Transcription
Hey everyone, and welcome back to another video for today. In today's video, we have Adobe that reported its quarterly figures. We have the earnings. We have the earnings call that's over already. We have a CEO that's been at the company for 18 years that decided to step down. Stock is down now 7% at the time of filming this. So, what went wrong? What went right? We'll talk about all of that.
Mercado Libre also dropped quite a lot throughout the day on Thursday. What's going on there? As you know, I love Mercado Libre. I like actually plenty of Latin American names. It's not the only thing I like.
"I prefer really not to not to speak. If I speak, I am in in big trouble. In big trouble and I don't want to be in big trouble."
Let's let's focus on stocks here. Let's focus on stocks here. So, let's talk about the market first and then we'll go into Adobe. First up, we have here oil still at $96. So, it did start to climb back up from the time it went back into the low $80s. We have a Thursday market that looked well, not great at all. As you can see, a lot of red here across the board. Even some dark red here as well. So, no point in us going to look at each and every segment here. Big tech companies are down, semiconductors are down, fintech is down, neoclouds are down. So, Thursday was not a great day. Yes, you can see Salesforce was up 2.66% but after hours right now it is uh down actually 1% or so. If I can remove myself right here, you see Adobe down 7.2%, Salesforce down a percent, and then the rest are are basically flat to a little bit green. Rubrik is flat right now. It was actually up 2% a bit more when the report came out. It was a beat across the board, but again, Rubrik will be for the Friday video. So, Adobe down 7.2%, 2%. What exactly happened here?
This is a stock already that's down 39% over the past 5 years. Over the past year, it's down 38.4%. It's experiencing a drawdown of well, yeah, actually the same amount. Year-to-date, stock is already down 19 to 20% or so. It's at close to a hundred billion in a market cap. It's a very profitable company, as you can see from the margins from the previous last 12 months. But you will see the margins right now. It's a very, very profitable company. It is still growing. We have actually seen a small acceleration in growth. And so, what's what's going on here? We'll talk about that.
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So, if we go here again, fiscal.ai, there's links in the description in the pin comment. You'll get 15% off, and if you are a new user, you'll get Fiscal Pro for free for the first two weeks. And how do you get this grid view? It's basically something new here. You remove me. You look at this right here. Usually, you get all of the numbers like this. It's not great. Grid view. Grid view. Much, much better. You see it side by side.
So, what do we get? Well, I've put here margins just to show you that this is a very profitable company right now, and no cracks in sight as of yet when it comes to this whole AI story. We have operating margins here over the last 12 months. We can actually put it for per quarter. Maybe per quarter is a little bit better. Operating margins 37.7%. Small improvement here. Free cash flow margin did drop a little bit, but this again is a quarter where usually it does drop a bit, but it's still 45.6%. Gross profit margin 89.6%. Net profit margin 29.5% has been pretty stable over the past 12 months. Then we have EBITDA margin 40.5%, and free cash flow, as you can see, I mean, free cash flow continues to go up. Yes, it fluctuates depending on the quarter, but this is still a company that's generating quite a lot of free cash flow.
Moving on to revenue. You can clearly see this is a company where revenue, yes, goes up and to the right. It's not the super hypergrowth company anymore. No, it's a company that grew here at the compound annual growth rate over the past couple of years, 10.9%. And look at this here, an increase of 11.9%. So, a little acceleration in growth right now. So, so far so good for this company. It's a bit across the board actually for this quarter. Even Guide was fine. So, again, what went wrong? What went wrong for Adobe? Is it purely because the CEO is stepping down? Again, yes, that definitely has an effect on the stock because when you are CEO 18 years inside that company, you are now of course in a period where, yeah, there are a lot of questions around Adobe's business model and Adobe's future because of the rise of AI tools, AI image generation, video generation, you name it. Seeing the CEO step down right now. I still, the CEO is going to stay CEO until they actually find a replacement. Yeah, maybe that's enough to put the stock down. But again, this is not like we are or you are paying such a high price for Adobe. Actually, on the contrary, I mean, the multiples have come down quite drastically across the board here. It's not high again. Yes, this is not a company that is growing fast, but it's also not a company that's been priced for hypergrowth. It's it's been priced as if it does not grow anymore, or we'll see declining growth pretty soon. We'll see margins get hit pretty soon. That is currently not the case.
Now, as I've said before, right now we are in a market where, yes, the bear thesis is there, right? The SAS apocalypse or all of these statements, it's there. The problem here is that the counterargument plus the proof, the answers are not there yet. And if they're there, we don't have enough of the data. We don't have enough quarters of a lot of companies reporting maybe accelerated growth, reporting positive impacts of AI. Once we will have that, then I think you can say, okay, look at all of that data that we do have across the board here to counter all of those bearish arguments. So far, the problem here is is that the bearish argument exists. You might not believe in the bearish argument, but we do not have enough data for now, purely speaking for the market here, to counter all of it and to make it go away. Because if we had, then I don't think you would see companies like Adobe, Salesforce, Service Now, etc., etc., be beaten down so much time and time again.
