2024-12-24 21:03:15
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2024-12-21 23:02:05
Welcome to the Saturday PRO edition of How They Make Money.
Over 170,000 subscribers turn to us for business and investment insights.
In case you missed it:
📧 Free members get our Friday articles and sneak peeks.
💌 Premium members receive monthly reports with 200+ companies visualized, one extra weekly article, and access to our archive.
💼 PRO members enjoy everything in Premium, plus our Saturday timely coverage of the most important earnings of the past week.
Quick heads up! Earnings season is taking a breather, so there won’t be any PRO coverage over the next two weeks. But don’t worry—our Saturday emails will be back on January 11 as new quarterly reports start rolling in.
Today at a glance:
🌐 Accenture: AI Momentum.
👟 Nike: Turnaround in Progress.
⚙️ Micron: Disappointing Outlook.
🚚 FedEx: Freight Separation.
🍪 General Mills: Mixed Results.
🛳️ Carnival: Smooth Sailing Ahead.
🧑🍳 Darden: Strong Momentum.
👡 Birkenstock: Closed-Toe Surge.
Accenture's revenue rose 9% year-over-year to $17.7 billion ($0.6 billion beat), and its EPS was $3.59 (a $0.20 beat). New bookings grew 1% to $18.7 billion, and generative AI contributed $1.2 billion (compared to $1.0 billion in the prior quarter), underscoring its growing impact on client transformation initiatives.
The company raised its FY25 revenue growth outlook to 4%–7% (previously 3%–6%), reflecting broad-based growth across consulting and managed services. Despite cutting its EPS guidance slightly, Accenture continues investing in AI-driven solutions. It has expanded its data and AI workforce to 69,000 and aims to reach 80,000 by FY26. Management highlighted resilient client demand for large-scale transformations, reinforcing Accenture’s position as a key partner in reinvention and AI adoption.
2024-12-20 21:02:42
Welcome to the Free edition of How They Make Money.
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Investors are always on the hunt for companies with explosive growth potential. But when it comes to identifying long-term winners, the durability of growth is just as critical as its speed.
That’s why I love reviewing the annual Future 50 list.
Curated by Fortune and Boston Consulting Group (BCG), this list spotlights 50 global companies with the highest potential for sustainable, long-term revenue growth. The methodology is rigorous, scoring 2,800 companies with a 'vitality score'—a blend of market potential (top-down) and inner strength (bottom-up).
And it delivers. Past cohorts have consistently outperformed in growth and market returns, featuring giants like NVIDIA, Intuit, and ServiceNow before their meteoric rise.
Many of the companies on the 2024 list are already featured in this newsletter—and several are key holdings in my portfolio.
While I won’t cover the full list here (check it out on Fortune), I’ll spotlight three winners from this year’s list. Let’s examine their performance, explore what drives their growth, and see what sets them apart.
Today at a glance:
Atlassian: From Server, to Cloud, to AI.
Roblox: Bookings surge 10x in 6 years.
Klaviyo: Large Customers Rise.
In 2020, Atlassian—the Australian software giant best known for its collaboration tools like Jira and Confluence—announced a transition to a cloud-first model and the eventual end of its legacy Server business. In the process, the company redefined its business model and revenue streams.
This strategic shift has propelled Cloud revenue to new heights, exceeding investor expectations in Q1 FY25 with a 31% Y/Y increase to $792 million. The successful transition to cloud-first operations (see visual) underscores Atlassian’s adaptability and sustained growth in an evolving market.
Atlassian follows a SaaS land-and-expand approach. It offers free or low-cost entry-level products to ‘land’ new customers and then ‘expand’ their usage through upsells to premium features and cross-sells of other products.
Key facts you should know about Atlassian:
💻 300,000+ customers across software development, IT, and business teams, including 84% of Fortune 500 companies.
🏢 524 enterprise customers generating $1M+ ARR, signaling deeper penetration into large organizations.
🤖 10x AI usage growth in Atlassian Intelligence this year, driving upgrades to premium tiers and boosting customer productivity.
Product-led growth: Recent innovations include Atlassian Focus—a new enterprise strategy and planning solution—and Advanced Editions, offering premium tiers for existing products.
