How to make $20bn in a recessionFigma really said “oh there’s a recession? Hold my shit”. The web app software brand is the target of Adobe’s largest ever acquisition, and there are some very mixed opinions about it.
- Adobe announced the $20bn acquisition of design platform Figma on Thursday, adding a twist to a mixed earnings report that saw EPS top estimates but revenue come in slightly shy. It’s one of the biggest ever deals in software ($2bn less than Meta paid for WhatsApp), and considering Figma is in direct competition with Adobe’s XD, it could have been a “keep your enemies closer” situation.
- There are a couple of things worth noting here. Figma raised $200m last year at a valuation of just $10bn, meaning it effectively doubled its value in a year and is worth around 50 times its revenue. What makes that even more interesting is that it’s done all this in a rising rate environment where the US 10-year yield is at an 11-year high – which usually decreases tech valuations.
- Adobe shares plunged 17% on Thursday so there are clearly some doubts. The bears are questioning the price and whether Adobe will need to raise debt to meet it, and reckon acquiring competitors to keep market share is not an effective method to success. The bulls think the deal will give Adobe a new customer base that could help fundamentals. Let’s wait and see.
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An Adobe DumpNot even an earnings beat can help Adobe shares outrun the depressed market, though they think it’s more to do with exchange rates.
- Shares sank 4% in extended trading on Thursday despite reporting a beat on both ends for the second quarter with EPS of $3.35 on revenues that grew 14% to hit $4.39bn. The decline could have something to do with the tech brand slashing revenue guidance on the back of an “uncertain economy”, which imo is putting it lightly.
- Unfavorable foreign exchange rates were a root cause of the guidance downgrade, apparently, a sentiment echoed by other tech companies this earnings szn. The conflict in Ukraine led Adobe to pull operations from Russia and Belarus, also playing a role in the worse-than-expected projections.
- The US Dollar Currency Index hit a 20-year high on Tuesday. The index tracks the greenback against six major currencies, and has been constantly hitting new milestones this year as the Fed battles inflation – though things took a dip into the red on Wednesday on the back of rate hikes.
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Adobe gets dented from earningsAdobe manages an earnings beat but sees its intraday gains erased after competition pressures its outlook.
🔍 Key points:
- The stock lost 2.6% in extended trading on Tuesday after a day in the green despite (modestly) beating on Q1 estimates, reporting EPS of $3.37 on revenues that were up 9% at $4.24bn – it’s the first quarter since 2015 with single digit growth.
- An OG in the software industry, Adobe has been facing concern from investors recently that product development isn’t going at the same rate as rivals like Canva, who is making in-roads on new customers. Adobe says it’s in the midst of revising its creative suite prices to attract more users.
- Outlook was what really got investors down. Adobe sees revenue of $4.34bn for the current quarter while analysts had called for $4.4bn. It will also lose $75m from halting its products in Russia and Belarus, and the guidance earned a slew of cautious analyst coverage.
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Adobe earnings surpass expectationsAdobe outperforms the market with sterling Q4 results.
- Quarterly earnings came out at $3.20 per share, beating estimates of $3.18 per share and making it the fourth quarter in a row the firm has exceeded outlook.
- Adobe posted revenues of $4.11bn, compared to $3.42bn last year.
- The share price has gained around 26% since the start of the year.
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Head in the cloudsA cloud stock massacre by JP Morgan sends prices sinking back down towards Earth.
- JPMorgan analysts downgraded Adobe, Datadog (DDOG), Cloudflare (NET), Zscaler (ZS) (among other software stocks) in its 2022 outlook report, triggering a sharp sell-off.
- Record high inflation has tech investors jittery because it’ll eat into future cash flow projections, which are important for high growth stocks. Adobe (and it's not the only one) is trading at 20 times its revenue, but is it worth it?
- Adobe dropped 6.6% on Tuesday, Cloudflare dipped 9%, Datadog dropped 6.54%, and Zscaler lost 7.84% despite a Nasdaq 100 index listing.
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Adobe on a rollDespite strong Q1 numbers, Adobe drops 1.89% as investors contemplate what the company will look like post-pandemic boom.
Adobe reported revenues of $3.91 billion this week, up 26% from a year ago and ahead of its own forecast of $3.76 billion. Sales were up 26%, while diluted earnings per share stood at $2.61 on a GAAP basis, representing a strong 33% year-over-year growth (38% non-GAAP).
The company saw profit margins steadily rise as the pandemic-induced need to work-from-home heightened demand for its subscriptions and digital segments. Its Digital Media segment (which accounts for more than 72% of total revenues) rose 32% and Digital Experience increased 24% to $934 million. For Q2, Adobe is projecting total revenues of $3.72 billion, and $15.45 billion for the full fiscal year 2021.
As with a lot of broader tech stocks, the firm has been struggling for direction over the past few months, falling 16% over the last six months and 10% over the past month alone, and investors were keen to see a stronger indication of its ability to regain momentum. With these numbers, and annual targets now raised to match, it looks like Adobe could be back on track.