And so, let's look at a couple of key metrics here for the quarter and see if we've seen an acceleration in growth. Total revenue, yes, an uptick versus the prior quarter. Management called out revenue uptick helped by AI usage and better ARR to revenue translation. Subscription revenue acceleration is tied to AI-first ARR ramp. As for business professional and consumer subscription running mid-teams helped by Acrobat Express, Acrobat Studio, and AI Assistant. Creative marketing professional subscription grew 12%. Solid underlying ARR growth would be 11.2% excluding the stock segment of the business versus the reported 10.9%. And the stock part of the business is a little drag on the overall uh performance. So this is why you're seeing here total Adobe ARR 10.9% increase. Excluding stock ARR growth would have been 11.2%. Uh 2% a slight acceleration. As for AI-first ARR, that's up 3x year-over-year, clear acceleration, expected to be next billion-dollar business for them. AP and native apps ARR up 30% year-over-year, strong acceleration versus company average. Gen Studio ARR also up 30% year-over-year, accelerating as content supply chain demand ramps, and Firefly ending ARR of above $250 million, up 75% quarter-over-quarter. And here we see a very rapid acceleration, but from a very small uh base.
And so they did give us a little bit more information across the board, as you can see right here. Look, all in all, it is again a very solid company right now that just does what it needs to do. And maybe, maybe that's the thing. Maybe the market wants a little bit more than just doing what you need to do. Going back to the main argument here, there is that bearish thesis out there. Doing what you need to do is not really countering that bearish thesis. Countering the bearish thesis would mean that, yeah, we see accelerations across the board. We see that AI helps the business across the board. We see that AI accelerates the business, make sure that more people are coming into the ecosystem, are spending more inside the ecosystem, etc., etc. Now, of course, having the CEO leaving, well, it's not great. The timing is probably not the best here, but it is what it is. He emphasized also that Adobe remains a product-centric company focused on AI, creativity, and marketing with no change to fiscal year '26 strategy or targets, which is also something that we need to talk about because this is Q2, fiscal year '26 guidance and the full year guidance as well. That has been reaffirmed. Again, Q2 was also a slight beat. But the problem here, I go back and I repeat myself. The problem is not that these are not good numbers. The problem is that, okay, these were numbers that the market already assumed that this is what's what's going to happen. In order again to counter the bearish argument, maybe, maybe fiercer guidance would have needed to be well increased to show more strength. For now, it is only reaffirmed. Of course, all of those numbers here are excluding the Semrush acquisition. And so, yes, so far so good. Also, 8.1 million shares repurchased in Q1, $3.89 billion remaining on the $25 billion authorization. So, yes, in the meantime, if the stock is cheap, they of course keep on retiring a lot, a lot of shares.
And so, why is the stock down? Expectations versus reality. Fiscal year '26 guide reaffirmed, not raised. Market wanted a beat extension. ARR growth only around 11% excluding stock, not the AI supercharger narrative. And then cannibalization optics. So the stock business, which is around $450 million, is declining faster than expected. Mix pressure will be ahead. Legacy revenue sacrifice visible. Investors fear broader erosion of the moat remains to be seen, and of course, the the leadership change right here.
So, yeah, it it is a difficult situation because right now, like we've seen, you cannot really point to a point in time where the business is being disrupted. If you look at revenue growth, yes, growth rates are expected to decelerate based on the market's expectations or the analysts' expectations, but it is still growing. Gross profit margin is still getting a little bit better. Operating margin is still getting a little bit better. And yes, this is still a company that will be generating billions of dollars in free cash flow, although, yes, not so much more, which also is a problem here. It's great to be very profitable, but essentially what you want to do is, yeah, you continue to grow, but maybe you try to be a bit more profitable, especially, especially in this AI era, right? Why why shouldn't we see actually, let's put it here annually. Why shouldn't we see free cash flow actually increase substantially over the next coming years? If we look at all the way to fiscal '28, we see that, yeah, it's growing nicely, but not by much. If you look at revenue, revenue growth is expected to decelerate quite drastically based on current expectations, right? We're here at 7.7% growth in fiscal '28. We look at free cash flow. Free cash flow, we go from around $10.3 billion to $11.6 billion in fiscal '28. And so, yeah, the market is still wanting maybe a little bit more proof that AI is a tailwind for the business and not a headwind.
And so right now, this is where we're at here with Adobe. We are basically back to the bottom we've seen towards the end of February. This was the Citigroup bottom. Basically, this was that big red candle down 4.6%. Yeah, this was the bottom. We've seen that with Salesforce, with all of the other companies. We're basically back there. So RSI is probably going to be very close to being oversold tomorrow, maybe a little bit oversold depending on what happens throughout the day. But yeah, it's going to be back to the same price where we have seen it bottom. Which means that that was the last time. When was the last time we've seen it at this price? March 2019, which is pretty insane to say because of course the company has added billions and billions of dollars in profits, free cash flow, and revenue since then. But yeah, it's growing slower right now. Expected to well, see growth decelerate a little bit as well.
