Analysts described Adobe’s (NASDAQ:ADBE) (BVMF:ADBE34) deal to buy design platform Figma as “extremely expensive,” causing several analyst houses to downgrade the stock’s recommendation.
For analysts at Jefferies, the deal with Figma “looks expensive relative to expected year-end annual recurring revenue of $400 million.” An analyst at Bank of America (NYSE:BAC) cut Adobe’s recommendation from buy to neutral, in addition to reducing the price target on the stock from $450 to $350. He considers that the company “must prove the viability of the deal.”
“The three-year horizon for accumulation suggests little synergy between short-term revenue and operating income. In addition, the high market value (50x 2022 revenue) suggests that Figma poses a major competitive threat. Although the stock is trading at a low multiple of 15x 2023 FCL (0.9x our FCL of +17% y/y for 2023), in line with large-cap peers, we believe the proposed acquisition represents an overbid until the value of the acquisition (14% of market capitalization) becomes clearer at deal close,” the BofA analyst said in a note to clients.
Similarly, an analyst at Barclays (LON:BARC) downgraded his recommendation for the company’s papers to “equal weight,” reducing the price target from $440 to $340. The three main reasons behind the downgrade are:
Ex-agreement EPS estimates may be lowered by one year;
Meeting with analyst on 10/18 may open room for lower numbers; and
ADBE can promise less and over-deliver with diluted EPS and still perform in line.
Analysts at Oppenheimer and Baird also downgraded the company’s stock.
Adobe shares plummeted 16.79% in yesterday’s trading session and were down another 4.81% at 2:35 p.m. ET in this Friday’s New York trading session.
Figma’s mission is to help teams collaborate visually and make designs accessible to everyone. Founded in 2012 by Dylan Field and Evan Wallace, the company pioneered web product design. Today, it enables everyone who designs mobile and interactive web apps to collaborate through multi-person workflows, design systems, and developer ecosystems. Figma has attracted a new generation of millions of designers and developers, as well as a loyal audience of students.
By Lucinélha Feijó