The Value Engineer

$145k portfolio. +100% return since inception in August 2023. Doubled in under 3 years, while the S&P returned 73%. I'm an engineer by training, investor by obsession. I analyze stocks the way I'd stress-test a system. Fundamentals first, no noise. I show my work. All of it. Position updates, stock breakdowns, sizing decisions, and the mistakes. If that's interesting to you, follow along.

$ADBE’s current financial reports reflect past operational victories, while its stock price reflects future operational anxieties in the market. Who will be proved right in the end? Follow @TheValueEngineer — every position, every thesis, every mistake.

I own $ADBE, down 34% from my cost basis. I am not selling on strong trailing revenue and I would not be buying more on it either. That number is not telling me what I need to know right now. Net new ARR and freemium-to-paid conversion in the September Q3 report is an actual test I am interested in. Revenue looking fine until then is expected, not reassuring.

You get on X and people are constantly posting $ADBE’s revenue and EPS numbers as the bull case thesis. Strong quarter, beat on everything, guidance raised. 8 PE. The bull case writes itself. Here’s the question you should also be asking. How much of that strength is just the lag from contracts signed one to two years ago, before any of the freemium pivot debate even existed?

@TamasKalman71 Absolutely. Thank you for engaging with the content and for following. I post content regularly throughout the week. Hope it adds value to your investing journey.

@TheValuEngineer Thank you for your analysis.

$NFLX is down 40% from its 52-week high. Trading just above its 52-week low at $77. The business grew revenue 16% last quarter. Beat EPS by 56%. Guides $12.5B in free cash flow this year. Something broke between the business and the story the market is telling about it. Here's what actually happened and why I'm adding to my existing position at these levels.

True, gating exports protects the paywall. But it doesn't protect the margins. In generative AI, the cost is incurred at the prompt layer, not the export layer. If 850M free users burn billions of compute tokens experimenting inside the app before hitting a paywall, Adobe still pays the cloud bill. The cost isn't limited just because the export is blocked.

@TheValuEngineer @Saladinbraham They won't have to surface many AI features in freemium before forcing payment to export & limiting credits access in other ways to be able to ensure the cost is limited while lowering the appeal of their smaller competitors.

$ADBE was really cheap to me at 340$. Even more attractive at 300$. Then it even dropped to 250$, which I thought was impossible for this quality business. Now it sits under 200$. Dafuqq?? Literally debating with myself to go into generational debt for this one. 7x Forward P/E, PEG ratio 0.6. Rev Growth 10%ish. P/FCF 7.6. Even if Rev only grows 5% we still get a 15% CAGR here. And imagine the possible buybacks over the next quarters. And now IMAGINE THE BULL CASE scenario. Idk man.

That's a fair and important nuance. The learning loop is a moat against competitors trying to displace you with a better point solution. It's not necessarily a moat against the workflow itself becoming obsolete. The difference is who controls the adaptation. If $NOW's platform can absorb new workflow patterns as a configuration change rather than a rip and replace, the switching cost cuts in their favor even through a transition. If it can't, you're right that the same lock-in becomes a liability. That's actually a good lens to watch going forward. Not just renewal rates, but how fast existing customers adopt new workflow capabilities inside the platform versus building around it. Apologies for the delayed reply.

@TheValuEngineer The learning loop argument holds. The quiet risk: those loops encode current workflows, and when the workflow itself needs to change, the switching cost works against you too.

Satya Nadella last week published one of the important pieces about the AI era I’ve read from a sitting CEO. His argument: a frontier without an ecosystem is not stable. If a small number of AI models capture all the economic returns while entire industries get their knowledge commoditized, the political and social system will not tolerate it. He’s right. The companies that win in this era won’t be the ones that pick the best AI model. They’ll be the ones that build proprietary learning loops where their institutional knowledge compounds over time. Every workflow improvement generates better training signal. The learning loop becomes the firm’s IP. This is exactly why I own $NOW . ServiceNow is the platform that encodes how Fortune 500 companies actually operate. IT workflows, HR, legal, security. Once that institutional knowledge is built into the Now Platform, the switching cost is existential. That 98% renewal rate for 7 consecutive years isn’t a coincidence. It’s the learning loop Nadella is describing becoming a competitive moat. The companies building this infrastructure today will have an advantage that is hard to replicate regardless of which AI model wins. That’s the investment thesis in one sentence.

Good additions, appreciate the detail. On revenue deceleration, I did flag guidance coming in below expectations but I didn't given the exact numbers. Q2 guidance lowered is a real signal not noise. On the termination fee driving the EPS beat, completely fair. Strip that out and the quarter was solid but not the blowout the headline number suggested. The Hastings departure is one I debated putting in as well, but I am not entirely convinced it will have a lasting impact. Worth tracking from a governance standpoint though, especially given Sarandos described the WBD process as "building M&A muscle." A board chair change during a leadership transition is a real variable. None of this breaks the thesis for me. It does sharpen what I'm watching in July as suggested in my thread. Appreciate the pushback.

