Adobe's acquisition of Figma is one of the dumbest deal ever

Lmfao at the Financial Times dunking so hard on Adobe with not one but two articles

First FT Lex

https://www.ft.com/content/4ed2cd31-5c54-46ea-afcc-57706c1fb180

adobe figma 1Adobe Figma 2

Then FT Alphaville

https://www.ft.com/content/6a082b1d-3ac6-48e7-b680-eb13e0057b32

Adobe Figma 3Adobe Figma 4

Anyway, congrats to the M&A advisors for closing such a ridiculous transaction and to the founders and the VCs for pocketing those billions

Comments (41)

Most Helpful
2mo
m_1, what's your opinion? Comment below:

Hmmm, opposing point of view:

Excellent numbers, definitely 1st in class...
• $400M in ARR in 2022 growing ~100% y/y
• >150% net dollar retention
• 90%+ gross margins

And then, what happens if Adobe did not buy Figma? Small risk, but it's still real risk? Building real-time collaborative functionality out is REALLY difficult on legacy platforms. 

Finally, if that growth rate is even "kind of" sustainable, they'll grow into their valuation the way Whatsapp and Instagram did too. Both of those acquisitions were seen as dumb but Instagram gave so much more life to Meta. I know Figma isnt a social platform, but same concept applies. How dumb is this really given Adobe's massive userbase?

BTW, Figma is an awesome tool. We use it and I'll never end our subscription. :)

  • Analyst 1 in HF - RelVal
2mo

This is true but also consider that adobes natural sales growth was slowing to low single digits so it seems more like a weakness on their core platform.

Similarly they paid like 50x P/S which is insanely expensive, especially in a recessionary period. They also had to leverage themselves to do it due to not having $10B of cash on hand and had to dilute shareholders by $10B as well. Overall it's not an M&A out of strength, though it's probably not so terrible that it's worth -$36B on the market cap.

  • Associate 3 in PE - LBOs
2mo
m_1

Hmmm, opposing point of view:

Excellent numbers, definitely 1st in class...
• $400M in ARR in 2022 growing ~100% y/y
• >150% net dollar retention
• 90%+ gross margins

And then, what happens if Adobe did not buy Figma? Small risk, but it's still real risk? Building real-time collaborative functionality out is REALLY difficult on legacy platforms. 

Finally, if that growth rate is even "kind of" sustainable, they'll grow into their valuation the way Whatsapp and Instagram did too. Both of those acquisitions were seen as dumb but Instagram gave so much more life to Meta. I know Figma isnt a social platform, but same concept applies. How dumb is this really given Adobe's massive userbase?

BTW, Figma is an awesome tool. We use it and I'll never end our subscription. :)

What is Adobe's current market cap implied cost of equity? What is the cross-sell TAM for Adobe and Figma? How many years would it take to realize even a 20x forward revenue multiple?

Adobe should be buying back shares with that capital, not buying more startups. This was an utter panic move by the incredibly incompetent at capital allocation team at Adobe. 

2mo
Deal Team Six, what's your opinion? Comment below:

I'm with @m_1 on this 100%, to add to his counter points it is THE number one software utilized with the design space. This could be as logical as Facebook acquiring Instagram and paying huge long-term dividends.

It is easy to gawk at the PP and look through other folks' articles to say "this is so stupid", especially when that is the general market sentiment, but this is neither a unique perspective nor one that is objectively correct. 

Let's wait and see how it plays out over time before calling it dumb

  • Anonymous Monkey's picture
  • Anonymous Monkey
  • Rank: Chimp
2mo
Anonymous Monkey, what's your opinion? Comment below:

From every possible angle everything about this is retarded:

-arr itself is retarded. It's retarded for the customers who should just pay one price for software, use free software, use the perfectly good software they've had already, or internally develop software, It's retarded for the software company execs and their investors who pretend that customers will pay fees ad infinitum whereas any fat guy in a basement can come up with a better product that people will switch to. It's retarded for information security when salesforce gets hacked and every company in the world's private information will be on display for the whole world to see (Will make the Panama papers look like child's play). 
 

-valuing anything on revenue is completely retarded

-our current investing mania with its preference for paying higher prices for loss making companies and less when they start to make money is completely regarded. The investors are absolute cucks to the companies mostly because it's other peoples retirement money they are playing with and they don't give a fuck.

-the actual usefulness of these newer versions of software that these companies sell has improved only at a glacial place. It's essentially the opposite of Moore's law

-also this is a pure guess but my gut instinct is that the reliance for these software as a service companies on things like Amazon web services will eventually blow up as those things are revealed to be essentially computing and accounting Ponzi schemes.

2mo
sewter3, what's your opinion? Comment below:

Hopefully the pc police won't bang down your door for saying retarded too much. People are too scared to say it now. Was a go-to in middle school

  • Investment Analyst in HF - EquityHedge
2mo

-also this is a pure guess but my gut instinct is that the reliance for these software as a service companies on things like Amazon web services will eventually blow up as those things are revealed to be essentially computing and accounting Ponzi schemes.

pls explain this point?

