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Adobe announces deal to buy Figma for $20 billion

Yahoo Finance Live anchors discuss stock performance for Adobe after the computer software company announced it will acquire design software firm Figma for $20 billion.

Video Transcript

[AUDIO LOGO]

BRIAN SOZZI: Welcome back. We're coming up against the opening bell on this busy morning for economic data. Of course, we had retail sales report. But first, some hot tickers in the Yahoo Finance platform.

Shares of Adobe moving lower after they announced the company will acquire design software firm Figma in a deal worth about $20 billion in cash and stock. Adobe also reported third quarter earnings beating on the bottom line and meeting revenue expectations.

And you're probably seeing the stock selloff here, guys, on that deal. Usually when you see a large number like this and most of the deal is just being financed via stock, you will tend to see the stock price of the acquiring company trade down. Because by and large, it was a pretty good quarter earnings-wise for Adobe.

They also came out here with better-than-expected guidance for the current quarter. We have not seen that at all from big name tech companies, like Adobe. But again, it looks like Adobe taking out a-- I would say, an up and coming rival to its business in Figma for a large price tag.

BRAD SMITH: Yeah, Figma touts for itself. Gross margins of approximately 90% as laid out particularly in this release that it put out between the companies-- has been put out between the companies. They've got positive operating cash flows, efficient high-growth business here. And you want to talk about TAM? Well, yeah, they've got about a $16 and 1/2 billion market that they're addressing-- looking to address by 2025.

And for the deal, it's gonna be kind of half cash, half stock, to your point there, a moment ago. Six million additional restricted stock units are gonna be granted to the Figma CEO. So quite to come up here from them.

JULIE HYMAN: Well, and in terms of what they're paying for this company-- I'm seeing some early analyst reaction here. Bloomberg Intelligence says, the deal appears extremely expensive, given the annual recurring revenue of the target company is only $200 million. Although, quote, "It may improve the overall functionality of Adobe's Creative Cloud business."

Over at Vital Knowledge, they're saying, "Adobe's spending a lot of money to expand its annual run rate by 3%." But to be fair, Figma's ARR is growing quickly. So some sort of-- yes, it's expensive but it sounds like there could be some rewards from making this acquisition, is what the analysts early blush here seem to be saying.

BRAD SMITH: Yeah.

BRIAN SOZZI: Yeah, for the current quarter, I'll just note back on guidance. It looks like Adobe is looking for $3.50 a share. And right now, I'm on the findings page, the Analyst section, where we compile a lot of our earnings estimates, the Street was only looking at $3.45 so a nice $0.05 beat there versus estimates for the current quarter. Again, something we're not hearing from about anywhere else in tech.

BRAD SMITH: I mean, within so many of the Suite offerings that we've seen kind of acquisitions be prominent for over the past year and two years really. Looking for these deal-making opportunities when some of the private companies as well are also just looking for that additional cash and funding to come their way to sustain their own operations.

I mean, this is a great deal for Figma. But then at the same time, you wonder, at what growth rate Adobe actually looks for this to be accretive to their business? Given that there is that scrutiny about whether or not it was truly more expensive than they should have paid at the end of the day, too.

JULIE HYMAN: Right, definitely.