Profitability challenges: Atlassian reported an operating loss of $32 million (3% loss margin), slightly worse than a year ago. This reflects the company’s continued heavy investment in R&D (51% of revenue, +2pp Y/Y), a product-first approach that prioritizes long-term growth over short-term profitability. This strategy is consistent with Atlassian’s approach over the past decade, during which it has typically operated near breakeven.
No more Server revenue: The end of the legacy Server segment partially accounted for the growth in cloud and data center revenue.
Data Center momentum: Data Center revenue grew 38% year over year to $336 million, underscoring its role as a transitional solution for large customers who are not yet ready to migrate fully to the cloud. However, Atlassian is actively encouraging these customers to transition, positioning Data Center as a bridge to the cloud rather than a long-term solution
Atlassian’s strategic shift positions the company to capitalize on the growing demand for cloud-based collaboration tools and AI's transformative potential. However, challenges such as macro uncertainty, competitive pressures from legacy vendors, and profitability constraints remain.
Generative AI brings opportunities but also risks, including increased competition and potential cannibalization of human-driven workflows, which could slow paid seat growth—a core revenue driver.
From virtual concerts with millions of attendees to user-created games that rival established studios, Roblox has become a cultural phenomenon nearly two decades after launching on PC. The platform is transforming the landscape of social gaming and entertainment.
Founder-CEO David Baszucki explained:
“Our mission is to connect 1 billion people with optimism and civility. This is personal to me because I've had several people share with me that their kids are literally alive today because of the connections they've made on Roblox.”
Roblox was already a top pick in the Future 50 ranking last year due to its unique value proposition. Today, over 3 million creators build experiences and games using Roblox Studio, the company’s powerful development tool.
The platform's thriving economy, fueled by the in-game currency Robux, rewards creators based on user spending, making it a serious business. For example, Uplift Games, a studio exclusively developing on Roblox, employs 60 people.
Two key flywheels drive the platform’s growth:
Content viral loop: Better content attracts more users, which in turn incentivizes the creation of even more content.
Social network viral loop: As more people join and play together, the platform becomes more attractive to new users.
▶️ User Generated Content: Roblox's UGC model shows similarities with YouTube, empowering creators of all skill levels to build and share their vision.
🥽 A budding Metaverse: Beyond gaming, Roblox hosts virtual events and educational experiences, showcasing its potential as a digital world for socializing and connecting with friends.
📈 Aging up: While initially popular with younger audiences, Roblox is increasingly attracting older demographics. In Q3 2024, users over 13 represented 60% of the audience, up from 57% the previous year.
👨👩👧👦 89 million Daily Active Users (DAUs), rising 27% Y/Y. Growth is particularly strong in the APAC region (up 37%), with Japan showing a remarkable 59% increase.
⏱️ 20.7 billion hours engaged, up 29% Y/Y. Users spend more time on the platform, showing steadily increasing engagement.
💵 $1.1 billion in bookings in Q3, surging 34% Y/Y. That’s the overall dollar amount users spend on the platform during the period. Since Roblox recognizes most bookings as revenue gradually over 27 months, it’s a reliable early indicator of future revenue growth.
🇺🇸 Bookings are concentrated in North America (62%) and Europe (19%).
The October 2023 launch on PlayStation, which doubled the platform’s console footprint, has contributed significantly to the recent surge in users and bookings. To further incentivize development on the platform, especially from traditional console studios, management recently announced a 70% revenue share for products priced at $49.99 or more. This move aims to attract more high-quality content and expand Roblox's appeal to a broader audience.
Short seller shenanigans: In October, Roblox faced scrutiny when Hindenburg Research released a short report alleging inflated metrics and inadequate child safety measures. The report also highlighted the company's continued lack of profitability as a public company. This report likely impacted investor confidence and put pressure on the stock. Ultimately, it was more sizzle than steak.
Profitability challenges: Operating margin is still deep in the red (30% loss), with significant expenses related to infrastructure scaling, trust and safety initiatives, and AI development. Controlling these costs will be crucial for achieving profitability.
