Adobe stock tumbles toward worst day since 2010 amid outlook miss and $20 billion Figma deal

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Shares of Adobe Inc. fell on Thursday for their worst fall in 12 years after the software company fell short with its revenue outlook for the current quarter and announced a deal that at least one analyst described as “priceless.” I had seen.

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It plans to acquire collaborative design tools maker Figma for $20 billion, the company announced Thursday morning in conjunction with its latest earnings numbers. Adobe had originally planned to deliver results after the closing bell, but reports of the pending deal started pouring in shortly before the company posted its official morning release.

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The maker of Photoshop, Illustrator and other creative software tools also gave mixed financial reports on Thursday. Adobe’s profit exceeded the consensus outlook, but the company fell short with its revenue outlook for the current quarter.

Shares fell 16.9% in Thursday morning trading and were on track to register their biggest single-day percentage drop since September 22, 2010, when they fell 19.0%.

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For Adobe’s just-reported fiscal third quarter, the company posted net income of $1.16 million, or $2.42 per share, compared to $1.21 million, or $2.52 per share, in the year-ago quarter.

On an adjusted basis, Adobe reported $3.40 in earnings per share, up from $3.11 in the year-ago period, while analysts tracked by FactSet were modeling $3.35.

Adobe’s revenue increased from $3.94 billion to $4.43 billion. The FactSet consensus was for $4.44 billion.

For the fiscal fourth quarter, Adobe expects revenue of $4.52 billion, while analysts tracked by FactSet were modeling $4.60 billion. Adobe executives said in the release that the outlook reflects macroeconomic conditions, foreign exchange pressures and in general “year-end seasonal strength in demand for our offerings.”

They forecast adjusted earnings per share of $3.50 for the fiscal fourth quarter, while the FactSet consensus was for $3.47.

Mizuho analyst Greg Moskovitz wrote before the report that he “would not be surprised by a guide down to F4Q” given his recent conversations with industry players. He downgraded Adobe’s stock in a Monday note to customers.

Adobe expects the newly announced deal for the San Francisco-based privately held Figma to “re-imagine the future of creativity and productivity, accelerate creativity on the Web, advance product design and create a global platform for creators, designers and developers.” Inspire communities”. in Thursday’s press release. They see “a huge, rapidly growing market opportunity” for the combined entity.

According to the release, the company plans to involve about half cash and half stock in the deal. Adobe executives predict the transaction will close in 2023.

Jefferies analyst Brent Thiel called the deal “valuable,” noting that the $20 billion price tag for Figma is 50 times estimated annual recurring revenue for 2022.

Evercore ISI’s Kirk Mattern also said the deal “comes at a price in terms of near-term dilution.”

“While we think the acquisition makes strategic sense, let’s be honest – it looked like Adobe was losing some momentum to Figma and it was better to buy them and combine forces. Allowing them to make a bigger beach in the venture Was.” to continue. “In a year, we expect the merits of the deal to prove itself as it presents an opportunity to turbocharge Figma’s growth with the added benefit of removing the only real competitive threat to Adobe in the enterprise.”

Adobe stock is down 18.1% in the past three months since Wednesday, while the S&P 500 index SPX,
increased by 3.2%.

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