Jim Lebenthal Adobe Systems ADBE-Q HOLD Mar 19, 2025

She just sold it. It's been undervalued and dominates its space. But trends are slowing and she doesn't know how long the company will prove itself in this space in regards to AI.

Thought it was well positioned to monetize AI and deliver to end user. Didn't execute to the extent that analysts thought it would. Increased competition in the space. Struggling to maintain market share. Still owns, disappointing.

Still growing topline and bottom line at double digits. Spewing lots of free cash, buying back stock, great balance sheet. Worry is about how will AI affect its business? No evidence yet that it's impacting any of the company's results. Market's not respecting the fundamentals at the moment, maybe rightly so.

It reports Thursday. It could break its downtrend. He wishes the competition wasn't so fierce, and it's not letting up. An amazing company helping small companies. Is worth buying at 20x earnings. A good report, and this flies.

Shares are down today after reporting. The street is challenging their ability to monetize AI. They continue to deliver every time they report, but the stock does not perform well. But he will continue to be patient, because this is a stock to own.

Is at risk of single-digit revenue growth in 2025, and the last time that happened was 2014. He sold. 

She got sick of holding this, because they have trouble with Photoshop--now people can use the tools found in PS elsewhere. She sold before the quarter. Also with Meta, clients can create their own ads using Meta's tools. Adobe hasn't moved fast enough to develop such tools.

He bought more. They beat top and bottom lines, and raised guidance. He's a value investor. Sure, the share price has been terrible, but their earnings estimates are starting to rise and they're buying back share to reduce the share count 5% in the past year. They are meeting the competitive threat through their beats and guidance. They outperform consistently. Eventually, the share price will rise.

Now cheap at $380. This reminds him of IBM or Oracle who hadn't grabbed the current trend, but Adobe has just released Firefly. He sees more upside than downside.

Still stands out, but the fear is that it won't in the world of AI. And that's why it looks particularly interesting. Good earnings, upped guidance, yet stock fell. Valuation has collapsed to 17x PE. Still likely to grow double-digit EPS this year, and consensus is still 14-15% EPS growth over the next 3 years. 

There is more competition, but it's spending 18% of sales on R&D, so something compelling will turn up. No dividend.