The market is treating Adobe like a legacy software company in terminal decline. Yet the actual data shows it's one of the biggest beneficiaries of the rise of GenAI. In fact, it's one of the top 5 most profitable & fastest-growing AI companies today, in an industry where profitability is rare.
Many users praise Adobe's record profitability and AI integration into workflows as durable advantages, while others criticize its high costs and inferior models amid market skepticism.
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Adobe hit a record $6.62 billion in Q2 revenue (up 13% YoY) while non-GAAP EPS jumped 18% to $5.96. Its net margins are at 36%, close to an all-time high. They are absorbing the compute costs of generative AI while expanding their profitability.
The market is treating Adobe like a legacy software company in terminal decline. Yet the actual data shows it's one of the biggest beneficiaries of the rise of GenAI. In fact, it's one of the top 5 most profitable & fastest-growing AI companies today, in an industry where profitability is rare.
TL;DR: Adobe is currently the most profitable it has ever been, and it is using AI to accelerating its adoption and earning growth (now 13%, up from 10-11% last year).
For all the talk about "Adobe is over", every creative I know is still using Photoshop and Premiere. And those are some of the people who are leaning the hardest into AI image and video generation. People still love these products.
Adobe has also been successful at using AI to make its software easier to use for new users, resulting in a large increase of its freemium-tier MAUs (now 850M, up from 700M last year).
Their AI-first ARR tripled year-over-year to surpass $500 million. Very few enterprise software companies are reporting this level of direct, paid AI adoption. The breakout driver is Firefly, now at $300M in ARR, growing approximately 50% quarter-over-quarter through apps and credit packs. That's better growth than most top AI startups. Paid users for the Acrobat AI Assistant also grew by more than 150%.
Adobe hit a record $6.62 billion in Q2 revenue (up 13% YoY) while non-GAAP EPS jumped 18% to $5.96. Its net margins are at 36%, close to an all-time high. They are absorbing the compute costs of generative AI while expanding their profitability.
Adobe has also been successful at using AI to make its software easier to use for new users, resulting in a large increase of its freemium-tier MAUs (now 850M, up from 700M last year).
Their AI-first ARR tripled year-over-year to surpass $500 million. Very few enterprise software companies are reporting this level of direct, paid AI adoption. The breakout driver is Firefly, now at $300M in ARR, growing approximately 50% quarter-over-quarter through apps and credit packs. That's better growth than most top AI startups. Paid users for the Acrobat AI Assistant also grew by more than 150%.
@fchollet Where is the Adobe killer?
@qdr_me The market is irrational all the time. Times like these are opportunities. Like GOOG at $140 because it was an AI loser -- "no one is using Google search anymore"...
@fchollet My money is already on it. Sometimes I don't understand the market at all
@fchollet @threadreaderapp unroll
@fchollet let's see how that plays out over the long-term...
@fchollet Shhhh I haven’t finished building my long position yet.🤫
@fchollet cc @alex__pitti
@fchollet People that actually use Adobe get immense utility out of ai-enabled features like in Photoshop specifically. Honestly can't imagine something replacing Illustrator, Photoshop, and Adobe Premier for me.
@fchollet Can creatives skip the AI features, or will they be forced to upgrade? If they can skip, pricing power dries up. That's probably the market's actual concern.
@fchollet I can't replace Illustrator for my printing business. If I expand I'd need more licenses. We're close to building something that automates a lot of the flow to reduce license creep but right now nothing as good for vector that works with my printers.
@boneGPT @fchollet 👀
@coastingallday I never said the share price would go up. I said the *company* was going to do great. Now check out the earnings call since I made that statement: Adobe has been absolutely killing it. It has now higher earnings, higher revenue, higher adoption, higher margins than ever.
@fchollet Like I said, the stock market is nothing but manipulation on a daily basis. People shorting companies when it's convenient to them. Companies doing well but stock price falls. It's all a joke.
@fchollet they are a software company. They are expensive. Models will be capable of one shotting their products. Their inhouse models are inferior to frontier lab models.
There have 0 long term value.
@fchollet @fchollet is hitting the uncomfortable part of AI economics. @Adobe doesn’t need to win the model religion war. It just needs AI to sit inside work people already pay for. The boring moat: habit + billing + files nobody wants to migrate.
@fchollet This is my sense and experience, but I try to keep myself grounded by also recognizing that markets are largely efficient, but things like adobe today and google last year are just baffling.