On this episode of The Six Five Webcast, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The handpicked topics for this week are:
- Oracle Database @Azure
- Arm Goes Public with Successful Debut
- Apple September 2023 Event
- Oracle Q1 2024 Earnings
- Adobe Q3 2023 Earnings, Goes GA with Generative AI Products
- Salesforce Dreamforce 2023 San Francisco
For a deeper dive into each topic, please click on the links above. Be sure to subscribe to The Six Five Webcast so you never miss an episode.
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Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Patrick Moorhead: Hey, this is Pat Moorhead. We are live again with our weekly Six Five podcast. I’m joined here by my incredible co-host and bestie, Daniel Newman. This is our favorite time of the week. We can just riff on topics that we plan a little bit, but not nearly as much as we prepare for things like research papers, research projects, and even Six Five Summit videos. Anyways, Dan, how are you doing, my friend?
Daniel Newman: Good to see you. Concise, brief to the point and a little disclosure on how we do our business. But yeah, I think what makes this show fun is the fact that we don’t overly script what we have to say. You know how it can be when you’re talking down a topic and I want to have all my notes, I want to know exactly what I’m going to talk about. I’m going to run through this. Buddy, preparation from a guy that does maybe date his calendar can be a pretty important thing. But having said that, as you and I both know, some of the best conversations you ever have are the ones you don’t expect.
Patrick Moorhead: Yeah, it’s funny, I do sometimes look at my calendar. I’m looking at photos of my kids, but it is the one thing that keeps my brain, my head strapped to my body. Otherwise, it’d be pretty much pandemonium, right? I look at yesterday, I think working from 6:00 AM, I think I finished my CNBC interview at eight 30 at night, so it’s pretty crazy. Yeah.
Daniel Newman: Thank you everybody. You are legendary. I watched that interview and you crushed it and it may or may not have served for as inspiration for some talking that I did later. My first marketing professor, when I did my MBA said, “The rule to success is to copy and steal everything.” I don’t know if that’s actually true, and I think he said it in jest, but the point was there aren’t that many new ideas.
Patrick Moorhead: No, there aren’t. They’re all retreaded. The longer you go out, the more you see it. It’s funny, you even read 3000 year old manuscripts and stuff, even like the Bible, and it’s all in repeat and there’s really only seven themes in books and movies as well. I’m with that.
Daniel Newman: Can you do the intro, real quick, I just went there.
Patrick Moorhead: Yeah. By the way, if you’re new to the Six Five, I got to ask what the heck’s wrong with you? Where have you been? But we appreciate you coming here. Dan and I hit six topics between five to 10 minutes each. We even talk a little earnings out there. Just a quick reminder, the show is not for investment purposes, it’s for information educational purposes only, and we hope you are entertained. Are you not entertained? I hope you are.
Daniel Newman: I’m entertained.
Patrick Moorhead: That’s good. We talk a little news for context of our opinions, but as industry analysts, we get paid and assessed by our opinions and the ones that we get right, the big ones, we do big old victory laps around the corner. Those that get wrong, we just don’t talk about. Anyways, just joking.
Daniel Newman: We’re not actually ever wrong Pat, because we never are 100%. There’s always an escape valve.
Patrick Moorhead: Yeah. We don’t control the weather. We don’t control things like what happened three years ago that, I’m not going to use the word because we get censored.
Daniel Newman: You know the drill. When I said Magic Leap was going to be wildly successful, I gave three particular conditions that needed to take place. One, everybody needed to start using XR, two, they needed to have the best management on the planet, and three, they needed to be funded all the way through profitability and then some. Magic Leap should have done well. They didn’t listen to me.
Patrick Moorhead: No, I know. That’s just sad. I pity the companies who don’t pay me to advise them and the company.
Daniel Newman: Silly people, Pat.
Patrick Moorhead: I know.
Daniel Newman: There’s a dummy born every second.
Patrick Moorhead: Exactly. Hey, we have a good show for you. We’re going to be talking Oracle, Arm… Oh, more Oracle. Actually, we are talking to Oracle twice.
Daniel Newman: Yes, so much.
Patrick Moorhead: Apple, Salesforce, and Adobe. Dan, let’s dive in. Larry Ellison and Satya Nadella were on stage maybe for the first time in Seattle. What on earth is going on? Cats sleeping with dogs. Dogs and… What’s happening?
Daniel Newman: I don’t know. Next you’re going to see Marc Benioff sit down there with them and then you know the world’s just come to an end.