Advertising potential: Partnerships with DoubleVerify and Shopify are laying the groundwork for brands and developers to integrate ads and merchandise. The untapped opportunity is gigantic, as users spend an average of well over two hours per day on Roblox.
Virtual economy enhancements: Improved search and discovery algorithms have driven a 30% increase in payers to 19 million and a 6% rise in bookings per DAU.
Record free cash flow of $218 million (+266% Y/Y): Management highlighted efficient infrastructure costs and controlled personnel expenses as drivers of operating leverage and cash flow margins.
Stock-based compensation: SBC accounted for 29% of revenue and 23% of bookings, continuing to dilute investors (~3% annually). While it's a common practice, especially in tech companies, Roblox is an outlier here. This level of dilution can be a concern for long-term investors as it reduces the value of existing shares.
Guidance gets a boost: Management raised its full-year bookings forecast to $4.36 billion in the mid-range ($50 million raise), implying a 24% growth year-over-year. It would be an acceleration from 23% year-over-year in FY23.
Roblox's future hinges on its ability to balance rapid growth with operational discipline. While its innovative approach to UGC and its expanding user base are potent assets, addressing concerns around profitability, content moderation, and shareholder dilution will be crucial for long-term success. The company's ability to navigate this balancing act will ultimately determine its longevity.
Klaviyo is a leader in marketing automation, empowering e-commerce businesses to engage customers through personalized email, SMS, and push notifications. With seamless integrations into platforms like Shopify, Klaviyo enables brands to centralize consumer data and orchestrate highly targeted, data-driven campaigns.
In recent years, Klaviyo has expanded its focus to include larger enterprises, evolving from a tool for small businesses to a key player in the marketing tech stack. Its strong upmarket sales execution demonstrates growing penetration among global brands and large organizations.
📧 157,000+ customers rely on Klaviyo’s platform, including global brands like The Body Shop and Authentic Brands Group, to deliver personalized, omnichannel communications.
🏢 2,619 customers generating over $50,000 in ARR, surging +191% in the past two years, underscoring strong upmarket momentum and deeper enterprise adoption.
🤖 AI-driven innovation enhances campaign creation and segmentation with tools like Klaviyo AI, helping marketers improve engagement and maximize customer lifetime value.
Revenue growth: Q3 FY24 revenue rose 34% Y/Y to $235 million, driven by an expanding customer base and increasing ARPU (average revenue per user). Large customers are key contributors to ARR growth.
Strong retention: The 110% dollar-based net retention (DBNR) highlights solid customer engagement and successful account expansion strategies.
Profitability challenges: While Klaviyo boasts a healthy 77% gross margin, operating expenses accounted for 82% of revenue, resulting in a $13 million operating loss (-6% margin). Sales and marketing are the main operating expenses (43% of revenue) and are critical to drive growth.
Regional momentum: Klaviyo is gaining traction internationally, with APAC and EMEA regions leading adoption growth, complementing robust US performance.
Klaviyo’s growing focus on large customers and global expansion positions it as a key player in marketing automation. Its tight integration with Shopify and other platforms provides a strategic advantage, particularly as e-commerce rebounds post-pandemic.
However, challenges loom. Sustaining high DBNR while achieving profitability will require careful execution. Klaviyo also faces fierce competition from rivals like HubSpot and Intuit’s Mailchimp, who invest heavily in AI-driven personalization.
Is there a specific public company from the Future 50 ranking you’d like us to visualize on How They Make Money? Let us know, and we’ll bring it to life!
That's it for today!
Stay healthy and invest on!
Interested in licensing our visuals for a report or presentation? Are you looking for custom visuals for your business or brand? Let's collaborate! Complete the form here, and we'll get in touch.
Disclosure: I own NVDA, INTU, RBLX, and TEAM in the App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2024-12-17 21:01:19
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Waymo—Google’s autonomous driving service—has surged to a 22% market share in San Francisco in just 15 months, shaking up the ridesharing landscape.
That’s according to data shared by Alex Immerman, partner at a16z, featuring insights from market research firm YipitData. The visual ignited debate: Is Waymo’s rapid growth a glimpse of autonomous vehicles (AVs) dethroning Uber and Lyft—or just a temporary blip unique to San Francisco’s conditions?
