Adobe (NASDAQ:ADBE)
S&P Global Market Intelligence revealed Adobe Stock fell by 26.3% in September.
Adobe Stock price was slashed in half this year due to the recent drop.
What’s the Reason?
Adobe (NASDAQ:ADBE) received high marks for the fiscal third quarter ending September 2, 2022. Sales reached a new high of $4.43 billion, up 13% from the $3.9 billion achieved the previous year. Higher costs in sales, marketing, and research contributed to a 3% increase in operating income, which increased to $1.48 billion. A lower net income of $1.24 billion (6.3% decrease) was realized.
However, Adobe (NASDAQ:ADBE) announced a large purchase with its financial results that captured the market’s attention. The business has agreed to purchase Figma, a platform for collaborative design, for $20 billion in cash and equity. The acquisition was motivated by a desire to better serve existing and potential clients by combining the strengths of both companies. Adobe Stock expects this purchase to increase its top and bottom lines since it has a gross margin of over 90% and a total addressable market of close to $16.5 billion by 2025.
However, investors were not persuaded. Adobe (NASDAQ:ADBE) anticipates an additional $400 million annual recurring income from Figma by the end of fiscal 2022. Thus the software giant likely spent 50 times the revenue of the company. The purchase seemed too pricey to justify as risk aversion increased due to increasing interest rates and inflation at a four-decade high.
What’s Next?
Adobe (NASDAQ:ADBE) expects fourth-quarter sales of $4.5 billion, which is up 10% year over year. Foreign currency headwinds and the deteriorating macroeconomic situation impacted profits, which were forecasted to be 5% lower compared to last year.
Investors will be watching to see whether Adobe can successfully integrate Figma and realize the previously disclosed synergies, expected to increase the company’s top and bottom lines. Adobe Stock still appears pricey at close to 30 times its annualized profits, but it is cheaper than it was a year ago.
Meta Description
Although Adobe Stock announced a positive earnings report, investors were unimpressed with a significant purchase they believed was overpriced.
Featured Image – Unsplash © emilybernal
Author Shariq Khan 
