Case Study: Adobe’s $20bn Acquisition of Figma.

Welcome Figma

Adobe made news last night of acquiring a smaller company for $20 billion. The market reacted by dropping over $30 billion in market cap.


This is the deal that long-term Adobe management are desperate to land. Although Adobe continued to have excellent monetization over its existing product suite in the past decade, it is clearly ageing faster than Microsoft’s Office 365 suite.

Adobe doesn’t just see another design tool in the portfolio. To me, it sees new collaboration technology—technology that designers are obsessed with. It’s about a vision of design development as more “vertically integrated”—meaning you complete more steps of the design process, from brainstorming and screen design potentially all the way to product development and coding, in one place.

That’s the vision the company is betting a record amount of $20 billion on. It’s a bet that some at Adobe see as similar to the company’s purchase of Macromedia for $3.4 billion in 2005. That deal led to Adobe Flash, which powered a generation of interactivity on the web. 

Macromedia Vibes

Here’s the thing though. Macromedia was bringing in $370 million in annual revenue when Adobe acquired it. Figma’s ARR is over $400m up, Gross Margin 90%, and is cash flow positive. Figma is valued at 50x ARR which is a big premium considering both the private and public valuation for hypergrowth names have moderated by a huge margin.

Similar revenues, vastly different prices. 

That is the thing that spooked investors.. Is paying $20bn, or 100x 2022 revenue for Figma worth it? And 200x ‘21 revenue? It does not make any financial sense. Another question is on the timing, where almost everyone is expecting a economic slowdown.

The market reacted by sending shares down 17% on the day.


On the other hand, bulls will argue that Figma is a far stronger business and it widens Adobe’s moat. The other good news is that Figma will be an independent unit managed by the founder, instead of being integrated into the larger organization.

I’m not a designer, I do not understand much about Figma and its applications. However, there is a pretty good Twitter thread that is positive on this acquisition.

Multiplayer collaboration is the future of all applications, and Figma is a pretty good multiplayer collaborative app. Anyone trying to rationalize the Figma-Adobe deal needs to remember the Square-Afterpay and Teladoc-Livongo deals.

Price (almost) always matters. Only time will tell if this will go down as one of the smartest software acquisitions of all time.



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