Adobe (NASDAQ:ADBE) just took out its biggest threat — acquiring design platform Figma for $20B in a massive deal and future defining move. Figma was one of the hottest software startups in recent years — last valued at $10B in 2021.

Figma to Adobe is Chrome to Internet Explorer

Ever tried to photoshop something? You probably gave up after an hour. Adobe’s design products are known to be complicated and not user-friendly.

Conversely, Figma is incredibly simple to use, web-based and collaborative (a team could hop on and work together) — used by designers, developers, marketers and many others.

These features made Figma a staple among large companies — with Microsoft’s Vice President of Design saying it’s “like air and water for us” (CNBC). But the acquisition has many parties worried:

• Figma users are scared Adobe will ruin the product, turn it from freemium to paid-only, or worse — add it to Creative Cloud.
• Investors are worried about Adobe overpaying and the uncertainty around such a large acquisition.

Adobe is paying a steep price for Figma…

… at a 50x annual recurring sales multiple — the highest ever for any software business at scale, per venture capitalist Tomasz Tunguz’s LinkedIn post. The comments are 🔥 and tell you a bit about how big a threat Figma was:

• “Figma was an existential threat to Adobe, and well worth the exceptional premium to prevent a swift downward slide into irrelevance” — Richard Sharp.
• “Adobe’s acquisition of Figma is purely based on fear… We shouldn’t put too much logic and compare against public or private acquisition multiples” — Saravana Kumar.

To pay for the deal, Adobe is reducing the pace of its share buybacks and may have to raise debt depending on when the deal closes.

The purchase is paid half in cash and half in stock — where dilution “is going to create a headwind on the stock in the near term,” per Evercore ISI analyst Kirk Materne (Barron’s).

Investors: The deal is in low resolution

Adobe also reported its third-quarter earnings report — beating both sales and earnings estimates, but provided a lower forecast for the fourth quarter.

ADBE

is down 45% this year after falling 17% yesterday from the deal. Investors are worried as large acquisitions can go either way — Instagram for Meta or Nokia for Microsoft. It’s a risky but arguably important move.

How’s the internet reacting? See our FinTwit section further down in the newsletter…