Adobe Systems (ADBE)

It is a very successful large cap company. It is down this year because of their slow pace of modification of their AI tool. It is in a sweet spot with AI software eg. text to video. It has plans to improve in three areas. It might have competitors but has the advantage of size and being multi-faceted.. There should be an improvement in sentiment next year.      Buy 36  Hold 9  Sell 3

They report Wednesday. He likes Adobe very much, but it's been stuck in enterprise software purgatory. Not anymore. Maybe it has a good runway ahead.

A tough stock that you must be patient with, but ultimately this is a double-digit compounder with healthy fundamentals. They're seeing slower than expectation monetization of AI (Firefly). It's a show-me story. He's underwater on this, but you can buy this at current levels.

It has delivered great earnings growth in the double digit range but the price didn't follow other techs so it is much cheaper. It has under performed due to the U.S. decision to deny an acquisition. You can expect to see accelerated share buybacks, 25 cents for every dollar of free cash flow. It has already incorporated AI into a number of its products.         Buy 36  Hold 9  Sell 3

Worries that it has yet to monetize AI effectively. People can create images themselves with less sophisticated tools. Technically weak. The tech sector is not his #1 place to add right now. Look elsewhere.

It has a choppy chart with two lower highs which is bad. You don't want the low to be broken. He doesn't know - it could be a buy if it finds support at the last low, maybe $450.

Seeing series of higher lows, but if ADBE takes out the lows of 3 months ago, that will indicate a new, clearly defined downtrend. In the penalty box, trading sideways. He'd be on the sidelines, waiting for confirmation on which direction it's heading next.

Great business. Recently highlighted new AI features that will be incorporated. Sold off on fears of competitive pressures. Single-suite product, even though it has different features. Not willing to go out on a limb and say buy. Watch and wait; need more to unfold to see how strong its competitive position is.

ADBE has been on a roller coaster in terms of investors’ sentiment in recent years, starting with the Figma acquisition, which made investors question ADBE’s competitive position. Then, the AI theme caused investors concern over whether it was a tailwind or a headwind for ADBE’s business. That being said, ADBE’s management is committed to applying AI to ADBE’s solutions, and the operating results have not been affected yet. We think  ADBE may offer an attractive entry point for investors to average into the name, but we would size the position conservatively given the risks.
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She trimmed Abobe, because her position was large. The stock came down then up. There are questions about whether AI will disrupt it.

What often happens in tech AI is initial excitement over a company is replaced by a show-me attitude. This happened last week. Last week, their earnings were pretty good, but guidance was tepid, so shares sold off 8-9%. He exited some weeks ago when tech dipped. Nothing is wrong with Adobe, but the market got fearful.

Yesterday they reported and shares fell 8.5% today. Results were terrific, but guidance for the quarter was a tad light. There were many price hikes and hope heading into the quarter. The bulls got way ahead of themselves. He would pounce on this current weakness. The quarter was strong across every major business line with no areas of weakness. They beat top and bottom line. The key cloud metrics were strong; net new digital media annualized recurring revenue strongly beat. Q4 guidance wasn't "that" soft, but he would shake off fears, because of currency fluctuations and a few major deals closed early, intended to happen the next quarter. Also, they are spending more on marketing because they have new express software for teams, students and enterprise. More important is their guidance, which we'll have to wait until December. Adobe has done so well for so long and their AI products remain compelling and their complete AI suite is amazing (he uses them). Past post-earnings slumps have been great times to buy.

The quarter was good but the outlook was muted. EPS was $4.65, beating estimates of $4.53. Revenue of $5.4B beat estimates by just under 1%. Adobe's guidance for its Digital Media unit's net new annual recurring revenue (ARR) of $550 million was around $11 million below consensus, which is likely due to a strong beat in 3Q, which outperformed Street expectations by $44 million. The 3Q metric was driven by the close of certain transactions that would have otherwise secured in 4Q. There was also a sense a bit of caution in the outlook, given heightened geopolitical uncertainty and lack of clarity on interest rates. The Digital Experience segment is another area where there could be continued pressure until 1H25, as more clarity emerges on enterprise IT budgets. Adjusted operating margin was up only 20 bps to 46.5% -- in line with expectations -- as Adobe ramps up investment in GenStudio and Adobe Express. Not great, but still a great company. HOLD.
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Is up only 8% in the past year. Underperformed. Yes, AI cannabilizes their existing products