Investor Essentials Daily

Transforming the creative software space with AI

June 5, 2024

Adobe (ADBE) dominates the creative software market, with over 80% share, and key products like Photoshop and Acrobat holding major market positions. 

The company has over 33 million paid subscribers, with growth driven by new AI offerings like Adobe Firefly for image and font generation. 

Adobe plans to monetize these AI capabilities through additional subscription services. 

While investors see potential in AI-driven growth, some are concerned about monetization. 

Despite these concerns, Adobe’s strong market position and AI integration are seen as key growth drivers.

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Everybody knows Adobe (ADBE) is the leader in the creative software space. 

More than 50% of creative businesses and almost 90% of creative professionals worldwide use Photoshop. Additionally, Adobe Acrobat holds over 75% of the PDF reader market share.

The Creative Cloud as a whole holds more than 80% of the creative software market share.

Adobe now has more than 33 million paid subscribers with recurring revenue growing almost 13% in 2023.  

This is over double the number from five years ago, and up approximately 3.75 million from 2022. Meaning, that the run rate of new subscriptions is close to 1 million per quarter – adding an average of ~10,000 net new paid members every day.

Adobe is crediting this massive subscriber base expansion to its new AI offerings.

These offerings include generative AI models and services like Adobe Firefly which allow for image and font generation directly within popular creative cloud apps like Photoshop and Illustrator.

These new AI-powered features mean more subscribers which makes more money for Adobe as the company can charge more for additional AI-generated content and services to existing subscribers.

For example, Adobe plans to allow users to purchase additional “Generative Credits” through a new subscription plan, enabling users to purchase additional credits to generate more images through Firefly. 

The company is also exploring other monetization opportunities for its generative AI offerings like compensating stock photographers for work contributed to Adobe Stock which is then used to train AI models.

Our EEA shows that the market already expects this industry-leading company to increase its earnings consistently. 

However, some investors are concerned that the company may not be able to sufficiently monetize its expanding generative AI capabilities and offerings like Firefly, and that future growth could slow down if these new services do not generate meaningful new revenue streams.

While it is still early in Adobe’s journey to commercialize AI, the signs so far have been positive.

Firefly has already seen strong adoption from creative professionals since its launch in 2023. 

The company has also demonstrated its ability to quickly integrate new AI technologies into its market-leading creative cloud products.

Although we can hardly call Adobe cheap, the company’s leading position and the benefits from AI cannot be ignored given management’s focus on further developing generative AI applications.

Adobe is likely to continue growing by integrating these new AI-first offerings more deeply into its workflows.

As technology transformations accelerate, investors may find it irresistible to invest in Adobe to take advantage of the long-term opportunities arising from the creative software market’s structural shift towards AI-driven solutions.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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