Patrick Moorhead: No. Yeah. Benioff did work at Oracle for a while.
Daniel Newman: He’s a protege in many ways. At this point I think he’s created his own success, but he certainly did build some of those chops under the guidance of Larry Ellison. It was a little weird to see the two of them on that stage together, but at the same time, maybe one of the most indicative things to where the world is today. Also, let’s not be inaccurate. The two have had a fairly robust partnership around Cloud for some time.
Patrick Moorhead: Pairing, yeah, a lot of pairing stuff.
Daniel Newman: Yeah, there’s been a lot of pairing regions for Oracle’s Cloud that are sitting with Azure. There’s proximity, but here’s what’s going on is Oracle has some of the highest performance database capabilities on the planet. But as we know in the era of AI, having the data running in a hyperscale cloud provides access to a lot of AI tools. Microsoft has pretty much hitched its wagon to OpenAI, but it’s betting big on Azure AI services and on the ability for companies to build AI on top of their data in Azure. Oracle has these high performing databases that are basically used by every company on the planet, which we heard from some of these companies yesterday. They’re at this inflection between trying to do AI on-prem and trying to find this cloud euphoria, this perfect utopia for cloud and AI development.
The two companies had something the others want, workloads and utilization of AI services for Azure and of course, for Oracle users, the ability to benefit from all that data and all that high performance database capabilities in using the Azure ecosystem. I guess, Pat, when the two companies find something that the other is infinitely interested in consuming, you can find a way to put these two CEOs on stage together. But yeah, like I said, they have actually been pretty cooperative.
You know, Pat, as I see this, it’s an important inflection to what’s going on in the market. It’s an interesting moment where I’m looking at what companies like SAP are going to say about something like this.
Patrick Moorhead: Yes.
Daniel Newman: It’s definitely been the Oracle run over the last several quarters to A, show strength in its performance across the database platform. To B, continue to make cloud services a growth engine for the company, especially IAS, you saw huge growth numbers there. But C, you’re seeing them branch out and saying, “Look, we’re going to build a really successful robust cloud business. Yes, our hardware will be probably most performant, but we can still perform really well in other clouds.” By the way, in this case, you’re getting both. You’re getting clouded customer on Azure benefiting from AI tooling and it all comes together in one place.
Solid stuff, Pat. I don’t have a whole lot more to say about this, but what I will say, I guess is, is this the first of a few? Because with all the pairing, this made sense for Microsoft, but if Oracle really wants to open the gates, could you see this in Google? Could it happen? I don’t know. As of now, I think this is it, but I do think with Oracle’s powerful database and the fact that probably every customer of every cloud company on the planet is using Oracle, what could come next? What surprise might Larry Ellison have of sleeve next?
Patrick Moorhead: Yeah, I’ve been in tech over half my life, and it is funny how some of the stalwarts that created this industry are still the power brokers. Isn’t that crazy? I think I even found myself maybe 10 years ago, not writing off Oracle, but if I looked at their innovation path on infrastructure, on core database and in the cloud, they just looked like they were operating multiple clicks behind and lumped them and Microsoft into the same place. Microsoft had their breakout moment that coincided with Satya becoming CEO. Then Oracle really had a couple breakthrough moments here. One of them was gen two OCI, gen one wasn’t great. It was actually quite awful. They literally wiped the slate clean with gen two and started racking up a ton of business, albeit maybe five years after AWS and Azure kicked into high gear.
At the same time, they modernized their database, they modernized their database with a value prop that said, “Hey, you don’t need 12 different types of databases. You can have one. By the way, that one database actually auto fractalizes to multiple types of data and multiple types of it, but it’s simple.” Then they added the autonomous portion on top of it to remove some of the tasks that DBAs and data managers used to have do. By the way, also by automating it reduced the likelihood of mistakes. To make a long story longer, what they also did is they also remained strong in the hardware portion. If you look at their storage systems, particularly for SQL, are the highest performance out there, they are not using generic hardware. In fact, they use very high speed, not just memory where they cram it all up in there, but they also used Intel’s highest performance storage and then they wrap their software around that.
I think we’ve seen a lot of instances where the combination of software and hardware becomes vitally important. Oh, my gosh, look at Apple hardware plus software. Look at AWS, and there are I think five different brands of hardware that they have, including Nitro. Oracle is not just taking database code and running this on generic… By the way, that’s not putting Azure hardware down, but it’s basic generic hardware, and putting in exit data machines, this is very unique, into the Azure data center. Then putting on top of it all the Azure PaaS and SaaS capabilities. The big things I’m going to be thinking about is I always talk about the 75 to 90% of enterprise data is still on-prem. What does this mean for that, right? With all this data put inside of Oracle and SAP, is this going to make a dent on that 75 to 90%?
