Hi YXI friends,

Adobe (ADBE) just sold of 14% today, as investors seem disappointed with the management’s forward guidance.

We have been watching the stock for awhile and have yet to get too excited for a trade set up.

Are investor concerns overblown? Is today a good entry opportunity?

Today, we will walk through Adobe’s latest earnings highlights, AI innovations, valuation assessment, and price technical analysis.

Table of Contents

• 1. Adobe’s Gen AI: Firefly and GenStudio

• 2. Adobe’s Growth Accelerated In Q4

• 3. Lower Operating Margins, Better Free Cash Flows

• 4. The Forward Guidance Disappointed Investors

• 5. Valuation Is Not Yet Enticing

• 6. Technical Analysis Suggests We Should Wait

• 7. Rating: Equal Weight

• Tools I find helpful:

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Adobe’s Gen AI: Firefly and GenStudio

There are concerns that Adobe’s moat is becoming eroded by the likes of Meta and Microsoft, who are advancing rapidly in Gen AI for images and video creation. For example, Meta wants to help advertisers create ad creatives directly using Gen AI on its platform, skipping all the hard work of idea generation or video shooting and editing. Now advertisers can save and spend more money on the distribution itself. Genius.

However, Adobe is not giving up their market position without a fight. They too are investing in Gen AI features to keep customers happy, namely Firefly and GenStudio.

Firefly is a suite of Gen AI models that are integrated into Adobe’s Creative Cloud, Document Cloud, and Experience Cloud applications (e.g. Photoshop, Illustrator). It specialises in generating creative content such as images, videos, and vector designs. The models are trained with assets from Adobe Stock. So far, Firefly-powered AI have generated 16 billion outputs.

GenStudio is for enterprise level branded content production for performance marketing. It creates content at scale but with brand consistency. This includes targeted creatives and messaging across different target audience and campaigns. That is the goal for now anyway.

2. Adobe’s Growth Accelerated In Q4

In Q4 FY2024, ADBE’s revenue grew by 11.1% YoY to $5.6 billion. This was higher than the guidance and is at a consistent pace with the previous four quarters.

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