Before You Buy the Adobe Stock Dip, Take a Hard Look at Microsoft
Adobe (NASDAQ: ADBE) is getting clobbered on Wall Street after announcing its intention to acquire Figma for $20 billion. While the deal gives Adobe access to a fast-growing digital creation and collaboration tool (and eliminates an up-and-coming competitor), the fact that it's paying more than 50 times Figma's expected 2022 revenue has some investors scratching their heads. Adobe's stock price is down some 20% since the deal was announced Sept. 15.
Adobe is the team to beat in digital content creation and management tools, and many shareholders maintain it has an impregnable lead in its software department. Because of this, you might be tempted to buy the dip, but I say not so fast. Take a look at Microsoft (NASDAQ: MSFT) first, which has a truly defensible business model in software technology.
I'm a happy Adobe shareholder, but the Figma acquisition has me asking hard questions. Paying such a hefty premium (50 times sales would have been eye-popping in high-flying 2021, but it is even more so in 2022's bear market) seems like an admission of sorts from Adobe. Specifically, what many thought was an untouchable (and highly profitable) business that can play defense against upstart competitors might not actually be the case. Figma was clearly onto something in the digital collaboration space, and its rapid growth obviously had Adobe worried.
Source Fool.com