I don’t know. These things always take time, but an indication of their customers that they had rolled out for this 30 minute video were telling. Fidelity, Voya, those are two obviously, FinTech, and then you had PepsiCo, a major manufacturer on there. But anyways, exciting stuff. I think you broke down the win-win situation here. By the way, if you’re AWS and you have a hate hate relationship between Oracle and AWS, they’re the last place I would ever expect this to happen.
Daniel Newman: Well, did you notice even I mentioned Google, I didn’t even mention…
Patrick Moorhead: Yeah, there’s a potential, right? You have TK and I think we would be ignorant to think that personalities don’t matter in this business, and it’s all analytical. TK used to work for Larry Ellison, and my guess is that they still have conversations. Heck, our friend at Salesforce, Mark Benioff, used to work for him as well. Personalities matter. The first next place I would expect this to go would likely be Google. The last place I would expect this to go would be AWS. AWS, they didn’t accept DGX Cloud, which was Nvidia architected hardware in there. But here we are with Azure, so great stuff. Looking forward to learning more next week at Oracle Cloud World. Dan, you and I are going to be there with bells.
Daniel Newman: Rock and roll.
Patrick Moorhead: Hey, let’s go. Let’s get into the, literally the world’s the largest… With the largest public offering in X years. I don’t know how many years, but it’s been a lot. You and I were on TV multiple times. I think I did CNBC twice. I think you did as well. I did a little segment for Yahoo Finance. By the way, Josh Lipton has departed Apple and is at Yahoo Finance. He was second sharing with John Fork at CNBC. But listen, I’m sure you’ve read all the news because it’s the top news story, but let me break it down for you. This offering was supposed to come out at 51 and they completely fricking blew it away up 24.5% in day one. It was up after hours last night. I think the seminal question is, “Hey, can they keep this going?”
I’m not an equity analyst, I’m an industry analyst, but I do have to weigh in on that. I think the long-term prognosis for Arm is really high, dominant smartphone CPU, dominant consumer electronic CPU, growing in the data center and carrier, they have scale, 250 billion chips. Scale matters for a couple of reasons, primarily the software base. Took them 10 years, almost 12 to build this data center stack. For those watching at home, I think it does take about a decade to do this. Growth opportunities are pretty huge. They might have around 20% of the data center market, but that’s really concentrated in networking storage and security. They have about a 5% share in data center core CPU and the other 95% is AMD and Intel. I do believe that both Microsoft and Google have some custom chips that are coming out very similar to AWS.
Automotive market is huge, right? Going from a thousand pieces of silicon to 3000, there are so many… They cover CPU, they cover GPU, they cover sensors. Many people don’t know this, but Arm actually have automotive sensors, visual sensors for autonomous driving and safety systems. PCs, Apple, a hundred percent Arm. It’s an architecture license, which isn’t a lot of money per unit, but they did certainly stir the pot. You’ve got Qualcomm coming in with Orion, which by the way is also a custom piece of silicon. But what about everybody else?
I do believe that if Qualcomm is successful in this market, it’s going to drag along Samsung, MediaTek, probably a couple other OEMs, maybe even Nvidia. I wouldn’t be a surprised if Nvidia does this. The China threats, no different than any other big chip tech company. They might be even a little bit more insulated, even though the percentage is high in China at 25%, they’re not doing things that get on the radar of the US government, like discreet GPUs. A RISC-V, potentially a bigger threat once we see more designs from big cores from a company like Ventana Micro.
But right now, RISC-V is limited to the embedded side, and I would say it’s going to take probably another five years to build out a full enterprise stack. That’s what I got. Congratulations to Rene Haas and the team, your work has just begun.
Daniel Newman: Yeah. This is an exciting moment. The market is longing, dying for something to be exuberant about. This is exuberance at its best. 25 times revenue for a company that actually shrunk last year. I would do that with my company all day long.
Call me. We can make this happen. But it’s like a tale of two cities here. There’s a real story of what’s going on at Arm and there’s some real positives in there. Then there’s this AI story that everybody desperately wants to connect. The real connectivity of the AI story is probably more of an evolving than a revolutionary moment. Meaning you hit on server, you hit on maybe automotive, you hit on content related to AI. But right now most of Arm’s money is made on selling IP to handset makers that go into smartphones. That’s where most of it. Then there’s IoT-
Patrick Moorhead: Yeah, it’s 45% of their business down from 65% when SoftBank bought them.