@TheValuEngineer 2. Q1 EPS beat is mainly driven by the 2.8B termination fees from the WBD deal. The Guidance for Q2 was lowered: - Rev 12,57B vs 12,63B expected (-0,5%) - EPS 0,78 vs 0,84 expected (-7%) 3. Chairman Hastings finally leaving the company (favorable to the the deal for WBD)

Spot on. People forget Digital Experience (MarTech), but it’s a slower-growth B2B engine. If DX growth is slowing and subscription headroom is flat across the board, it completely removes Adobe’s safety net if the core freemium pivot falters. The lack of headroom IS the bear case.

@TheValuEngineer @Saladinbraham I know it’s a smaller part of the business but people consistently forget the Digital Experience business, which, though growing slightly slower, flags a decent shift from design into MarTech. The big risk is there’s probably not a huge amount of subscription headroom rn.

@spacestorm6 @Saladinbraham That very well could be. But I’m already full sized with a $300 cost basis. If the markers I placed for the bear case start taking shape, I would rather cut the position and deploy that capital somewhere more predictable.

@TheValuEngineer @Saladinbraham Good analysis but i feel like the price action has nonetheless gotten well ahead of itself and even in the bear case, $190 is cheap for the stock. In the bull case, stock should be $400+

@Mini_Neo_Verse @Saladinbraham Absolutely, and in all likelihood I hold after Q3. But there are certainly markers in place that would encourage me to exit out the position and deploy that money elsewhere, a company with less uncertainty going forward. Just wanted to share what they were.

@TheValuEngineer @Saladinbraham Great post. I think the fears around moat erosion are overblown but I’m waiting ~12 months before getting involved. Turning a ship this large takes time and the market needs time to price in the improved story

@Saladinbraham If you found value in this quick analysis, follow me @TheValueEngineer for more fundamental breakdowns and a transparent portfolio — every position, every thesis, every mistake, transparently communicated.

Fair point on monetization lag. But the risk isn't just delayed revenue, it’s immediate cost. Carrying 850M+ freemium users utilizing expensive GenAI compute will chew into Adobe's ~90% gross margins fast. Because Adobe didn't build its own data centers, an explosion of free users will directly drive up its runtime fees to its cloud providers. If the freemium top-of-funnel expands too quickly without paid micro-conversions, this beautifully managed 90% gross margin will face an immediate, variable-cost margin squeeze. Q3 needs to show early conversion velocity to justify the infrastructure spend.

There were some cracks exposed in the last earnings call with the freemium pivot that is concerning. I own the stock, with an almost $10k cost basis, so I want to be straight about it. Bull case: They are deferring price hikes to build the freemium funnel, which can be an offensive move. Convert the 850M MAUs later, and pricing power returns. ARR miss is temporary. Bear case: they can't raise prices anymore without losing users to Canva and AI-native tools. The freemium pivot reframes a competitive constraint as a strategy. That's moat erosion dressed up as a plan. You cannot tell which is right yet. The deciding data point is Q3 September. If MAU keeps growing and paid conversion doesn't follow, bears start winning. I'm holding with a clearly defined exit trigger. Not blind conviction. Just waiting for the one number that resolves the debate.

I think Adobe $ADBE is either going to grow earnings at roughly 10% going forward (if the business model is resilient enough in the age of AI) ... ... or earnings will decrease over the next ten years (because AI is coming for the products). I don’t really see a middle ground. Thoughts?

I bought $NFLX at $76 average. I'm adding more. Not because I'm guessing the bottom. Because the selloff is explained entirely by one-time events, a resolved acquisition overhang, and a market that panics on rumors Netflix denies the same day. The business has grown revenue 15-18% for eight consecutive quarters. $12.5B in annual FCF. Margins expanding. $25B buyback. Trading just above its 52-week low. That is not a broken business. That is a mispriced one. Follow @TheValueEngineer — every position, every thesis, every mistake.

$NFLX reports Q2 on July 16. Here's exactly what I'm watching. Ad revenue trajectory — it needs to be tracking toward the $3B full year target. If advertising is ramping faster than expected that's the most important upside driver. Content cost growth — management guided H2 2026 to see a meaningful deceleration. Q2 is expected to have the highest content amortization growth of the year. If margins hold above 32% despite that pressure, the H2 expansion story is on track. Any acquisition commentary — if management signals another deal, I will reassess the entire position. Financial discipline is part of the thesis now. One more rumor they have to deny does not change the thesis. An actual deal announcement might. Revenue growth versus the 13% guided — anything above that number tells you the business is running ahead of its own internal forecast.