a much much better business model.

Uh and I think just fully candidly we don't yet know um what this sort of uh tokenbased uh business model is going to look like. And so what I mean is um instead of charging for if you're an ad agency and you have 20 employees buying 20 subscriptions to you know Photoshop for each employee um you know you might have well first of all you might not need as many employees in this age of AI.

Uh but it would be based on uh instead of the number of seats as they call it uh it would be based on usage. Um, so you might have a couple members of the team using a whole bunch of AI tools.

Uh, you know, the Firefly suite of AI tools from Adobe. Um, and and you know, in their subscription would be based on uh the amount of compute that they use.

Uh, so that strikes me as um a less profitable business model. Point being, I I I'm not ready to say that Adobee's growth prospects on a 10-year horizon are poor because I I think there is a real opportunity at least on the revenue growth side um with compute usage and and sort of seeing a a remake of the business model uh in the way that they went from, you know, one-off software sales to cloud subscriptions.

Um is this a change? and we don't know um how it's going to affect uh honestly their their revenue and and their margins. Um it it could be a big opportunity or um honestly it could uh it could play out differently.

So that's why I have this I wouldn't put Adobe in the D tier because I'm not that pessimistic, but maybe maybe we just put them straight in the C tier.

Um if Adobe is C well if Adobe is C you actually get [laughter] well if Adobe is C you got to put it into probably F but I can't do F. So I would put it E to F where it's pretty likely that it doesn't exist in Monteneius at least not in the way that it currently is.

It's sort of like the epitome of when people talk about uh you know like there's multiple tiers to the software debate. It's sort of like okay you know Adobe is an application that's entrenched with you know software professionals and uh uh has sophisticated design tools and therefore uh you know might have more staying power with Wix.

>> Yeah I mean I I don't think it can rank above Adobe. That would be that would be sort of insane. So, we either need to move Adobe up or um Dolingo maybe goes in like the D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D D to E range.

so I think we should do two uh two Adobe needs to move up at least in B. I think we have been like comp also you got to think about guys like this is comparative right compared to all the other companies here.

Maybe there are even better companies but compared to the companies that we currently have here I think Adobe SB at least.

So um you know especially relative uh to Adobe and Duolingo and Wix u may maybe we should just put it in the S tier because uh you know it in 10 years

Um you could probably put it on the same level as Adobe so I could totally see it being a B tier. Um but again like probably it's me just being biased because I'm not that excited about the products.

I I I definitely see how they have a mode but also they have a lot of competition in there.

>> No, 100% agree. I think if I just look at it again comparatively and I just compare to Adobe um and you know there are a lot of points that I don't necessarily like about Adobe or where I think there are risks um but it's still dominating a niche where if you just tell me like or if you ask me I should point out one company that's competing with Adobe and could do it on that scale I couldn't name a single one.

so when I think about Adobe I primarily have to think about whether it will be disrupted by the big AI players right um and the usage to some extent but I don't think that anyone will build a similar tool to Adobe and then be better at it

I could see how people build a similar tool to Salesforce and then be better at it through AI, for example. Um, so I think that's why I think it's slightly lower um than Adobe, but it didn't look like you 100% agree.