Adobe is paying for a number of years. The year is 2022, it is.
Wall Street doesn't like it. The Silicon Valley is happy.
In a year that has seen zero high-profile tech IPOs and more headlines about mass layoffs than big funding rounds, Adobe's acquisition of Figma is a narrative violation. A person who asked not to be named because the details are confidential said there was only one bidder who drove up the price.
Figma has been a thorn in Adobe's side over the last few years. It is cheaper, easier to use, collaborative and modern, and has been spreading like wildfire among designers at companies of all sizes. For a second year in a row, annualized recurring revenue is on track to surpass $400 million.
The founding managing partner of Plexo Capital, which invests in start-ups and venture funds, said that this was a threat to Adobe. This was both a defensive and an eye towards the trend where design rules and design matter.
That is the reason why Adobe is paying 50 times revenue. The forward multiple for the top cloud companies has fallen from 25 in February to just over 9.
The three cloud stocks with the highest revenue multiples have seen their share prices go up.
Adobe shares plummeted after the announcement and were headed for their worst day in five years. The company said in a presentation that the deal won't add to earnings until the end of the third year.
The peak of software mania saw Figma raise private capital at a $10 billion valuation. The work-from- home movement helped the company as more designers needed to work from home.
Even with more offices reopening, the hybrid trend has not changed Figma's course.
The plunge in cloud stocks has led late-stage companies to clear the IPO market to avoid taking a haircut on their high valuations. Prior to this deal, the U.S. venture-backed software M&A was tracking to its worst year in two years.
Figma's ability to exit at double its price from a year ago is a coup for early investors.
Three of the venture firms that led Figma's earliest rounds own percentage stakes in the company. They will return over a billion dollars. The investors doubled their investment. Morgan Stanley's Counterpoint is included.
During the record IPO years of 2020 and 2021, those kinds of numbers were usually recorded, but this year they are not.
Danny Rimer, a partner at Index Venture and a board member of Figma, said that the company was in a good position to get ready for an IPO, but was not in a rush to do so.
Rimer said that they had raised a lot of money and didn't need to raise any more money. It was IPO-able. What is the best way to achieve the goal of company, which is to democratize tools for design and creation across the globe?Dylan Field, co-founder and chief executive officer of Figma Inc., in San Francisco, California, U.S., on Thursday, June 24, 2021.
When Rimer first met Dylan Field, the founder and CEO of Figma, he had dropped out of college to start the company. Field was only 19 at the time of their meeting.
Rimer couldn't buy him a drink after taking him to dinner.
Figma is the biggest acquisition in 40 years for Adobe. Marketo was bought by Adobe for $4.75 billion. Macromedia was the largest company at the time with a value of $3.4 billion.
The stock ticker on the screen flashed bright red as the CEO of Adobe explained his company's rationale.
Adobe's CEO Narayen said thatigma is one of the rare companies that has achieved incredible escape speed. They have a product that appeals to millions of people, they have escape velocity as it relates to their financial performance and a profitable company, which is very rare in software-as-a-service companies.
Adobe needs to grow its user base to maintain its dominance in design. The investors can only be asked to play the long game.
Narayen said that Figma would be a great value for their shareholders.
Jordan Novet worked for CNBC.
CNBC had an interview with Adobe CEO.