Is Adobe Stock Still a Buy Despite Its Recent Rise?

Adobe Stock

Adobe stock (NASDAQ:ABDE) has been in a free slide since late 2021, but it may be nearing the bottom. The stock has already recovered 12% from its low, yet it remains considerably undervalued historically.

Adobe’s products are essential to many people, which is why the business recently posted another record-breaking sales quarter.

Adobe Stock: Why Was the Figma Acquisition Rejected by the Market?

We’ve probably all heard of Nos. 1 and 2, so let’s concentrate on No. 3. Figma is a cloud-based design program artists use for real-time collaboration on projects such as visual design for social media marketing, app interfaces, and more.

It has grown in popularity and competes directly with Adobe XD. Many consider it to be better than Adobe. This comparison is given its own page on the Figma website. This is the first reason for the market’s unfavorable reaction to the transaction. Adobe bought a product that will compete with its current offering.

The second reason is simple: Adobe spent $20 billion to acquire Figma. This is 50 times the expected $400 million in revenues for Figma in 2022.

Nonetheless, although the expense was undeniably considerable, the cost of doing nothing would be far greater. In its emotional trance, the market has completely missed the point.

Is the Market Failing to See the Forest for the Trees?

In its haste to pass judgment, the consensus overlooked three critical considerations:

1. The Microsoft effect.

2. Figma’s development.

3. Internal development expenses

In August, CNBC claimed that Microsoft designers, engineers, marketers, and data scientists were smitten with Figma, saying that “it has become like oxygen and water for us.” Adobe cannot afford to lose Microsoft as a client. Microsoft might have potentially opted to launch its own offer for Figma. It is no stranger to huge acquisitions, such as the recently announced acquisition of Activision Blizzard. The last thing Adobe wants in the creative cloud is competition from a behemoth like Microsoft.

Figma anticipates a 100% rise in yearly recurring income to $400 million in 2022. With Adobe’s resources behind the startup, this huge expansion should continue. Even if growth slowed to 50% compounded annually, annual recurring revenue would reach $2 billion in four years. The $20 billion price tag no longer seems so outrageous. According to Adobe, the whole addressable market is worth $16.5 billion in yearly sales.

Are you still not convinced? Even if the Figma acquisition was a $20 billion waste, the market has already discounted the market value by more than that since the announcement, as illustrated below.

Adobe Stock: Long-Term Investors Still Have Time.

Don’t worry if you didn’t get in at the precise bottom, provided it is the bottom. Long-term investment does not need flawless market timing. That is difficult to perform constantly. Building money requires patience and investment in high-quality enterprises. Short-term returns are determined by chance; long-term returns are determined by fundamentals.

Even with its recent gain, Adobe stock (NASDAQ:ABDE) still trades at a price-to-earnings ratio significantly below its historical norms, as illustrated below.

Featured Image-  Unsplash @ Rubaitul Azad

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About the author: Okoro Chinedu is a freelance writer specializing in health and finance, with a keen interest in cryptocurrency and blockchain technology. He has worked in content creation and digital journalism. Since 2019, he has written on various online platforms, and his work has been recognized by several important media sources and specialists in finance and crypto. In addition to writing, Chinedu enjoys reading, playing football, posing as a medical student, and traveling.