According to the visual, Waymo’s rise came at the expense of Uber and Lyft, whose market shares each fell by double digits.
Yet a closer look reveals a more nuanced picture.
Lyft CEO David Risher has disputed the data, calling the analysis misleading. Novelty and tourism likely play a significant role—after all, riding a self-driving car in SF has become a must-try experience for visitors.
But beyond the headlines, Waymo’s success raises critical questions about the challenges ahead, which could determine whether this momentum is sustainable.
One thing is clear: AVs are no longer a distant fantasy. Waymo’s gains in SF hint at a broader shift in ridesharing's future. But before Google’s subsidiary can claim victory, it must prove that this early success can scale and compete sustainably.
In this article, we’ll explore the implications of Waymo’s rise and other key players, including Tesla, Uber, and Lyft. We’ll also unpack GM’s decision to abandon its Cruise Robotaxi project and what it means for the future of AVs.
Today at a glance:
Waymo’s rise.
Tesla’s timeline.
Uber’s resilience.
Lyft’s challenges.
Why GM killed Cruise.
Incubated at Google in 2009, Waymo became part of Alphabet (GOOG) in 2016 and launched the world’s first fully driverless service on public roads in 2019.
At the heart of Waymo’s success is its advanced autonomous driving system, Waymo Driver. Combining cutting-edge LiDAR, cameras, radar, and machine learning, Waymo Driver creates a 360-degree, real-time map of its surroundings to navigate complex urban environments. Waymo’s AI is trained on billions of simulated miles, constantly improving its ability to predict and respond to real-world conditions, from pedestrians to unpredictable traffic.
Fast forward to today, Waymo’s momentum is undeniable. The initial data points have been extremely encouraging, with Waymo Driver reducing crash rates and demonstrating improved safety relative to human drivers.
Waymo’s model relies on its own fleet, where AVs operate in small, highly mapped geographic areas. This approach prioritizes reliability and safety but comes with significant costs: each vehicle requires expensive hardware like LiDAR and radar to operate autonomously. Waymo’s co-CEO Dmitri Doglov previously said on a podcast the equipment costs up to $100,000 per vehicle.
The upside? Fleet operators like Waymo can achieve higher utilization rates in dense, urban areas—assuming demand matches supply.
The downside? Scalability. Mapping new cities and maintaining a fleet is capital-intensive, limiting how quickly Waymo can expand.
Key facts you should know about Waymo:
150,000+ paid rides weekly across San Francisco, Los Angeles, and Phoenix.
New markets like Austin and Atlanta are set to launch in 2025.
BofA estimated Waymo’s 2024 revenue to be $50 to $75 million, with a loss of up to $1.5 billion based on its employee count of 2,500 to 3,000.
$10+ billion raised from investors to date.
Alphabet committed $5 billion in July 2024, and Waymo raised $5.6 billion in October 2024 in a round including a16z—yes, the same firm as Alex Immerman, whose post sparked the recent debate.
Immerman added:
“Network effects is one of the best sources of defensibility. But it's proven to be not that important in ridesharing. […] Once wait times hit that acceptable threshold, the incremental driver doesn't improve the rider experience.”
The data suggests Waymo is making waves, but the hype deserves more context.
Waymo’s rise in San Francisco is remarkable but comes with caveats:
San Francisco is a unique market: At 7x7 miles, SF trips are short, so price sensitivity is lower. Waymo’s success in this confined geography may not scale to larger, sprawling cities where cost and trip length are factors.
Novelty factor: Lyft CEO David Risher argues that much of Waymo’s growth can be attributed to tourism, with riders eager to try AVs for the first time. Waymo is exclusively available in SF, LA, and Phoenix, further amplifying this factor.
Data accuracy: Risher also disputes the accuracy of the visual from YipitData. For example, Uber’s app allows users to book Waymo rides. How many Uber rides are attributed to Waymo? Are they double-counted?
If anything, Waymo’s growth in SF validates a broader truth: The world is ready for AVs. But we already knew that, didn’t we?
The key hurdles boil down to three questions: Can Waymo scale its fleet? Can it manage idle costs? And will riders stick to standalone apps like Waymo over platforms like Uber?