Daniel Newman: It’s an improvement. It’s been improved by the increase in the networking and increase in server, some automotive content, the PC business. But also, let’s remember, the PC business sucks. Mobile business sucks. Now, having said that, it’s nice because we are probably in the later cycle of what will become an upturn in the near future. I do think AI is going to drive a revolution of PCs and formats. We’ve certainly seen what Arm has accomplished with Apple in the M series. We were both somewhat skeptical that Arm and Apple would get it right. Not only did they get it right, but I think that they’ve done a really tremendous job of working together to build a platform that people love.
Where credit is due, the inclusion of Arm cores inside of advanced compute, accelerated computing, like the Grace Hopper is very indicative of the fact that in the most critical AI applications, Arm has designs that can be utilized to move the AI business forward. These are all things that deserve credit. I think where I probably have the most skepticism is, is their valuation right? Meaning that this company at two and a half billion dollars a year of revenue selling mostly licensing, not so much of this higher margin systems data center and server yet, really worth half of what Intel’s worth at two and a half billion revenue versus like 20 times that. Okay? That’s more my question mark.
I think over the course of the next five years, I actually really believe they will grow into this valuation. The problem is, so as an industry analyst, I say, “Good company, buy.” I don’t actually make buy recommendations, but good company, doing important things. As an investor, I’m looking at this going, “Wow, they have a really long way to go to fit any sort of price earnings valuation.” Because remember, they don’t make very much money if they make money. They’re still right at that newly making money size of company. Their earnings, they’ve improved every year, but they’re still not highly profitable either.
It’s fundamentals versus vision. On the vision side, I really like the company. Fundamentally, it has some work to go, but this was a great moment. Rene Haas deserves all the credit. Because you know what, the one thing that the market is, is the truth, meaning what people spend and what people pay is exactly what the company’s worth in a public market. While I can complain about valuation right now, if I want to buy it, I’m buying it at 70 billion val. Good for Renee and good for the company, good for all the shareholders.
Patrick Moorhead: Good analysis, Dan.
Daniel Newman: Thanks.
Patrick Moorhead: But we’re not done with you yet, because we’re going into a slightly related topic to Arm, and that was the Apple September 2023 event. I think I saw you on CNBC chatting it up while you were in San Francisco giving your expert commentary on Apple.
Daniel Newman: Expert commentary. Pat loves that. I’ve been-
Patrick Moorhead: Hey, you’ve been an Apple user since it started.
Daniel Newman: I still use Apple every once in a while when I have to, when there’s nothing else available. My kids won’t respond to my text if I use a Samsung.
Patrick Moorhead: I know, it’s sad.
Daniel Newman: It is sad.
Patrick Moorhead: That’s why I have two phones.
Daniel Newman: Now, here’s the story. This was another sleepy, iterative set of announcements that came from Apple. I think the problem is pretty much since iPhone 4, everything’s been pretty iterative. Now, there’s some things that get people out of their chairs. The last announcement was the Vision Pro. This is the future of XR and that’s cool. This one, it was the idea that I could tap, tap my fingers and answer a phone call. Now, if you look at that from a visionary standpoint, the idea that gesturing and connected devices and wired and wearables are going to start to interact in your world, you could start to see how this in your Vision Pro starts to live in a matter of convergence, ubiquity. That could be very, very exciting. From a standpoint of one gram lighter, from a standpoint of maybe one more hour of battery life, from a standpoint of a notch versus an island, I still think we’re still talking small improvements on a period over period that oftentimes don’t even match to what Android is doing right now running on the premium tier Snapdragon platform, which what am I talking about?
Well, everybody was juicing about a 5x optical zoom. Pretty sure that’s about half as good as you can get on a premium Samsung device right now. But are you going to run to the store and pay 1300 bucks for that? Well, of course you are. As I will comment on how I finished the Arm story, if you can get people to do it, that’s great. We have this conflicting existence Pat, where as analysts, it’s our job to critique, criticize, advise, provide our comments, and having a technology that’s half as good as the competitor should typically not rate super well, nor should it create enthusiasm and excitement. But having said that, when you’re Apple, that’s all you need to do. Then the real question, I’ll pass this back to you, Pat, because even the watch stuff, all that stuff pretty much bores me, but you’re a watch guy, so you can maybe talk more about that.