Now, another company which has seen its stock go down today by 4.8% was down actually a little bit more than that. Again, back to prices not seen in this case, December 2024. And here also, we've seen it a decline quite substantially over the past couple of months. Mercado Libre, you know me, I love Mercado Libre. I love the management, love the execution. So, what's going on here? Well, what's going on here is very simple. JP Morgan downgrades to neutral, cuts price target to $2,100, which is still around $500 higher than where we're at right now. What do they say or what does that analyst say? Key takeaways. Competition remains intense, particularly Shopee willing to sacrifice margins in Brazil, which is also why C Limited declined since the last reported, but we'll talk about that on Friday. MELI comfortable with higher investment levels, lowering profitability expectations. Nothing new. We've talked about that, right? This is not the first time they are in an investment cycle. It's definitely not the last one. And we'll see what happens times and times again. The business just becomes better and better. The analyst now sees 15% downside to Bloomberg Consensus EBITDA for 2026 and 24% for the first quarter 2026. Margin outlook visibility is limited due to continued investment spending, ongoing competitive pressures from Shopee in uh Brazil. Long-term margin assumption reduced to 14% from 17% in analyst model.
Now the thing here is that this is either an analyst that may maybe or maybe not has been following the company for a long time. I assume he has. This here margin auto visibility due to continuous investment spending. Look, you either believe management is doing the right thing based on the track record, based on their explanations right now, or you don't. If you look at Mercado Libre's track record, it's one of the best ones out there. I think it's the only company, only company that's public here in the US that succeeded to grow revenue above 30% for 20, I think it's 28 consecutive quarters. So, to me, if you ask me, this is, yes, again, one of those no-brainer opportunities. Now, don't expect this to be turning into a multibagger this year or next year. This is one thing that you buy and you own for many, many years to come. And I'll say the same thing for Nu Holdings. I'll say the same thing for C Limited. These are stocks, these are companies that are doing exactly what they should be doing. The market of course never likes short-term hits for the business when it comes to margins, increased spending, and all of that. But for the long-term future of these companies, yes, I think this is a must. This is the smart thing to do because this will make sure that the business becomes a better business in the future. If that's the case, then yes, I do think that $1,67 for me, or $14 for Nu, or I don't know what it is for C Limited at $80, $88 right now. Yes, in the future will look like absolute bargains.
One last thing here, company that we don't cover uh that much, but Nintendo. Nintendo stock itself has been taking a hit over the last couple of months. Over the last couple of days, we've seen it rebound a little bit. Why is that? Well, Pokemon Pootopia is well getting a lot, a lot of attention. It is a so-called Pokemon games/an Animal Crossing fusion. And as you can see right here, global sales of Pokemon Pootopia for Nintendo Switch 2 surpassed 2.2 million in the first four days. This is becoming one of the most popular games on the planet. I do think again that Nintendo. People say, "Oh, but when I don't know, Google released Genie Studio or whatever it was, all of these Unity, all of these gaming companies, Nintendo included, went down because, yeah, you could Vibe code a Mario Kart, you could Vibe code a Pokemon game." No, the fact that I'm talking about Pokemon right now might very well mean that I'll get a a an email from Nintendo trying to sue me for talking about their IP. Look, you cannot steal, you cannot replicate an IP like Nintendo, just like you won't be able to replicate an IP from Disney or any other company out there just because you are a Vibe coder. It's not going to happen. Nintendo, the IP that they own, one of the most popular brands on the planet. Nintendo Switch One was one of the best-selling, if not the best-selling console for god knows how long. Nintendo Switch 2. I thought it could be released sooner. It's also, let's be honest, it's not as big of a leap forward as what I thought it would be, but it still is, again, one of the most popular consoles that has been released for the last, I don't know how many years. It's selling quite easily. If you are an investor in Nintendo, if you are interested in that, if you're interested in hearing more, let me know down in the comments section below.
And so, all in all, yes, over the last couple of days, we've had a great green days, right? Especially when uh the day when Nibus went up 16% or 15% and every other name was green out there. But what did we say? More volatility is ahead. And this is exactly what we're getting right now. I do think that these types of days, yes, you have opportunities. You have a lot of opportunities in not only the the small multibagger names, but even in the big ones. Even if looking at a Visa, a Mastercard, a FICO, a Meta, of course, a Microsoft, Nvidia, the the big, big names are looking extremely attractive. And yeah, I don't think you're risking that much because you're buying very, very profitable companies that are still expected to grow quite a lot over the next coming years. And I do think that they will provide market-beating returns. Now, could they go lower? Yeah, of course they could. I don't know. I don't have a crystal ball. But to me, to me, this feels like a market that will present you with a lot of opportunities.
And so, all in all, that's about it for me in this video. Let me know what you think about Adobe's quarter. Are you a shareholder? Are you going to buy more? Are you going to sell? What about Mercado Libre? Share your thoughts down in the comment section below, and I'll see you all in the next one. Bye-bye.