  • Anonymous Monkey's picture
  • Anonymous Monkey
  • Rank: Chimp
2mo
Anonymous Monkey, what's your opinion? Comment below:

-also this is a pure guess but my gut instinct is that the reliance for these software as a service companies on things like Amazon web services will eventually blow up as those things are revealed to be essentially computing and accounting Ponzi schemes.

pls explain this point?

Ok, picture a computer store in the late nineties. A fat slob guy who works there, for the purposes of this story let's call him "the pig" gets an idea that he will buy a pc for 1000 and rent it out to people who want to use it for an email server for 50 a month. In lotus 123, he records 600 a year in revenue but capitalizes and depreciates the computer over 5 years. So he shows 400 in profits. problem is that two years later the customers come up to him like " hey Fady, your computer is running too slow." so he buys another 1000 computer.

  • Works at McKinsey and Co
2mo
anonjohn328

The VCs who invested in Figma's pre-seed or seed round must be crying from pure orgasms'. 

They invested before Figma even had revenue (iirc Figma didn't make any revenue for the first two years...), so they deserve to reap the rewards of their conviction

Controversial
2mo
medellin, what's your opinion? Comment below:

This is a classic boomer take of someone who just doesn't get tech. Multiples are irrelevant here. Do you know how incredibly difficult is to build and scale a quality software company? ADBE is buying an absolute 1st class product that would be simply impossible to create organically by a giant like ADBE. What Figma built is an industry defining software piece, and that happens almost never. 

Was FB acquisition of Instagram also dumb to you at the time? Or WhatsApp? Tech M&A is often driven by different POVs than your old school sectors.

  • VP in PE - LBOs
2mo

This is a classic boomer take of someone who just doesn't get tech. Multiples are irrelevant here.

Lol this is the kind of take you were hearing during the dot com bubble, you know the bubble fueled by boomers who were yelling "multiples are irrelevant for high growth tech companies". Do you remember how it ended ?

No matter how great the company is, in the end the price is always relevant.

Was FB acquisition of Instagram also dumb to you at the time?

No, that was a smart deal. Mainly because FB only paid $1B for IG. 

Or WhatsApp?

Glad you bring it up because Facebook's $19B acquisition of WhatsApp is in the same league of dumb deals than the Adobe-Figma transaction. Eight years after the acquisition, it has been reported by multiple sources that WhatsApp still doesn't generate revenue for Facebook:

https://www.bloomberg.com/opinion/articles/2022-07-25/zuckerberg-s-bet-on-whatsapp-might-not-pay-off

https://fortune.com/2020/12/02/whatsapp-business-tools-messaging-ads-revenue/

https://www.ft.com/content/bd768b02-566d-40e8-9320-97863fbe4eba 

  • Prospect in IB - Gen
2mo

>Glad you bring it up because Facebook's $19B acquisition of WhatsApp is in the same league of dumb deals than the Adobe-Figma transaction. Eight years after the acquisition, it has been reported by multiple sources that WhatsApp still doesn't generate revenue for Facebook:

It brings me hope that people like you can (ostensibly) become a VP in PE and still be so fucking daft w/r/t corporate strategy. Kudos for having an incredibly short-sighted view!

2mo
medellin, what's your opinion? Comment below:

Lmao you claim to be a VP in PE, yet are so short-sighted it's almost funny.

Corporate M&A at THAT scale is almost never financially driven. Sure they paid $19B and WhatsApp is not entirely a money-printing machine, but so what? 2 billion people uses WhatsApp. TWO BILLION. Those users are Meta users. Meta could not allow someone else own that userbase and while WA might not be meaningfully revenue generating (at least yet), it's a crucial asset of Meta strategy. 

Real business doesn't run on spreadsheets.

2mo
dank.knight, what's your opinion? Comment below:

One thing I learnt from M&A is that when large companies do large deals, its not because they're trying to grow - its because they're f**king afraid of what's going to happen if they don't. 

Large deals are nearly always done from a defensive position. 

Array

  • 4
2mo
FinancelsWacc, what's your opinion? Comment below:

This right here. If you ask leadership at any F500 company they'll say they invest in all accretive ventures, are focused on growth, cutting edge tech, blah blah blah fucking blahbidy blah blah.

At the end of the day for Adobe to allocate capital, engineers, designers, etc. to build a comparable product / feature is probably a complete fucking nightmare. Engineers at these massive companies don't work on moonshot ideas, they fight to keep age old architecture running.

These massive deals are often a function of 1) Buying competition (see Visa / Plaid), 2) Optimistic "synergies", and 3) An internal circle jerk of "oh and here's all these things we can do to make the product better / integrated flawlessly.

At the end of the day there isn't a single engineer or executive at Adobe willing to put in the time, effort, money, and human capital needed to make a competing product (you'll never find a team more motivated than founders). Some fail, others go bonkers. Time will tell.

2mo
high hopes, what's your opinion? Comment below:

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