Adobe and Figma deal’s $20 billion price tag spooks investors and business leaders remain unfazed

Nearly a decade ago, Brown University student Dylan Field made a big bet on himself. The college junior dropped out of Ivy League school after winning a $100,000 scholarship, sponsored by Peter Thiel, to pursue his entrepreneurial dreams.

Field’s first product, drone modification software, didn’t work. His next venture, collaborative software publishing company Figma, has been quite successful. It sold for $20 billion on Thursday (pending regulatory approval).

Field has made the most of his opportunity, and now it’s up to the buyer of software giant Adobe Figma to wear the entrepreneurial mantle.

The huge price tag of Figma, a company expected to generate just $400 million in revenue this year, marks a massive bet by Adobe that it can maximize Figma’s potential through direct sales and integration with its suite of legacy products. Such a task will require additional ingenuity from Adobe, a Silicon Valley stalwart that has steadily, if somewhat unspectacularly, advanced over the past few years.

Adobe officials acknowledged as much on Thursday during an earnings call that came with an unveiling of the deal. Company executives praised Figma for its strong financials — an expected doubling of revenue this year, 90% margins, positive cash flow — but spent much of their time considering opportunities for collaboration.

“The combination will accelerate Adobe and Figma’s revenue growth based on three primary drivers,” said Adobe Chief Financial Officer Dan Durn. “First, we are expanding Figma’s reach to our customers and through our global go-to-market footprint. Second, Figma is accelerating the delivery of new Adobe offerings on the web to the next generation of users. And third, we are jointly introducing new offerings to the market as we unlock the possibilities of collaborative creativity. »

Investors didn’t have to strain to envision a simpatico marriage between the two companies.

Adobe can simply absorb the booming corporate business of Figma, which counts Microsoft, Google and Salesforce among its customers. In doing so, Adobe eliminates a rising competitor (we’ll see if antitrust regulators take advantage of this) and acquires a hip product for its established customer base.

“While we think the acquisition makes strategic sense, let’s be honest: it feels like Adobe is losing momentum to Figma and it was better to buy them out and combine forces than allow them to create a bigger beachhead in the business,” Evercore ISI analyst Kirk Materne wrote in a research note, according to MarketWatch.

More importantly, Figma’s cloud-based editing tool syncs well with Adobe’s major subscription apps, including Photoshop, Acrobat, and Illustrator, which increases the value of these products. While Adobe’s revenue growth isn’t negligible — about 22% on average per year over the past five years — a significant portion is attributable to business acquisitions rather than improved product sales.

The question, however, is whether a middle-aged company like Adobe can squeeze enough out of Figma to justify the $20 billion cost.

So far, Wall Street is not optimistic. Adobe shares fell 17% on Thursday, the company’s biggest one-day drop in 12 years, and slipped another 5% by midday on Friday. Earnings 50 times more than the scariest investors who fear Adobe is paying too much for Figma, especially given the cold tech acquisition market. By comparison, Salesforce paid a 31x multiple for Slack in 2021, a time of rampant technology acquisitions.

To this, Durn pointed to Figma’s untapped potential as a buy validation.

“This is an explosive growth business,” Durn said in an interview with Barron’s. “You’re paying for what they’re going to do, not what they’ve done… We’re going to accelerate this trajectory and redefine the future of work. It will be transformative. »

It is better to be. Otherwise, the Figma deal could very well blow up in Adobe’s face.

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Jacob Charpentier

NEW

Eat them alive. one online pirate wreaked havoc Thursday at Uber, where employees said they received obscene messages on internal websites and an alleged attacker claimed to have access to several company systems. Uber officials have not confirmed the extent of the breach, although employees were told Thursday afternoon to stop using Slack and other internal programs. A security engineer who claimed to be in contact with the hacker said The New York Times that the cyberattack looked like “a total compromise”.

Try to make friends. A senior Chinese government official called for more collaboration with South Korea on advanced technologies and supply chains during a rare trip to Seoul, the Associated Press reported. The visit of Li Zhanshu, the third member of the Communist Party of China, underlined the republic’s desire to strengthen alliances in response to several recent moves by President Joe Biden’s administration, which have curbed exports of advanced semiconductors and pushed policies aimed at limiting investment in China. South Korea is trying to balance growing geopolitical tensions between China, its biggest trading partner, and the United States, its best collaborator on technology-related investments.

Still need clarity. US government officials published several reports Friday that outlined the risks associated with digital assets, though they declined to answer several key questions that have caused confusion about cryptocurrency regulation, CoinDesk reported. Several federal agencies detailed their concerns about the proliferation of volatile cryptocurrencies and the need for strict enforcement of existing rules, but they did not specify which digital assets should be considered securities or commodities. The series of reports came in response to an executive order signed in March by the president Joe Bidendirecting the federal government to analyze the ecosystem of digital assets.

Become more creative. YouTube creators may soon to make money from advertisements on the company’s short-form video platform and generate revenue through smaller subscriber bases, The New York Times reported Thursday, citing an internal audio recording and sources familiar with the matter. The changes are designed to keep YouTube Shorts competitive with TikTok in the race to attract and retain creators who drive valuable site traffic. Creators will receive 45% of ad revenue from YouTube Shorts, below the 55% rate for ads accompanying videos on YouTube’s traditional platform.

FOOD FOR THOUGHT

Reeling from low satisfaction. As TikTok and YouTube clamor for the services of in-demand video creators, Instagram risks becoming a third wheel – and the Meta the unit knows it. The Information reported on Thursday that a recent memo written by Instagram’s CEO Adam Mosseri describes the platform’s poor recruiting of creators, whose videos have helped the two competitors take the lead in the mobile video battle. Mosseri wrote that surveys of creators found that Instagram tracks TikTok and YouTube “across all dimensions that are most important to creator satisfaction,” including reach and perceptions of algorithmic fairness. While Instagram remains the number one destination for creators, TikTok and YouTube are eating away at its market share.

From article:

Keeping digital stars who make short videos happy is vital for Instagram. While Instagram has been popular with creators — unlike its sister app, Facebook, which has struggled to attract creators — TikTok is undermining its relevance. TikTok, an app owned by ByteDance, has exploded in popularity in recent years, and its short videos are generating more original content and engagement than Instagram’s version, Reels.

A big risk is that creators create less content for the platform and spend more time producing videos for TikTok simply because it generates more buzz. TikTok videos are frequently quoted and reposted on social media. According to the Wall Street Journal, this influencer migration may already be underway.

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BEFORE YOU LEAVE

It’s time to snuggle up. Amazon Officials won’t do a touchdown dance after Thursday’s historic broadcast of a National Football League game, but they won’t mope in the locker room either. The Company’s First Exclusive NFL Stream produces ups and downs, with viewers delivering mixed reviews, such as Yahoo! Sport well summarized. Some football fans have raved about the crystal clear video quality and multiple viewing options provided by Amazon. Others complained of buffering issues (myself included), poor audio mixing, and a strangely listless performance from the announcing duo. Al Michaels and Kirk Herbstreit. Amazon will just have to take it one game at a time, execute better, get back to basics, and remember there’s still a long season to go.

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