Summary
- Adobe is focusing on generative AI, introducing features like Firefly and Generative Fill to enhance its product offerings and user experience.
- The company’s partnership with Google’s Bard expands Firefly’s reach and potential for increased user engagement.
- Despite slowed revenue growth, Adobe’s resilient non-GAAP operating margin and current valuation suggest long-term potential for success in the AI landscape.
Investment Thesis
Adobe (NASDAQ:ADBE) has demonstrated its dedication to embracing generative AI and fostering creativity among artists and content creators. Particularly, in the last month, the management announced a new AI feature called Generative Fill, powered by Firefly in Photoshop (beta), which will be available to the public in 2H CY2023.
Although ADBE’s subscription revenue has been decelerating since FY2021 (accounting for 94% of total revenue in 1Q FY2023), the company has initiated a growth turnaround plan by exploring different monetization possibilities. These options include treating generative AI as a value-added service or adopting a standalone subscription model. In addition, the company has achieved a consistent expansion on non-GAAP operating margin over the past four years, from 38% in 1Q FY2019 to 46% in 1Q FY2023.
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