Patrick Moorhead: Yeah.
Daniel Newman: I’ve got a watch, too. I like mine better. But here’s the real thing. Are people going to jump out of their chairs to buy? My take on that is Apple always has people, no matter what it puts out, that are absolutely willing to get to the front of line to buy anything. That, by the way, is the absolute personification of a great brand. It’s not because it’s the best technology though. That’s where we are fighting our own demons when we try to talk about this stuff. I also do believe that the increased pricing, yet again, for what is very small and marginal improvements generation to generation, has to be at some point in an economy that’s still on stilts, we still have super high interest rates. That means people putting on these credit cards are going to get whacked.
We still have inflation through the yin yang and people’s credit and savings are depleting. Is it the moment for Apple to raise prices and will people run to the front of the line? Here’s my analysis. Yes, no matter what happens, they will go further into debt to have the newest device. Good for you, Apple.
Patrick Moorhead: Being old has a few benefits, not a lot, but one of them is perspective. Apple reminds me in 2023 IBM was in the early nineties, which was they didn’t have the best technology. They were milking the fruits of the labor and the bets they made in the 1960s with the mainframe. As we saw with Toshiba, like we saw with Sony, like we saw with RCA, and I think we’ve seen a lot of companies, ultimately there is an end to dominance based on lock-ins and prior innovations. The reason, in my opinion, and by the way, Apple used to invite me to their events for five or six years, they don’t anymore. I don’t think they appreciated my truth bombs, which I just never got my invites back there. But I do have a sense of clarity not going to their events.
I do use their products, but because it’s a lock-in, my family will not respond to anything but iMessage. Apple got a lock-in Western Europe and North America. Outside of those regions, people use more apps like WhatsApp. In China, they use messaging apps. That lock-in, there’s two sets of lock-ins that happen. This has been Apple’s success. The first lock-in was music. I got to give Apple credit, when they broke apart the bundles and the CDs and went with Apple Music. That was a key driver. People were very concerned, “Hey, wait a second, if I move off Apple, how do I get..” Or my iPod at the time, “How do I get access to my music?” At that point, it wasn’t portable. You couldn’t take that music over to Android and then came iMessage.
Apple does a lot of things right, but aside from semiconductors right now, it’s really not that big of an innovator in my opinion. They’re locked in, they’re working furiously to figure out that next best thing. These small little incremental improvements, I’ll be honest, I couldn’t tell the difference between iPhone 14 and iPhone 15. Huge yawner to me. Even when they lean in on this 5x camera, they still fail. Samsung’s had this 10x for years. One thing I do find very interesting in silicon, again, I give them credit for that is 35 tops of AI performance just on the NPU. That is staggering. You have to wonder, there’s actually no software or services that actually take advantage of that. But I think Intel is at least setting the stage right now where they can layer in generative AI capabilities and just blow people away.
Daniel Newman: It’s the… What is it, Pat? It’s the 8K TV of phones?
Patrick Moorhead: Yeah.
Daniel Newman: No content for it, but they’ve got it.
Patrick Moorhead: Yeah, they came out with what they call a spatial camera, which is really just to capture content for their $3,000 developer headset, the Vision Pro. Anyways, I do think based on their lock-in of the App Store, based on their lock-in of iMessage and the legacy lock-in of Music and not taking too many risks out there, I think they’re going to sell a ton. My final comment, I don’t know if you’ve seen all the hate coming down on Apple CEO, Tim Cook, on the video they did about the environment. It’s pretty funny. You should check it out.
Here’s what gets me going. I do applaud Apple in making our phones greener, but give me an effing break. Okay? Make your handsets last 10 years. That is how we are going to save the environment. I do give Apple credit on how many years they extend their software, but there was a class action lawsuit where Apple actually copped to the, “We add capabilities that slow down your phone.” How environmentally conscious is that? If they truly cared as much as I think they’re trying to pretend that they do, I think that they would have a lot more down cycling programs to send phones to emerging regions. But that’s pretty weak. Samsung actually has some pretty good down cycling, emerging regions types of stuff. With that, congratulations everybody at Apple for a big announcement.
Let’s move to Oracle. Dan, is it apparent that I have fun with this?
Daniel Newman: It is. I think we’re both having some fun today, although I will say we’re going to have to do probably half as much content for the last three topics and I think we can do that. I apologize, everybody, I have to do some other work today. As much as I love this,
Patrick Moorhead: I know.
Daniel Newman: This is all I want to do.
