SOFTWARE | Friday, March 15

Adobe Shreds $1 Billion Bailing on Figma

Combined with weaker guidance for 2024—the market is now fleeing the stock


Investors fled Adobe stock in early trading thanks to the company just not putting up decent enough numbers to justify how much they had to bleed after their deal to acquire Figma got blocked. How bad’s the damage? 


The pullback here is pretty brutal because Adobe handily beat expectations for their Q4 results. Adobe generated a $4.48 EPS from $5.18 billion in revenue. Revenue jumped 11% YoY—way more than the Street expected. However, while Adobe crushed profitability expectations—their earnings and cash flow are actually on the decline as the company heavily invests in AI infrastructure. The market would be totally fine with that, but there’s a little more to the story. 


First up, Adobe has been forced to pay a $1 billion termination fee for abandoning their acquisition of design rival Figma. This is one of those rare cases where antitrust pressure actually worked. On top of this—markets are afraid tools like Open AI’s Sora video generator are going to eat into Adobe’s use case. Management mentioned Sora as a positive catalyst that would drive more people to video editing software. 

The deathblow came from Adobe’s 2024 guidance—which came in just a little more conservative than the market wanted to see. Adobe predicts they will—at best—drive near 10% revenue growth this year. While that isn’t a big decline from last year, it's enough to make investors panic and wonder just how much revenue pressure AI competitors will put on Adobe’s revenue operations. 


Adobe crashing thanks to conservative guidance is a pretty well-trodden pattern at this point in Q1. A lot of firms simply are choosing responsible predictions in the face of potential headwinds this year. It’s genuinely hard to predict where the market will go—especially when you’re playing in the AI space. However, Adobe has reserved a strong chunk of cash for stock buybacks and their multivariate approach to AI should help them find growth come the second half of the year. However, the market wants gains right now—so investors pulled enough capital out of Adobe to drop the stock by over 10% in early trading. Brutal.



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