Adobe (ADBE), the maker of creative suite software, posted quarterly results. In that report, it
announced a generous offer for Figma. It offered to buy the start-up for $20 billion. It will pay a mix of
cash and stock.
Figma expected revenue of $400 million annualized for 2022. Adobe is acquiring the platform to protect
its moat. The threat would not appear for years. Under Adobe, Figma will not add profits for four years.
Adobe’s giant acquisition of an unproven firm is a warning for the technology sector. Markets will
compress the multiples valuation in such growth firms. The price of the P/E will fall. Investors will
discount the major economic risks ahead. They will sell technology stocks today and ask questions later.
Regulators may not approve Adobe’s bid. Rejection is a blessing for Adobe, which is pressured to spend
its excess cash on hand. Just as PayPal (PYPL) considered buying Pinterest (PINS) in search of growth,
Adobe is doing the same. Unfortunately, Adobe shareholders will pay for the price of stock dilution.
Adobe’s underlying business will have higher competitive pressures ahead.
Corporations are slashing software spending budgets. They will re-evaluate their monthly licensing costs
paid to Adobe. That will hurt Adobe’s results.
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