Fleet size: Waymo requires its fleet to meet demand year-round to recoup its costs. Can it justify the heavy Capex to serve most use cases, including peak demand during holidays and major events?
2024-12-14 23:01:52
Welcome to the Saturday PRO edition of How They Make Money.
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In case you missed it:
📧 Free members get our Friday articles and sneak peeks.
💌 Premium members receive monthly reports with 200+ companies visualized, one extra weekly article, and access to our archive.
💼 PRO members enjoy everything in Premium, plus our Saturday timely coverage of the most important earnings of the past week.
Today at a glance:
📈 Broadcom: $1 Trillion Club
🛒 Costco: Consumer Shifts
🌱 MongoDB: Leadership Transition
🔷 Rubrik: Surpassing $1 Billion ARR
🎮 GameStop: Cash Rich But Revenue Poor
🏥 HealthEquity: Asset Growth Acceleration
🧠 C3 AI: Microsoft Alliance
Broadcom’s revenue rose 51% Y/Y to $14.1 billion, in line with expectations, with an adjusted Earnings Per Share (EPS) of $1.42 ($0.03 beat). Semiconductor solutions revenue grew 12% Y/Y to $8.2 billion, while infrastructure software tripled to $5.8 billion, driven by the VMware acquisition completed in November 2023.
FY24 revenue grew 44% Y/Y to $51.6 billion, including $12.2 billion in AI-related revenue, surging 220%. Management guided Q1 FY25 revenue to grow 22% Y/Y to $14.6 billion ($0.5 billion beat), fueled by robust demand for AI XPUs and Ethernet networking.
CEO Hock Tan highlighted Broadcom’s massive opportunity in AI, forecasting an AI semiconductor market of $60–$90 billion by FY27. While non-AI semiconductor revenue faces headwinds, AI revenue is set to rise 65% Y/Y to $3.8 billion in Q1 FY25. VMware’s integration has been a standout success, achieving an impressive 70% operating margin in the software segment.
With a leadership position in AI and strategic partnerships, Broadcom is well-positioned for sustained growth, even amid challenges in non-AI markets. Investors also welcomed an 11% increase in the quarterly dividend. After the report, the stock surged over 20%, propelling Broadcom above a $1 trillion market cap, making it the 10th largest company globally.
2024-12-13 21:03:24
Welcome to the Free edition of How They Make Money.
Over 170,000 subscribers turn to us for business and investment insights.
In case you missed it:
Two cloud titans reported this week: Oracle and Adobe.
☁️ Will Oracle Cloud Infrastructure (OCI) become the 4th hyperscaler? OCI may not yet rival the big three (AWS, Azure, GCP), but like d'Artagnan joining the musketeers, it’s riding the AI wave and catching up. Oracle's Infrastructure-as-a-Service segment surged 52% to $2.4 billion in the November quarter. OCI has leapfrogged Salesforce and IBM in just a year and is now outpacing Snowflake. Alibaba Cloud is next in line (growing only 7% Y/Y in the September quarter to $4.2 billion). However, this rapid growth comes at a cost—Oracle's Capex is set to double in FY25 to support AI demand.
🎨 Meanwhile, Adobe Firefly and new generative AI features present opportunities and challenges for the software giant. While its Q4 results were strong, cautious FY25 guidance has raised concerns about Adobe’s ability to fully monetize its AI investments and fend off intensifying competition in creative workflows.
Let’s get to the insights from these two reports.
Today at a glance:
Oracle Q2 FY25
Adobe Q4 FY24.
Key metrics:
RPO (Remaining Performance Obligations) represents future revenue from existing contracts signed. RPO grew 50% Y/Y, and Cloud RPO grew by nearly 80%, illustrating strong momentum. There was a slight decline sequentially from $99 billion in Q1 to $97 billion in Q2. 39% will be recognized as revenue in the next 12 months.
Cloud services revenue was up 24% Y/Y to $5.9 billion:
IaaS (Cloud Infrastructure) focuses on providing compute, storage, and networking services. It grew +52% Y/Y to $2.4 billion (accelerating from +45% Y/Y in Q1), driven by increased adoption of OCI for high-performance workloads and multi-cloud deployments.
