Adobe announced on Thursday that it will acquire design software company Figma for approximately $20 billion in cash and stock. Adobe’s stock dropped 17%, the most since 2010.
Figma, founded in 2012, develops cloud-based design software that enables real-time collaboration among teams. It competes directly with Adobe’s XD program.
In its most recent funding round in 2021, the company was valued at $10 billion.
Figma, backed by Index Ventures, Greylock Partners, and Kleiner Perkins, is expected to generate more than $400 million in annual recurring revenue this year, according to sources familiar with the company’s financials. Adobe confirmed that Figma’s ARR will exceed $400 million by the end of 2022.
That means Adobe is paying around 50 times revenue at a time when cloud software sales multiples are falling dramatically from record highs reached last year. Forward multiples for the top cloud companies in the BVP Nasdaq Emerging Cloud Index have fallen to just over 9 times revenue from around 25 in February 2021.
Adobe has stated that it will incorporate features from its other products, such as illustration, photography, and video technology, into the Figma platform. Adobe sells a variety of software services for photographers and videographers, including Photoshop, Illustrator, Premiere Pro, and others.
“Our ability to create new categories and deliver cutting-edge technologies through organic innovation and inorganic acquisitions has been the foundation of Adobe’s greatness,” said Adobe CEO Shantanu Narayen. “The marriage of Adobe and Figma is transformative, and it will accelerate our vision of collaborative creativity.”
Dylan Field, co-founder and CEO of Figma, will continue to lead the company after the transaction is completed. He will report to Adobe’s digital media business president, David Wadhwani.
Adobe also released its fiscal third-quarter results. It reported adjusted earnings of $3.40 per share, exceeding Refinitiv estimates of $3.33 per share. Its revenue was $4.43 billion, which was in line with analyst expectations.
For the fiscal fourth quarter, the company provided mixed guidance. According to StreetAccount, Adobe’s revenue for the quarter will be $4.52 billion, compared to consensus estimates of $4.6 billion. It expects adjusted earnings of $3.50 per share, up from $3.47 per share predicted by StreetAccount.