One of the biggest stock market stories of the past week was Adobe (NASDAQ: ADBE) announcing plans to acquire Figma for $20 billion. The announcement in itself wasn’t especially surprising – designers were moving from Adobe design software to Figma and Adobe has a history of acquiring competitors. What was surprising was how poorly the market reacted – in the next two days, Adobe’s market value fell by $34 billion.
This article takes a look at the Adobe-Figma deal and then takes a look at the investment case for Adobe, and asks if there’s value after last week’s brutal sell off.
The story of Figma is pretty incredible. In 2020, it raised money at a $2 billion valuation. In 2021, it raised money at a $10 billion valuation. And now it is being acquired for $20 billion. Now that is despite the massive collapse in software company valuations between 2021 and 2022. Adobe itself was down almost 50% before the Figma announcement and the other collaborative design startup, Australia’s Canva, has seen its private market value fall ~50%. But not Figma. A key reason why? Figma is growing revenue at ~80% and has gross margins of ~90%.
Once the Adobe-Figma deal is done, that will leave them to compete with Canva to capture the next generation of designers. Last week Canva launched new workplace collaboration tools including a word-processing product which appears to put it up against Microsoft and Google. As Australian’s, without too much past start-up success, it is hard not to be parochial and celebrate as we see Canva take on the world. But going head to head with the likes of Adobe, Microsoft and Google will be their biggest challenge yet.
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