SaaS (Cloud Application) focuses on delivering Oracle's suite of enterprise applications via the cloud. It grew +10% Y/Y to $3.5 billion (stable), driven by demand for cloud-based ERP, HCM, and CRM solutions.
Fusion Cloud ERP grew +18% Y/Y to $0.9 billion.
NetSuite Cloud ERP grew +19% Y/Y to $0.9 billion.
Income statement:
Revenue grew +9% Y/Y to $14.1 billion ($20 million miss).
☁️ Cloud services & license support grew +12% Y/Y to $10.8 billion.
Cloud services grew +24% Y/Y to $5.9 billion.
License support was flat Y/Y at $4.9 billion.
🌐 Cloud license & on-prem grew 1% Y/Y to $1.2 billion.
🖥️ Hardware declined by 4% Y/Y to $0.7 billion.
💼 Services dropped by 3% Y/Y to $1.3 billion.
Gross margin was 71% (flat Y/Y).
Operating margin was 30% (+2pp Y/Y).
Non-GAAP EPS $1.47 ($0.01 miss).
Cash flow:
Operating cash flow (TTM) was $20.3 billion (+19% Y/Y).
Balance sheet:
Cash and cash equivalent: $11.3 billion.
Debt: $88.6 billion.
Q3 FY25 Guidance:
Revenue to grow by 7% to 9% Y/Y (10% expected).
Cloud revenue to grow by 25% to 27% Y/Y, another acceleration.
So what to make of all this?
Cloud infrastructure momentum continues: Oracle’s focus on AI workloads is paying off, with top clients like Meta, Uber, and TikTok. GPU consumption surged 336%, driven by AI training demand, and Oracle unveiled the world's largest AI supercomputer with 65,000 NVIDIA H200 GPUs. However, a potential TikTok ban in the US could be a headwind (likely close to $2 billion in annual revenue).
Missed expectations but sustained growth: Revenue and adjusted earnings missed expectations, partly due to slower SaaS growth. Total cloud revenue of $5.9 billion narrowly missed the $6 billion forecast. As a result, shares dipped after the report but remain up nearly 70% year-to-date. Such a rally was probably not on many investors’ bingo cards.
Capex surges to support AI demand: Oracle invested $4 billion in capital expenditures this quarter—up sharply from less than $7 billion for all of FY24. Management expects Capex to double in FY25 to meet AI-driven demand, resulting in negative free cash flow ($2.7 billion used) for the quarter. These investments align with broader industry trends but may strain the balance sheet.
Expanding partnerships: Oracle's multi-cloud strategy is cementing its relevance with partnerships like Meta, which uses OCI for AI workloads, and collaborations with AWS, Azure, and Google Cloud. These alliances allow OCI to interconnect seamlessly with other platforms. It enables customers to run workloads across multiple clouds while benefiting from low-latency network links. This approach helps Oracle compete while broadening its reach.
A challenging balance sheet: Oracle's nearly $80 billion net debt position, though supported by $20 billion in annual operating cash flow, limits flexibility for acquisitions or aggressive growth investments. Rising Capex demands could further constrain its options.
Bullish long-term outlook: Management forecasts total cloud revenue to exceed $25 billion in FY25. Analysts remain optimistic about Oracle's ability to capitalize on AI demand, noting its competitive positioning in multi-cloud ecosystems and generative AI workloads. In this article, we explained why Larry Ellison sees data centers grow 10X.
While Oracle scales AI infrastructure in the cloud, Adobe is leveraging AI to transform creative workflows and drive subscription growth.
Adobe finished its fiscal year 2024 (which ended in November) with 95% of its revenue from subscriptions.
Key metrics:
RPO (Remaining Performance Obligations) grew +16% Y/Y to $20.0 billion (an acceleration from +15% Y/Y in Q3).
ARR (Annual Recurring Revenue) is the total yearly value of subscription revenue. Along with RPO, it is a leading indicator of growth.
Creative ARR grew +10% to $13.9 billion.
Document Cloud ARR grew +23% to $3.5 billion.
