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Adobe (ADBE) to Boost Creative Capabilities With Figma Buyout

Zacks Equity Research
·4-min read

Adobe ADBE has been making strong efforts to expand its Creative Cloud offerings to deliver an enhanced creativity experience.

The company’s latest signing of a definitive agreement to acquire San Francisco, CA-based Figma, a provider of web-first collaborative design platform, for $20 billion in cash and stock testifies to the aforementioned fact.

Figma’s solutions enable seamless collaboration of mobile and web application designers through multi-player workflows and advanced design systems. Figma also offers application designers access to the developer ecosystem.

With Figma, Adobe strives to bolster the process of creativity on the web. The buyout will strengthen Adobe’s product designing capabilities.

Adobe will boost its capabilities in collaborative creativity by combining Figma’s solutions with its Creative tools.

Adobe expects to close the Figma buyout in 2023.

We believe the underlined strategic acquisition will be accretive for Adobe as Figma’s total addressable market size is expected to hit $16.5 billion by 2025. This is a positive and likely to instill investor optimism in the stock in the days ahead.

Notably, Adobe has lost 47.2% on a year-to-date basis against the industry’s decline of 29.9%.

Adobe Inc. Price and Consensus

 

Adobe Inc. Price and Consensus
Adobe Inc. Price and Consensus

Adobe Inc. price-consensus-chart | Adobe Inc. Quote

Strategic Acquisitions: Key Catalyst

We note that strategic acquisitions have been playing a significant role in shaping the growth trajectory of Adobe’s Creative Cloud segment.

Apart from the Figma buyout, Adobe’s acquisition of a leading cloud-enabled video review and collaboration platform named Frame.io remains a major positive. Frame.io solutions simplify the production procedure. Thus, video editors and project stakeholders can seamlessly collaborate by leveraging cloud-first workflows.

Adobe combined Frame.io solutions with its creative software like Adobe Photoshop, Adobe Premier Pro and Adobe Creative Cloud.

ADBE is witnessing strong growth in its video business on the back of the growing adoption of its collaborative offering of Premiere Pro and Frame.io.

Adobe’s ContentCal acquisition agreement remains noteworthy. ContentCal operates a platform that aids businesses in creating and publishing their marketing content online. The acquisition is likely to add strength to Adobe’s creative offerings.

With ContentCal, Adobe remains well-poised to capitalize on the increasing demand for content marketing tools and software worldwide.

Bottom Line

We believe that the above-mentioned endeavors will expand Adobe’s Creative Cloud offerings, contributing to its Creative Cloud revenue growth.

This will further aid the performance of the Digital Media segment, which has become an integral part of the company.

In third-quarter fiscal 2022, Digital Media generated revenues of $3.23 billion, which improved 13% on a year-over-year basis. Its annualized recurring revenues (ARR) increased to $13.4 billion, in which the net new ARR was $449 million.

Creative Cloud generated $2.63 billion of revenues, which rose 11% year over year. Creative ARR was $11.15 billion.

However, the ongoing tensions between Russia and Ukraine are anticipated to continue affecting Digital Media ARR in the days ahead. Unfavorable foreign exchange fluctuations remain other overhangs for Adobe.

Zacks Rank & Stocks to Consider

Currently, Adobe carries a Zacks Rank #4 (Sell).

Investors interested in the broader Zacks Computer & Technology sector can consider some better-ranked stocks like Arista Networks ANET, Teradata TDC and Monolithic Power Systems MPWR. While Arista Networks currently sports a Zacks Rank #1 (Strong Buy), Teradata and Monolithic Power Systems carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arista Networks has lost 18.7% in the year-to-date period. The long-term earnings growth rate for ANET is currently projected at 18.6%.

Teradata has lost 27.4% in the year-to-date period. The long-term earnings growth rate for TDC is currently projected at 25%.

Monolithic Power Systems has lost 15.1% in the year-to-date period. The long-term earnings growth rate for MPWR is currently projected at 25%.


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