Patrick Moorhead: Well, let’s go. Hey, let me start.
Daniel Newman: I want to take a long time to tell everybody I’m going to go faster now. It’s like, “I’m going to work out later. I promise.” Oracle earnings.
Patrick Moorhead: Oracle earnings, am I talking about this or are you talking about this?
Daniel Newman: This one’s… Yeah, it’s you.
Patrick Moorhead: How about that?
Daniel Newman: But go faster then. I’ve been listening to you talk for an hour. I forgot I was even here.
Patrick Moorhead: Oracle had a good quarter and it was an iffy guide according to the street, and they had the largest decline in years on their stock. But I got to tell you, we don’t live and die as industry analysts on the stock price and investors’ reactions. In fact, I typically will make fun of Wall Street and how it reacts. It had monster growth for cloud IaaS, by the way. The company that three years ago everybody was saying didn’t have a clue about Cloud. Fusion and NetSuite ERP keep trucking at 20ish percent growth, which by the way is pretty impressive with all the single digit SaaS growth, enterprise SaaS growth, 10% SaaS growth, still trucking along. I think that just shows the…
Hey, I think NetSuite is actually, it might have two new customers this quarter as well. I can’t believe I didn’t come up on the call. I can’t believe, Dan, you might have not come up on the call. No respect. It’s just such a disappointment. They rolled out AI companies. The cool part is not only did they roll out Brownfield AI customers, they brought out Born in the Cloud AI folks, Cohere, Twelve Labs, John Snow Labs, Luma AI. That, to me, demonstrates that they have something special from a value proposition. I ignored and yawned at the deal they did with Nvidia, but I believe that that is now paying dividends. Then if you look at the re-architected OCI, you put those two together at reasonable prices where their pricing strategy is to price the less differentiated stuff at lower. I think we’ve got a winning combination here.
Daniel Newman: It’s a requirement to do an announcement with Jensen. I think the Six Five did one first, by the way.
Patrick Moorhead: We did.
Daniel Newman: We were there and now others are following us. It’s not atypical, Pat. We are the trendsetters. Oracle had a solid quarter. Look, they missed revenue by… It’s almost weird when a company that has like 77% predictable revenue couldn’t find the 20 million it needed. I know this sounds crazy, but to come in at 12.47 versus 12.45, that was legitimately a billion. You’re talking about 20 million across 12 and a half billion dollars. It’s almost crazy how that can go wrong, especially when you run the ERP systems and you have all the billing systems in your tools and tech. But having said that, a crazy run up of value this year. The stock just absolutely ripped and roared. The company’s been on fire in its cloud infrastructure business.
The NetSuite and apps since it’s part of their company has been regularly incredibly performant. I have no beef with this. I think there’s a couple of things. We are in this continuous period of sell the news. It’s been running up, running up, running up. Company created much stronger earnings than a year ago, revenue growth at close to double digits. Remember this is a company that has a disruptive business segment and cloud, but it has a massive established customer base in its database business. That’s going to be a huge percentage of its business for a long time. That growth is more stable than it is accelerated. Pat, I know because we got to move quick, you really hit all the high points. The sell off was sell the news. It was sell the news, it wasn’t a bad quarter, it wasn’t a bad guide. Their cloud business where their growth is coming is doing fine.
Patrick Moorhead: Good stuff. Dan, let’s go into Adobe and maybe you can take this one. Not only do they have earnings, they went GA on some of their generative AI goodies.
Daniel Newman: Yeah, well I’ll definitely start off with the earnings here. This is another company that’s seen a very strong run up over the past several months with some huge estimates and price targets on the company. It’s been one of the biggest beneficiaries in the market on generative AI and AI. The company has done some things really well. I think as it’s pertained to responsible AI under its leadership, it’s shown real promise there. In terms of showing potential generative AI capabilities outside of text, it’s one of the companies that’s most adequately demonstrating what’s going to be possible.
This is a company that really breaks into experience media and it’s got documents and all three businesses were performing, but it was another company that saw around double digits 9%. It’s performance was steady, state, and stable, Pat. I think part of what’s happening now is we’ve had all this exciting period where tech was bidding growth and now what we’re starting to see is the AI super high, meaning this euphoria that we’ve seen around AI is starting to normalize as people are starting to want to understand better company’s ability to execute revenue against their AI promises. The good news for Adobe is I do believe the company has the products, has the services, not just in documents and images, but also in its CDP and CRM side and its experience cloud. When it comes to retail, when it comes to digital journey, this is one of the most sophisticated companies on the planet with some of the most robust capabilities and that’s why pretty much every major company on the planet that’s built digital commerce experiences builds on Adobe.
