Adobe: Stock of the Week

Andrew Willis: I’ll admit that only very recently did I partake in what’s called a “FigJam” with my colleagues. The online sticky note session seemed like an intuitive pairing with Zoom (ZM). So why didn’t this happen sooner?

Perhaps it was the pandemic that accelerated the use of such online forums. Or the increased use of multiple or larger computer monitors in workplaces that provide the needed real estate for online collaboration and design spaces. Communications software like Teams or Zoom may not have leapt at the trend, but Adobe (ADBE) decided to pay up to take visual content into the cloud like never before. And they paid big…

Overall, we think the acquisition is strategically excellent, but like many investors lately, we question the high valuation and timing of the purchase. Senior equity analyst Dan Romanoff says the current investment environment is already weighing on Adobe and the Figma acquisition is muddying the financial picture further.

On one hand, with this deal and a slightly lowered forecast for Adobe, we’ve reduced our fair value estimate for the stock. On the other hand, it remains undervalued in five-star territory. Not to mention the company has a wide moat, with its domination of the content creation software business.

The Figma deal may have some of us scratching our heads right now, but the company’s delivered on growth in user base before, with retention rates now above pre-pandemic levels. There’s a lot to consider. I wonder, what software could we use to brainstorm this further?

For Morningstar, I’m Andrew Willis.

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