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Adobe stock price plunge: Can ADBE swallow Figma and return to growth?

By Jenal Mehta

11:48, 16 September 2022

photoshop icon on a computer
Adobe taking over Figma: Photo - Shutter Stock

Computer software maker Adobe (ADBE) announced plans to acquire Figma, one of its biggest rivals in the online design world, in a half cash, half stock deal worth $20bn. Adobe shares saw a significant decline as the news of the deal broke. 

Adobe confirmed this news along with its third-quarter earnings in which the company reported revenue of $4.53bn and earnings per share of $3.4 which beat analyst expectations slightly.

With current cash on hand of £3.87bn the company will likely need to borrow to complete the transaction.

Adobe Systems (ADBE) stock price chart

Figma has a strong hold in design and prototyping tools. Its products are modern and provided over a cloud based environment. They have approximately 4 million users to date.

This move is in line with Adobe’s plan to expand into every corner of digital design and provide its clients with new categories of products.

After the merger news Adobe stock dropped nearly 17% on Thursday, and fell a further 4% in early trade on the New York Stock Exchange on Friday. 

Adobe stock has fallen a total of 30% in the past month. In the same time period  the S&P 500 (US500) and Nasdaq 100 (US100) have lost 9% and 13% respectively.

 

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The deal details

On Thursday, Adobe announced that it had entered into a merger agreement to acquire Figma. The statement outlined that “Adobe has agreed to acquire Figma for approximately $20bn, comprising approximately half cash and half stock, subject to customary adjustments.” 

US100

18,250.60 Price
-0.170% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 1.8

US30

39,754.20 Price
-0.010% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 2.2

DE40

18,508.10 Price
-0.100% 1D Chg, %
Long position overnight fee -0.0221%
Short position overnight fee -0.0001%
Overnight fee time 21:00 (UTC)
Spread 1.5

J225

40,264.00 Price
-0.540% 1D Chg, %
Long position overnight fee -0.0110%
Short position overnight fee -0.0112%
Overnight fee time 21:00 (UTC)
Spread 10.0

It added that that 6 million additional restricted shares will be granted to CEOs and employees of Adobe subject to a four year vesting period.

The company expects the transaction to be half cash and half stock purchases, funded by cash on hand and borrowings. The deal is expected to close in 2023.

Shantanu Narayen, chairman and CEO at Adobe said in the statement: “Adobe’s greatness has been rooted in our ability to create new categories and deliver cutting-edge technologies through organic innovation and inorganic acquisitions. The combination of Adobe and Figma is transformational and will accelerate our vision for collaborative creativity.”

Benefits of the merger

Adobe appears to be expanding into providing multiple products via its cloud platform. Already owning hallmark products such as Adobe Photoshop Illustrator and Acrobat Pro, the firm can only benefit in adding to the list of products it provides so that its clients can make use of adjacent services.

Figma’s product provides a graphics design interface which it says is easy to use and implement by its customers.

Ingrid Lunden wrote in a publication for TechCrunch that “a $20 billion price tag is a sizable jump for Figma, which was last valued at $10 billion in June 2021, when it raised $200m. But Adobe is doing more than just taking out a big competitor. It’s picking up a fast-scaling business.”

As noted by Adobe: “Figma has a total addressable market of $16.5bn by 2025. The company is expected to add approximately $200m in net new ARR this year, surpassing $400m in total ARR exiting 2022, with best-in-class net dollar retention of greater than 150 percent.”

It added that “with gross margins of approximately 90 percent and positive operating cash flows, Figma has built an efficient, high-growth business.”

Markets in this article

ADBE
Adobe Systems Inc (Extended Hours)
507.08 USD
1.69 +0.340%
US500
US 500
5245.2 USD
-4.8 -0.090%
US100
US Tech 100
18250.6 USD
-31.8 -0.170%

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