With that in mind, the one other thing that’s lingering out there, Pat, is you realize it was like a year ago today, the Figma announcement was made. It’s been a year.
Patrick Moorhead: All been very quiet, hasn’t it?
Daniel Newman: The deal has not been done. There are a number of probes I stand by in my assessment that this deal should get done. It is not the biggest issue. It certainly hasn’t come up as a… Adobe’s not a gatekeeper according to the DMA. The ability to build a collaborative application for creativity doesn’t seem to me like something that we necessarily need regulated. I really do hope that that finds legs. I think it was a great deal for private markets, great valuation. In this era we need a healthy public-private relationship where the companies can feel that if they build a successful business, they can exit to a public company and actually close the business. I’ll pause there because I talked a lot about the earnings. There’s some generative announcements. Do you want to chime in on the earnings at all or do you want to jump in and take the generative stuff.
Patrick Moorhead: Yeah, I want a little bit in the earnings. No, listen, in this world of pretty much all over the pace in pandemonium, they had a beat on the top and a beat on the bottom, which I think is really impressive. Single digits on creative ARR isn’t great particularly with all of these new features, but it literally just went GA for them to capture revenue. The document ARR of 17% is a lot more impressive. Think of signatures, think of, I pay for PDF licensing to go in and edit and create those. That’s it. That’s all I got, buddy.
Daniel Newman: That’s all you got. Well, you know what? Let’s basically just make sure we’re clear to everybody out that it’s asking, the commercial releases to a number of the Firefly web applications in some of their gen AI studio went GA this week. I think, Pat, the next two to three quarters, we need to watch for adoption. We need to understand who’s paying. We need to understand what kind of incremental revenue this creates. By the way, this sounds like Dan the Broken Record, because I’ve been saying this now for two or three quarters. The world wants to not just hear about what your AI does, but they want to understand why people are going to spend more money because you have AI capabilities. Adobe has the potential to show that. By the way, so does the company we’re going to talk about next.
Patrick Moorhead: Yeah, there’s two ways companies are looking at generative AI, right? There’s the offense play, which is, “Hey, we’re going to go in, significantly increase capability, take market share, charge more, reduce costs,” and the other is defensive. I think you can look at Adobe in two ways. There were these crazy startups. Dan, you love to send those out on Twitter. Here are the 2,700 different tools you can use for AI. Midjourney is a great example that they could have disrupted Adobe. But to Adobe’s credit, if I look at the feature list of what they came out with Firefly, it’s very basic. I think that’s perfectly fine, and it will go up. But the fact is it’s GA, they can make revenue on it. They’ve tested it with enough customers. Their beta program was off the fricking rails. Everybody wanted to use this thing.
I like what I see. If nothing else from a defensive perspective in that they’re a lot less likely to get disrupted by an upstart on this. The feature set isn’t incredibly long. For instance, there are some tools that my daughters use in their marketing departments that will take a podcast like ours, pick the soundbites that are important and automagically create a video. Stuff like that is not available, but hopefully we’ll get it. Good stuff. Adobe not being disrupted. Now, it’s time to show that you can disrupt and take share, drive revenue, increase ASP, and take rate as we move forward. That’s all I got. Hey Dan, we’re going to get you out of here buddy. You’re not very motivated to get me out of here when I got to get out of here, but I’m motivated to get you out of here when you got out of here.
Daniel Newman: Hey, I only sent you one dirty private message. It wasn’t even that mean. See, the difference is I was just public about my time urgency. Everybody out there, you got to understand Pat and his calendar. I’ve gotten some very interesting messages when I throw Pat off his calendar and it’s the reason I think we’d be more successful as a married couple than a business couple. But let’s just say I always am motivated to make you happy, buddy.
Patrick Moorhead: You’re so nice. You’re my best friend. I appreciate that.
Daniel Newman: Here to help.
Patrick Moorhead: Okay, but let’s crank this out. Let’s get you out. Let’s get you to your big appointment. Salesforce Dreamforce 2023, San Francisco. There is so much talk about, but as you would expect, the highlight of this was all about generative AI. It was about the data, the AI technologies, the CRM applications that go into it and with a focus on trust. Super interesting. Salesforce is trying to own the trusted peg and it’s going to be interesting versus their biggest competitors. Can they own it? On one side, I felt like they were talking to their customer base, Dan, as opposed to trying to get more business. They didn’t really tell as aggressive or compelling a story on moving business to Salesforce, as I thought, motivating their current customer base to use more or more modules.
