Adobe Stock (NASDAQ:ADBE) was likely to fall more on Monday as another analyst abandoned their optimistic recommendation after the company’s $20 billion deal to acquire creative-collaboration platform Figma.
“While the product/strategic fit is obviously aligned, the price tag is likely to add credibility to the bear thesis, at least for the time being,” said Wells Fargo analyst Michael Turrin as he downgraded Adobe stock (NASDAQ:ADBE) to equal weight from overweight.
Market Evaluation of Adobe Stock
Adobe Stock (NASDAQ:ADBE) was down 1.2% in early Monday trade after falling 3.1% on Friday and 16.8% on Thursday, the day of the merger announcement. Adobe stock has had its worst week since 2002.
Turrin of Wells Fargo joined analysts from Baird, Bank of America, Barclays, and Edward Jones in downgrading the stock last week.
Turrin said that the Figma purchase price would be the highest ever paid for a private software business, with a multiple of 50 times 2022 annual recurring revenue. According to him, these indicators point to a competitive bidding process.
“As a consequence, we expect investor worries about slower growth/increasing competition on the digital media side of the company will only deepen,” Turrin wrote.
He also said that the Figma purchase will not likely finish until 2023, which may put shares under pressure for some time.
Logan Purk of Edward Jones, who lowered Adobe stock (NASDAQ:ADBE) to hold from buy on Friday, focused on the acquisition price and Adobe’s financial assumptions around the merger.
“While we generally appreciate purchases into new regions and industries,” he said, “Adobe paid enormous premiums at a time when other software values have dropped dramatically, and economic fears are growing.” “This seems to be a reflexive measure, paying for expansion at any cost.” When paired with a projected three-year payback time on the investment, these issues considerably enhance transaction risk in our opinion.”
A major issue seems to be that, although Adobe had a near-monopoly on the creative-software industry for years, the business may have seen it slipping amid rising competition, thus the need to pay a high price to purchase Figma.
Featured Image- Megapixl @ Wirestock