Income statement:
Revenue is divided into three main segments:
Digital Media (74% of overall revenue).
Creative Cloud (59%), including Adobe Express.
Document Cloud (15%), including Adobe Acrobat.
Digital Experience (25% of overall revenue), data insights and audiences, content and commerce, customer journeys, and marketing workflows.
Publishing and Advertising (1% of overall revenue).
Revenue grew +11% Y/Y to $5.6 billion ($70 million beat).
Digital Media grew +12% Y/Y to $4.1 billion.
Digital Experience grew +10% Y/Y to $1.4 billion.
Publishing & Advertising was flat below $0.1 billion.
Gross margin was 89% (+2pp Y/Y).
Operating margin was 35% (flat Y/Y).
Non-GAAP EPS grew +13% Y/Y to $4.81 ($0.14 beat).
Cash flow:
Operating cash flow in FY24 was $8.1 billion (37% margin, -1pp Y/Y).
Balance sheet:
Cash and cash equivalent and short-term investments: $7.9 billion.
Long-term debt: $5.6 billion.
FY25 Guidance:
Revenue to grow +9% Y/Y to ~$23.5 billion ($23.8 billion expected).
Digital Media ARR +11% Y/Y.
Non-GAAP EPS ~$20.35 (vs. $20.53 expected).
So what to make of all this?
Solid Q4 performance but cautious FY25 outlook: Adobe beat Q4 revenue and earnings expectations, with Digital Media ARR growing 14% to $17.3 billion and RPO accelerating. However, FY25 guidance fell short due to foreign exchange headwinds and lingering uncertainty over AI monetization, leaving investors cautious.
AI Assistant boosts Document Cloud adoption: AI Assistant has significantly enhanced productivity in Adobe Acrobat and Reader, driving broader adoption. Document Cloud ARR grew +23% Y/Y to $3.5 billion, contributing to the segment's +17% Y/Y revenue growth. Monthly active users grew +25% to 650 million, demonstrating strong user engagement.
Firefly adoption is strong, but monetization lags: Firefly AI models have seen over 16 billion generations, integrated across flagship products like Photoshop and Lightroom. Despite high engagement, monetizing generative AI remains a challenge. Higher-priced Firefly tiers, including video AI models, are set to launch in early 2025 but have yet to prove their revenue impact.
Video AI rollout lags competitors: Adobe's cautious rollout of its video AI tool contrasts with OpenAI's Sora, which is already publicly available. While Adobe focuses on safety and deep integration, the slower timeline raises questions about its competitiveness in the AI-generated video space. Beyond OpenAI, startups like Runway AI and Stability AI are redefining the creative tools market, challenging Adobe's leadership.
New pricing tiers aim to unlock value: Adobe's move to introduce tiered pricing based on gen AI usage and features with Firefly Services and GenStudio (available since mid-October) could unlock additional revenue opportunities, particularly in enterprise markets. However, execution will be key to balancing adoption and monetization.
Market sentiment remains cautious. Despite strong financials, Adobe’s stock dropped 14% after the earnings report and is down YTD, underperforming software peers like Salesforce. Concerns over competition and the timeline for AI monetization weigh on sentiment, though analysts remain optimistic about Adobe’s ability to capture enterprise spending as its tools mature.
Oracle and Adobe exemplify how AI is reshaping industries, from powering cloud infrastructure to redefining creative workflows. OCI's rapid growth benefits from the rising demand for AI training capabilities. At the same time, Adobe’s AI-powered tools like Firefly show the potential of gen AI to drive engagement and innovation.
Both face challenges. Oracle must balance aggressive Capex spending with its substantial debt, while Adobe navigates increased competitive pressure and a cautious timeline for AI monetization. Yet their strategic moves reinforce AI’s central role in shaping the future of enterprise software. The choice is clear: adapt and innovate, or risk being left behind.
That's it for today!
Stay healthy and invest on!
Interested in licensing our visuals for a report or presentation? Are you looking for custom visuals for your business or brand? Let's collaborate! Complete the form here, and we'll get in touch.
Disclosure: I own ADBE, AMZN, CRM, GOOG, META, SNOW, and PLTR in the App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.