I want to stick to my guns here on they do tell a very good trust story and they were the first company that I had encountered that got into the mechanics of how they ground data, how they essentially discard any of that grounded data out there to make you feel good. But Dan, I can’t get off of this, 75 to 90% of data is still on-prem. How does Salesforce move that? I know there’s MuleSoft, I know there’s linkages, but the companies that they rolled out are not the companies as partners on the data side that actually have this data. They rolled out Snowflake, they rolled out Databricks. Those companies don’t have the 75 to 95, 90% of that data. It’s easy, it’s low hanging fruit.
But this is part of my research that I’m going to get underneath. But by the way, the examples that they showed across the entire Einstein platform that, by the way, you have a copilot for each one of these, sales, service, marketing, commerce, analytics and platform is very compelling, albeit in my opinion, focused on current customers and motivate them to do something.
To go for the big nut, they’re going to have to answer the question and they’re going to have to motivate people to act dramatically differently. Dan, we’re 14 years into the public cloud and here we are, 75% of data is still on-prem. That is the big win. The other question I’m trying to get underneath is… Salesforce showed us this in their vision video, is how you pull ERP data and legal data and IP data into this. Where’s that data going to be coming from? Their vision reinforces my question, but all in all, it was just an amazing event. It was my first on-prem, in-person Dreamforce and I will have my write-up soon.
Daniel Newman: Same here. Yeah, I’ll definitely be publishing something in the near future. It was the world’s largest AI event and depending on how you classify that might be right. CES might be bigger, but is that an AI event? Okay. In good news, San Francisco held up pretty clean. I had the chance to meet some luminaries at a Time 100 luncheon. That was pretty exciting. By the way, I didn’t make the list so it wasn’t that exciting.
Patrick Moorhead: Darn it.
Daniel Newman: I know. I’m happy for you, buddy. I’m happy for you. All right.
Patrick Moorhead: Top 100, you’re on the top 10 Air Insights AI people.
Daniel Newman: That’s right.
Patrick Moorhead: Bob and Maribel.
Daniel Newman: Einstein has come back and it’s finally ready. You know what they say sometimes, “I’m early, but I’m not wrong,”? Well, the first iteration of Einstein was early and you could argue maybe it wasn’t right yet, but the Einstein platform now is truly enabling the data cloud and the opportunity for generative tools. Is this the end all be all? No, of course it’s not. But the integrations are there. The company is building with its own data services. It’s got Tableau, it’s got integrations to get Google Workspace. It’s got M 365. But Pat, maybe the biggest thing for me since I’ve got to kind of be concise here was I think Slack is a powerhouse and it’s underestimated how big of a capability Slack has to actually take Salesforce into a more competitive future. Why do I say that? Because the way we’re going to interact with our data in the future is going to be more generative.
It’s going to be more natural language, it’s going to be more conversational. Right now, Salesforce, that’s not how you interact with it. But in the future, could you be in Slack and could you be talking to it or chatting to it like we do to a chatbot or like we do to find out the data, the reports, and the things that we need to know? You bring up a great point about the connectors, MuleSoft creating a harmonized data platform that enables companies to benefit from all their data. I think interestingly, as large language models progress, foundational models get smaller and you can then actually tap data in a more fluid network with less latency, the possibility of being able to get enough data into the public cloud to then talk to your data that’s sitting on-prem is plausible. It will be work to be done.
But again, you don’t need all the data. We know this. You need some of the data and more importantly, you need the right data. Connecting the front end, Salesforce has got it nailed. Connecting the backend, there is some work to do to get access to all the data, but of course, you’re not doing everything in Salesforce. This is customer service, marketing and business intelligence right now. You can still do a lot of things over in your ERP and then you can funnel certain things through connectors over to your front end. Pat, it was a good show. Look, this is probably an hour long pod by itself and I wish we had more time and I wasn’t rushed, but I am and therefore all of you are SOL. But you know what is great, is if you love what you heard today, Pat?
Patrick Moorhead: You can connect to us, subscribe, and we appreciate you coming on and keeping within Dan’s calendar because Dan really is a hawk.
Daniel Newman: You’re the best.
Patrick Moorhead: On calendar.
Daniel Newman: You’re the best.
Patrick Moorhead: Yeah, we appreciate you. Take care, love you all.