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Adobe agrees to buy rival Figma in its largest splurge ever, but investors aren’t loving the move

Friday, September 16, 2022 by Robinhood Snacks |

Just went Photo-shopping… picked up a multibillion-dollar startup. Adobe, the Microsoft of the creative world, agreed to buy design-software company Figma for a cool $20B — its largest acquisition by far. Figma’s cloud-based software helps engineers and designers collab on web interfaces in real time (think: a digital whiteboard). Investors weren’t impressed:

  • Adobe shares tanked nearly 17% yesterday as investors frowned at the price tag. Figma was last valued at $10B in June 2021, and Adobe is paying double to scoop it.
  • Figma is expected to generate $400M+ in revenue this year, meaning that Adobe is paying a huge forward multiple of 50X revenue for the company. FYI: multiples for top cloud companies have plunged to about 9X revenue.
  • Not helping… Adobe also issued disappointing fourth-quarter earnings guidance, though its profit jumped last quarter by 13% to $1.1B.

Doing some Acrobat(ics)… Adobe has snatched up companies, including Workfront ($1.5B) in 2020 and Frame.io ($1.3B) in 2021. Previously, its largest splurge was Marketo in 2018 ($4.7B). Now Adobe is making a purchase four times that size at a time when dealmaking has slowed big time. See: inflation, econ uncertainty, volatile markets. Adobe says Figma’s customers will expose it to a new user segment and a total addressable market of $16B.

THE TAKEAWAY

When under threat, you might overstretch… Adobe’s splurge may be more of a need-driven move than a smart buying opportunity. Figma competes toe to toe with Adobe’s XD program. Instead of sparring with it, Adobe’s eating it. Investors worry it’s overpaying out of desperation to quash competition, and yesterday the stock had its worst day since 2010.