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

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Adobe Inc. shares were headed for their worst drop in 12 years Thursday after the software company fell short with its revenue outlook for the current quarter and announced a deal that at least one analyst saw as “pricey.”

Adobe
ADBE,
-17.25%

plans to acquire Figma, a maker of collaborative design tools, 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 began coming out shortly before the company posted its official morning release.

The maker of Photoshop, Illustrator, and other creative software tools also delivered a mixed financial report Thursday. Adobe’s profit exceeded the consensus view, but the company fell short with its revenue outlook for the ongoing quarter.

Shares were off 16.9% in Thursday morning trading and on track to log their largest single-day percentage decline since Sept. 22, 2010, when they fell 19.0%.

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

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

Adobe’s revenue rose to $4.43 billion from $3.94 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 had been modeling $4.60 billion. Adobe executives said in the release that the outlook reflects macroeconomic conditions, foreign-exchange pressures, and the usual “year-end seasonal strength in demand for our offerings.”

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

Mizuho analyst Gregg Moskowitz had written prior to the report that he “wouldn’t be surprised by a guide down for F4Q” given his recent conversations with industry players. He downgraded Adobe’s stock in a Monday note to clients.

Adobe expects that the newly announced deal for San Francisco-based privately held Figma will help it “reimagine the future of creativity and productivity, accelerate creativity on the web, advance product design and inspire global communities of creators, designers and developers,” executives said in a Thursday press release. They see “a massive, fast-growing market opportunity” for the combined entity.

The company plans for the deal to consist of roughly half cash and half stock, per the release. Adobe executives anticipate that the transaction will close in 2023.

Jefferies analyst Brent Thill called the deal “pricey,” noting that the $20 billion price for Figma is 50 times its estimated ending annual recurring revenue for 2022.

Evercore ISI’s Kirk Materne said also said that 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 feels like Adobe was losing some momentum to Figma and it was better to buy them out and combine forces vs. allowing them to create a bigger beachhead in the enterprise,” he continued. “In a year, we expect the merits of the deal will prove themselves out as it does present the opportunity to turbocharge Figma’s growth with the added benefit of removing the only real competitive threat to Adobe in the enterprise.”

Adobe’s stock has declined 18.1% over the past three months through Wednesday, while the S&P 500 index
SPX,
-0.98%

has gained 3.2%.

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