Overview of TIP837: Adobe, Lululemon, PayPal – Are Our Biggest Losers a Buy Now?
In this episode of The Investor’s Podcast, Daniel Mahncke and Shawn O’Malley revisit several previously covered stocks that have fallen sharply since their original pitches. The goal is to examine what went wrong, which warning signs were missed, and whether any of these names look attractive at today’s prices. The discussion centers on Lululemon, PayPal, Adobe, Trade Desk, and CoStar, while also surfacing broader lessons about portfolio management, opportunity cost, management turnover, and the danger of relying too heavily on valuation models without understanding the business qualitatively.
Stock-by-Stock Breakdown
Lululemon: strong brand, but the thesis weakened
- Original thesis: a premium athleisure leader with elite margins, high returns on capital, strong brand equity, and a reasonable valuation.
- Why they sold:
- North American growth slowed much faster than expected.
- Increased competition from Alo, Vuori, and cheaper knockoffs.
- Signs of trouble in the brand, especially heavier discounting.
- Management instability: founder conflict, CEO departure, and interim leadership.
- Main takeaway:
- For fashion/retail brands, once a company becomes mainstream, maintaining “coolness” becomes difficult.
- Discounting is a key leading indicator that brand power may be weakening.
- They still think Lululemon could recover over a long horizon, but the opportunity cost and management uncertainty made it a sell.
PayPal: cheap, but the thesis eroded
- Original thesis: a legacy payments leader with valuable assets, a turnaround plan, and strong buyback support.
- What initially looked promising:
- New CEO had a more modern vision.
- Cost cuts improved profitability.
- Initiatives in ads, buy-now-pay-later, and AI/agentic commerce created optimism.
- Warning signs:
- Communication from management became inconsistent.
- The CFO repeatedly leaned on macro excuses.
- The CEO was fired, which signaled that the transformation was not working as planned.
- Why they sold:
- Thesis deterioration, growing red flags, and better capital allocation opportunities elsewhere.
- Important update:
- A takeover offer from Stripe and Advent at $60/share made the “margin of safety” / M&A scenario real, but now as a speculative outcome rather than the core thesis.
- Lesson:
- Even when a stock is cheap, if the original thesis breaks, opportunity cost matters more than hoping for a turnaround.
Adobe: still owned, but increasingly conflicted
- Original thesis: a dominant creative software franchise with strong margins, recurring revenue, and a moat built on distribution and workflow lock-in.
- Why the stock has fallen:
- The market is worried AI could disrupt Adobe’s business model.
- The valuation multiple has compressed sharply, even though revenue growth has not collapsed.
- Why they’re still holding:
- Adobe remains the category leader.
- AI may be more of an enhancement than a replacement, especially for enterprise workflows and high-end creative use cases.
- The company is showing real AI traction, including:
- Rapid growth in AI-native revenue
- Firefly approaching meaningful ARR
- A willingness to support freemium users to preserve the funnel
- Concerns:
- CEO and CFO departures without a clean successor story.
- Lack of insider buying.
- Possible long-term disruption at the lower end of the market from cheaper AI tools.
- Bottom line:
- They’re not ready to exit, but Adobe is now a more uncertain bet than it once was.
Trade Desk: stayed out, and glad they did
- They never bought it because the business was too hard to understand well enough.
- Why they avoided it:
- Ad tech is complex.
- The business was outside their circle of competence.
- Why that decision looks good in hindsight:
- Growth has slowed dramatically.
- The stock has fallen sharply from its highs.
- Key lesson:
- Don’t let a valuation model override a poor qualitative understanding.
- A business can be cheap and still be too hard to underwrite confidently.
CoStar: early but increasingly attractive
- CoStar was described as the “Bloomberg terminal of commercial real estate.”
- Strengths:
- Deep, long-built data moat in commercial real estate.
- Strong margins and a net cash balance sheet.
- Long track record of double-digit revenue growth.
- Main controversy:
- Heavy spending on Homes.com to challenge Zillow.
- That spending has hurt profitability and created skepticism around management discipline.
- Their view:
- The market appears to be over-penalizing CoStar for Homes.com.
- The core commercial data business remains highly valuable.
- AI is unlikely to replace the company’s physical data-gathering moat.
- Notable outcome:
- They became more bullish during the discussion and agreed CoStar could be increased from 1.5% to 3% of the portfolio.
Broader Lessons From the Episode
1. Management changes often matter before the numbers do
Across Lululemon, PayPal, and Adobe, the hosts noticed a common pattern:
- CEO exits
- Interim leadership
- Mixed or inconsistent communication
- Strategic uncertainty
Their point: trouble at the top often shows up before the financial statements fully reflect the problem.
2. Watch leading indicators, not just headline results
Examples they emphasized:
- Discounting and inventory behavior at Lululemon
- Communication gaps and mixed messaging at PayPal
- Insider buying, or lack thereof, at Adobe
These can reveal thesis deterioration earlier than reported earnings.
3. Opportunity cost is central to portfolio management
Because TIP researches many businesses each year, the hosts said they’re constantly comparing existing holdings to new ideas. That creates:
- Decision fatigue
- Anchoring bias
- A temptation to over-commit to prior decisions
- Pressure to sell positions that no longer rank near the top of the opportunity set
4. Public investing adds extra psychological bias
They reflected that running a portfolio publicly makes it harder to stay flexible:
- You feel pressure to defend prior picks
- Negative news is harder to ignore
- It becomes easier to cling to a thesis because it was stated publicly
5. “Cheap” is not enough if the business is deteriorating
They repeatedly returned to the idea that the best investments are those where:
- The downside is tolerable
- The business remains understandable
- The long-term outcome can still be good even if the short-term is ugly
Notable Takeaways
- Lululemon: strong brand, but discounting and management turnover are real concerns.
- PayPal: M&A might rescue some value, but the original turnaround thesis broke.
- Adobe: still a high-quality business, but AI disruption risk and leadership turnover make it more complex.
- Trade Desk: a reminder to stay in your circle of competence.
- CoStar: the market may be overpricing the negative impact of Homes.com.
Closing Thought
The episode’s core message is that great investing is less about being right every time and more about updating your view as reality changes. As Peter Lynch put it, being right six times out of ten is already strong. The hosts used these losers to reinforce a disciplined process: keep revisiting the thesis, watch for leading indicators, and don’t let sunk cost or public conviction prevent you from making a better decision.