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The Ratings Game: Adobe stock continues its fall as Figma deal price ‘likely to lend credence to the bear case’


Adobe Inc.’s stock slide was set to continue Monday, after another analyst threw in the towel on their bullish call, in the wake of the company’s $20 billion bid to buy creative-collaboration platform Figma.

“While the product/strategic fit is clearly aligned, it’s the price tag that is likely to lend credence to the bear case, at least for now,” wrote Wells Fargo analyst Michael Turrin as he lowered his rating on Adobe shares

to equal weight from overweight.

Adobe shares were off 1.2% in Monday morning trading after losing 3.1% in Friday’s session and dropping 16.8% on Thursday, the day of the deal announcement. Adobe’s stock is coming off its worst week since 2002.

Wells Fargo’s Turrin joins analysts from Baird, Bank of America, Barclays, and Edward Jones, who all downgraded the stock last week.

Turrin commented that the Figma acquisition price would be the largest ever paid for a private software company, while the multiple, at 50 times 2022 annual recurring revenue, would be the highest paid. Those metrics suggest a competitive bidding process, he said.

“As a result, we expect investor questions around slowing growth/increasing competition on the digital media side of the business to only intensify, especially given 3Q results/4Q guidance suggest price increases aren’t providing as much of an offset as anticipated,” Turrin continued.

He further noted that the Figma deal isn’t expected to close until 2023, meaning that concerns could keep shares in check for some time.

Edward Jones analyst Logan Purk, who downgraded Adobe’s stock to hold from buy on Friday, also keyed in on the purchase price and Adobe’s financial estimates around the deal.

“While we normally applaud acquisitions into new areas and markets, Adobe paid pandemic premiums when most software valuations have fallen significantly and recession concerns are increasing,” he wrote. “To us, this feels like a reactionary move, paying for growth at any cost. These concerns, combined with an estimated three-year break-even period on the investment, significantly increases deal risk, in our view.”

A chief concern seems to be that while Adobe had a near monopoly on the creative-software market for years, the company may have felt that slipping away amid newer competition, hence the move to acquire Figma at a steep price.

“While we can’t deny the appeal of the monopolistic nature of Adobe’s business and historically consistent results, this deal changes our view of the business and alters our long-term view of the company,” Purk wrote.

Adobe’s stock has tumbled 47.8% year to date, while the SPDR S&P Software & Services exchange-traded fund

has shed 31.8% and the S&P 500 index

has dropped 18.8%.

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