Adobe had to acquire Figma

　　Adobe (Nasdaq: ADBE) is a long-standing company that integrates a set of tools that monopolize the creative design world. It can be said that as long as you are involved in a little bit of creativity, Adobe is a mountain that cannot be overcome.
　　In the past ten years, Adobe has not only embraced the blue ocean of the explosion of self-media, and kept up with the express train of cloud service transformation, but also enjoyed the moisture of low inflation and loose currency. The stock price skyrocketed. However, in the past year, headwinds have begun to emerge. On the macro level, liquidity is shrinking. On the micro level, advertisers and business owners are also reducing expenses. Although Adobe’s services are highly sticky and revenue is still growing, its stock price has risen since The high point fell more than 50%.
　　Another trouble comes from competitors, the recent $22 billion acquisition of online UI/UX design service Figma that has caught the market’s attention. It’s also a big deal for Adobe, equivalent to about 15% of its own enterprise value. As soon as the news came out, the market reacted violently. Adobe stock fell by more than 18% in a single day, and the market value lost more than 20 billion US dollars in one day. In one day, the amount of the acquisition fell.
　　Why is Adobe making this deal?
　　To make sense of the deal, you must first have a deep understanding of Figma. Figma is an all-in-one design solutions platform focused on collaboration. The idea is that design needs more players, not just designers. Everyone on the team can collaborate on it to build a product in real time. From the brainstorming stage to the final prototype version for presentation, the flow is seamless, and many redundant links are omitted. Various conveniences make the experience of product design on the Figma platform as enjoyable as playing a game. The focus on user experience has made Figma quickly gain the support of the industry, and I am a witness. In 2018, a 4A advertising company I worked for, after repeated discussions, thought that Figma’s cloud storage still had certain risks, but decided to switch to Figma from Sketch App + Adobe Family Bucket.
　　My transfer to a top-ranked US bank in 2021 coincided with the design department voting on whether to continue using Adobe XD as their primary tool or switch to Figma, which won by a surprising 40:1 to me. Remember that the banking sector is the most conservative and risk-averse place. So I’m not at all surprised that Adobe bought Figma, on the contrary, I thought it was a must happen a long time ago, I just didn’t expect XD to lose so quickly and terribly. According to the deal, Figma has far outnumbered XD and another rival, Invision, in large enterprises with more than 10,000 employees, and is also heavily used in smaller companies.
　　Bringing Figma under its command, Adobe not only eliminates the threat that is visible to the naked eye, but also reaches a subset of incremental users. This may open up another blue ocean, such as Atlassian’s service field.
　　Make no mistake, this is a costly deal. Figma’s guidance for 2022 is to generate about $400 million in ARR (annual regular revenue), and Adobe’s consideration for this is about 50 times ARR. Of course, Figma is still growing rapidly. The compound growth rate in the past few years has been around 100%. There are also many opportunities for integration in the future, such as increasing the subscription price, reducing the number of free subscribers, or packaging it into the Adobe family bucket to raise the monopoly threshold .
　　But integration is also risky. After all, the atmosphere and culture of the two companies are completely different, and the market value of them is also completely different. Whether Figma can maintain its aggressive style when it touches other interests is unknown.
　　At present, the cash on Adobe’s account is not enough to support this acquisition, and there is a high probability of debt financing and equity issuance. Additional offerings at current stock prices are not friendly to old shareholders. In addition, Adobe’s president gave Figma a psychological valuation of $16 billion in the last quarter’s earnings conference, but two months later, the deal was reached with $22 billion. It is difficult to explain that he has done an excellent job anyway. trade.
　　On top of that, Adobe has shown a serious decline in internal product power. As a head monopoly, it was beaten by a start-up company in a key segment, and finally had to recruit security at a high price, which made people have a little doubt about its moat. At the same time, it is also encouraging VCs to support more startups and competitors in disguise.
　　Adobe’s growth rate is about 10%-20%, but its ability to generate cash flow is still first-class, and its gross and net profit margins are higher than many peers. The current cash flow yield is more than 5%, and the PE is less than 30 times. I haven’t held Adobe stock since I started using Figma more a few years ago. However, if there are signs in the future that the integration of the acquisition is relatively smooth, and various negative emotions have been fully digested, it may consider re-holding.