Adobe’s ambitious $20 billion plan to acquire Figma, a fast-growing design software start-up, has come to an abrupt end due to mounting regulatory obstacles in Europe and the U.K. Despite this setback, Adobe continues to dominate the creative software industry. The question on many investors’ minds now is whether Adobe’s stock remains an attractive prospect for 2024.
Regulatory Roadblocks Force Adobe’s Retreat
Adobe’s announcement in September 2022 to acquire Figma for $20 billion sent shockwaves through the tech industry. This acquisition was intended to bolster Adobe’s position in the face of potential competition from Figma’s collaborative design software, which had been rapidly gaining popularity. However, as regulatory objections piled up, Adobe found itself facing insurmountable challenges in satisfying European and U.K. authorities. Consequently, Adobe has opted to walk away from the deal, leaving Figma to chart its own course.
The termination of the acquisition is not without consequences for Adobe. The company is now obligated to pay a hefty $1 billion acquisition termination fee to Figma. Although Adobe is financially sound with $7.8 billion in cash and short-term investments as of December 2023, this sum is not insignificant and will impact its financials.
Adobe’s 2023 Performance and Outlook
Despite the Figma deal falling through, Adobe had a solid 2023. The company’s rapid deployment of new generative AI tools contributed to its outperformance. In a year marked by economic uncertainty, Adobe managed to achieve a 10% increase in full-year revenue, reaching $19.4 billion. Earnings per share (EPS) also saw a healthy 17% rise, both on a GAAP and adjusted basis.
However, it’s worth noting that Adobe’s growth has slowed relative to previous years, and fiscal 2024 projections reflect this trend. Management anticipates revenue growth of up to $21.5 billion for 2024, translating to year-over-year sales growth of less than 11%. GAAP and adjusted EPS are expected to increase by as much as 17% and 12%, respectively.
Is Adobe Stock a Buy for 2024?
While Adobe remains a formidable player in the software industry, some investors may question its valuation. Shares of Adobe are trading at a premium, with a price-to-earnings ratio of 42 times the high end of expected 2024 EPS, or 33 times the expected high end of 2024 adjusted EPS.
For current Adobe stockholders, there’s no immediate cause for concern, as the company is expected to continue its profitable growth trajectory. Nevertheless, for potential investors considering Adobe for 2024, the high valuation could prompt them to explore other opportunities in the cloud and AI sector. Salesforce, for instance, has shown promising momentum heading into the new year, making it a compelling alternative.
Evaluating Adobe’s Prospects for 2024
Adobe’s decision to abandon the Figma acquisition marks a significant development in the tech industry. While the company remains robust and profitable, potential investors must weigh the high valuation against other opportunities in the market for 2024.
Adobe’s resilience and innovative prowess are undeniable, but the road ahead may see investors seeking more attractive valuations elsewhere in the tech landscape.
