Adobe’s stock price has been buoyed by the company’s recent results and surprise deal to buy privately held software company Figma.
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Dado Ruvik/Reuters
For once, Adobe ADBE -16.96%
Microsoft might be thankful it isn’t..
The Silicon Valley pioneer behind popular products like Photoshop, Illustrator and the ubiquitous PDF format has lived in the shadow of its much larger software peers of the same age. But Adobe isn’t idle: Revenue of just over $20 billion for the next fiscal year puts the company in 10th place in the S&P 500 software and services group. And Adobe’s shift to a subscription-based business model has made it the largest company by market capitalization in the BVP Nasdaq Emerging Cloud Index, even surpassing Salesforce..
By then, Adobe’s stock was down 17 percent through Thursday morning, following the company’s latest results and surprise deal to buy privately held software company Figma for $20 billion in cash and stock. That’s more than four times what Adobe paid for Marketo in 2018, the company’s largest deal to date. Analyst Brent Till of Jefferies said the price would reflect a multiple of about 25 times what FIMA’s annual recurring revenue could hit next year if the price continues to grow at its current pace. This compares to roughly 10 times what Adobe paid for Marketo. In a report released Thursday morning, he concluded that Adobe’s latest move “looks expensive.”
It looks like an established tech giant taking a risky step in the current regulatory environment. Figma, which is only 10 years old, offers cloud-based tools used by software designers in areas such as user interfaces, where it competes with Adobe’s XD service. It’s become popular of late: A report by Macquarie Research earlier this year noted that “more designers are pulling Faiga into their organizations as developer tools.” A report by CNBC last month revealed that “tens of thousands” of software developers at Microsoft use Figma — despite Adobe’s tools in the current business relationship.
In a conference call Thursday morning, Adobe said that as much as the overlap may not seem strong, two-thirds of Figma’s users are not part of the group of designers who are Adobe’s core customers. But the movement still comes at a weak time; Adobe’s fiscal third quarter results showed continued growth for the company. Revenues have increased an average of 14 percent annually over the past four quarters, compared to an average of nearly 25 percent over the previous four periods. And Adobe’s revenue forecast for the current fiscal quarter ending in November came in below Wall Street’s target for the fourth straight time Thursday. Adobe shares are down 46% for the year, compared with a 26% decline for the S&P 500 software group.
Image by itself may not change that direction; The $400 million in annual revenue is about 2% of what Wall Street expects Adobe’s revenue to hit next year. And, despite significant progress, Adobe still has a deal too small to raise alarm bells with regulators. But at a time when the cloud is cheaper than it’s been in years, companies may still be reasonably worried that Adobe is digging in to support a more expensive cloud purchase.
Photoshop Maker now has its own image to brush.
Write to Dan Gallagher at dan.gallagher@wsj.com
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