Wall Street 'too negative' on Adobe, Figma deal, UBS says

Entrance to Adobe San Francisco office location in historic Baker and Hamilton warehouse

David Tran

Investors have punished Adobe (NASDAQ:ADBE) shares since the software company announced its plans to buy competitor Figma for $20B in cash and stock. However, investment firm UBS said Wall Street had become “too negative” on the deal.

Analyst Karl Keirstead, who has a neutral rating and a $320 price target on Adobe (ADBE), noted that after speaking with almost 15 Figma and Adobe contacts to get a better handle on the deal, said that investors have “likely swung too negative about the strategic merits of the Figma deal and even the purchase price.”

The analyst added that the contacts were “quite bullish” about the long-term growth of UX design tool spending, especially for Figma. Although the proposed deal could be seen as defensive, it may also been “more offensive” than previously considered, given Adobe (ADBE) is entering a space that it had previously missed and could benefit from cross-selling Figma to its customer base.

“The Street may be overly-negative on Adobe’s Creative Cloud technical debt and the Figma acquisition could end up taking years off Adobe’s effort to modernize its Creative Cloud suite,” Keirstead added.

Adobe (ADBE) is slated to hold an analyst day on October 18th and Keirstead said he expects to hear more about the Figma deal, but also provide guidance for fiscal 2023 and net new Digital Media annual recurring revenue to “de-risk” guidance given the tough global economy.

Keirstad lowered his fiscal 2023 estimates, as he now estimates annual recurring revenue to be $1.8B, down from $1.92B and cut revenue and earnigs per share estimates by 1% to 2%.

Earlier this month, it was speculated that Adobe (ADBE) could be a potential target for an activist investor.

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