00:00Yeah, any abrupt transition from the CEO position is the bigger news.
00:05The quarter itself sounded like it was pretty in line.
00:07Guidance was in line.
00:09Adobe is actually a company that's had remarkably steady growth.
00:13Considering it's so undervalued and so underappreciated,
00:19Adobe has been able to keep around low double-digit growth
00:22for the last three or four years in the face of competition,
00:26in the face of AI fears.
00:28So the quarter itself seems fine.
00:30The guidance seems fine.
00:32An abrupt CEO transition is always something that takes investors back.
00:36And investors will have to now be in limbo until the replacement is identified,
00:43designated, and they can evaluate that replacement.
00:46That's always a position of discomfort for investors.
00:49But adding to that discomfort, Gil,
00:52there were so many questions here about Adobe's future
00:54in the face of all this AI disruption, whether it was real or not.
00:57And the idea that you would want to make sure that there was some continuity in leadership
01:01or at least some sort of certainty about leadership,
01:04and to have an announcement come out of the blue like this with,
01:07I mean, as far as I can tell,
01:08it didn't really seem there was any speculation that he was even going anywhere.
01:12It really raises a lot of questions here about how they navigate
01:15just over the next few months, if not the next couple of years.
01:19That's right.
01:19So that is going to be the concern.
01:21Now, I'll present the flip side of that,
01:23which is Mr. Narayan has done a good job getting Adobe to this place,
01:27which is a large software company that's had steady growth at very high margins,
01:33among best-in-class margins.
01:35Maybe the next CEO needs to be the one that brings Adobe into the AI age
01:41and changes the business in the way required to adapt to the AI age.
01:47So that's assuming they can find that CEO that can deliver that message
01:52of transitioning to this new era, they can make this into a positive.
01:57But again, there's a pause between now and when that person is identified,
02:02which is the one investors are going to have to now grapple with.
02:06Well, Gil, just to push back a little bit, I mean, how much of a surprise is this really?
02:11Because you take a look at Adobe's stock performance since the beginning of 2024.
02:16It's been moving down in pretty much a straight line,
02:19lower by nearly 55% on a total return basis through today's close.
02:24So I hear what you're saying that, I mean, the fundamentals of the business
02:27still look strong, look steady, but clearly there's been difficulty
02:31in communicating that to the shareholder base.
02:34So again, with that context, is this really that out of the blue?
02:39No, that's exactly right.
02:41At the end of the day, the buck stops with the CEO.
02:44And if the stock underperforms for extended period of time,
02:47then the CEO is the one being held accountable for it.
02:50And likely that's what happened here.
02:53I'm just trying to be fair and balanced to Mr. Narayan and say,
02:57it's not the performance of the company that's lacked,
03:00it's the performance of the stock.
03:02And that has, especially these days, a lot to do with narrative,
03:06with these assertions that others are making that software's all a zero
03:11and that the terminal value in five years is a zero.
03:14I think that's scared a lot of investors,
03:16especially since Adobe has become the poster child for that assertion.
03:22So I'll give him credit for the fundamental performance,
03:24but then he also needs to take accountability for the share performance.
03:29And with that in mind, Gil, you touched on this a little bit,
03:32but I mean, what do you think that the market wants to see out of the next CEO?
03:36I mean, how can the new leadership, whenever it's named,
03:40sort of communicate that message more effectively?
03:43And I also think it's interesting that Adobe share is down about 6% after hours,
03:47so not necessarily cheering this transition news.
03:52Yeah, that's right.
03:53So the opening of the aftermarket activity was barely flat or maybe slightly down.
03:59It's the CEO news that's causing investors to worry.
04:04It's a tough job for the next CEO.
04:06So who that person is, whether they're credible in the AI realm will be important.
04:10In terms of the message, it just has to be a change of direction.
04:13Adobe has really said, look, we're fine on AI, we're agnostic,
04:17we're going to have responsible AI for responsible image and video generation.
04:23That message clearly has not resonated with investors.
04:27So that message has to be different.
04:28How is Adobe going to be aggressive?
04:31How is it going to go on offense and have its own perspective and its own models, maybe,
04:37or participate through M&A in acquiring whatever properties
04:41it would require investors to believe that Adobe has a place in the AI future?
04:46That is a tough task on whoever that next CEO is.
Comments