We came across a bullish thesis on Adobe Inc. (NASDAQ:ADBE) on Substack by FluentInQuality. In this article, we will summarize the bulls’ thesis on ADBE. Adobe Inc. (NASDAQ:ADBE)’s share was trading at $447.94 as of Dec 24th. ADBE’s trailing and forward P/E were 36.24 and 21.98 respectively according to Yahoo Finance.
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Adobe’s Q4 2024 earnings showcased a record-breaking performance, with revenue reaching $5.61 billion, an 11% year-over-year increase driven by robust growth across its core segments: Creative Cloud, Document Cloud, and Experience Cloud. The Digital Media segment, which includes Creative Cloud and Document Cloud, grew 12%, fueled by strong adoption of Adobe’s AI-powered features. Document Cloud revenue surged 17%, highlighting the demand for productivity tools like Acrobat and Sign. The Digital Experience segment also demonstrated strength, with a 10% revenue increase to $1.40 billion, driven by enterprises leveraging Adobe’s marketing solutions.
Profitability improved significantly, with GAAP EPS rising 17% year-over-year to $3.79 and non-GAAP EPS increasing 13% to $4.81. Operating cash flow hit a record $2.92 billion, reflecting Adobe’s ability to convert earnings into cash. However, despite these stellar metrics, Adobe’s stock dropped 10% in after-hours trading due to cautious fiscal year 2025 guidance, which projects revenue growth of 8-10%, a deceleration compared to the 11% achieved in 2024. The tempered outlook, particularly for the high-margin Digital Media segment, raised concerns about sustaining momentum in a challenging macroeconomic environment.
Despite the market reaction, Adobe’s underlying fundamentals remain robust. The company closed 2024 with $17.33 billion in Annualized Recurring Revenue (ARR) for Digital Media, up $2 billion year-over-year. Its Remaining Performance Obligations (RPO) reached $19.96 billion, growing 16%, underscoring long-term revenue visibility. These metrics highlight Adobe’s ability to maintain a stable recurring revenue base, even amid market volatility. Furthermore, Adobe’s strategic investments in artificial intelligence, cross-cloud integrations, and customer-centric innovations position it to capture future growth opportunities.
The cautious guidance for 2025 reflects a transitional phase rather than a structural issue. Adobe is focusing on profitability, with non-GAAP EPS projected to grow to $20.20-$20.50 and operating margins expected to remain strong at approximately 46%. These projections signal effective cost management and operational efficiency, even as the company continues to invest in growth areas like generative AI and enterprise tools.
For long-term investors, the post-earnings pullback offers a potential opportunity to buy into a leader in digital transformation and AI. Adobe’s integration of generative AI across Creative and Document Cloud has expanded its addressable market and solidified its competitive edge. This innovation not only enhances customer workflows but also secures Adobe’s position at the forefront of creativity and productivity solutions.
While the market’s focus is on short-term headwinds, Adobe’s long-term story remains intact. Its recurring revenue model, innovative ecosystem, and strong financial foundation provide a compelling case for resilience and growth. With ARR and RPO metrics at record levels and strategic investments underway, Adobe is well-positioned to navigate near-term challenges and emerge even stronger, making it an attractive play for investors with a long-term horizon.
Adobe Inc. (NASDAQ:ADBE) is on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 123 hedge fund portfolios held ADBE at the end of the third quarter which was 107 in the previous quarter. While we acknowledge the risk and potential of ADBE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ADBE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.