AI Hype Lifts Adobe Above Deal Cloud
Summary
- Stock has surged since generative AI announcement, while scrutiny of Figma deal grows
Artificial-intelligence hype has certainly helped Photoshop maker Adobe brighten its image, even as prospects for what would be its largest-ever acquisition remain blurred.
In less than three months, Adobe has gone from AI loser to AI winner, at least in the minds of investors. The company used its annual user conference in March to make several announcements related to generative AI, including the introduction of a tool called Firefly that can be used to generate or edit images and video content. That was followed by an announcement last month that Adobe had struck a deal with Alphabet’s Google to incorporate Firefly into the search giant’s new ChatGPT-like offering called Bard.
Firefly lighted up Adobe’s fiscal second quarter results last week as well, as it and other generative AI topics dominated the earnings call. Adobe confirmed that it expects AI tools such as Firefly to expand both its base of users and average revenue per user over time. The company plans to announce pricing for the service later this year. Mark Moerdler of Bernstein called the quarter’s results solid and noted that “differentiated, ready for prime time, and shortly to be monetized AI is the next leg of the story" for Adobe.
Wall Street has gotten the message. Adobe, the largest company by market value on the BVP Nasdaq Emerging Cloud Index, has seen its stock price jump 34% over the past three months, which is more than double the index’s gain in that time. Perhaps even more notably, the stock is now back above the levels it enjoyed before Adobe announced plans in September to spend $20 billion to acquire Figma, a maker of cloud-based software tools for user-interface design.
That deal sparked a large selloff owing to worries that Adobe was making such a record outlay from a position of weakness. The company’s overall business was feeling the effect of an industrywide slowdown in corporate software spending, and Figma was reportedly picking up share in a slice of the market that Adobe serves. The image of a well-established software giant picking off a competitor also raised the eyebrows of regulators. Adobe’s stock shed more than a quarter of its value in the two weeks following the deal’s announcement.
Regulatory approval is still an overhang; Adobe’s shares slipped nearly 2% on Tuesday after the Financial Times reported that European Union authorities are preparing to launch a more in-depth probe of the deal. U.S. regulators are also reportedly taking a hard look; Bloomberg reported in February that the Justice Department was preparing a lawsuit to block the deal. That still hasn’t happened, but Adobe has now gone more than nine months without being able to close the transaction. Its six previous deals valued over $1 billion averaged barely two months to close, according to data from FactSet.
Adobe would say last week only that it remains confident it can close the Figma acquisition by the end of this year. Analysts are mixed, with most positive on the virtues of the deal but uncertain of its fate, given the challenging regulatory environment. “Investors are generally skeptical that the deal will close due to extended antitrust reviews," wrote Brent Thill of Jefferies. Moerdler of Bernstein added that “we believe the Adobe story, with or without Figma, is solid." AI seems to have made Adobe’s biggest deal ever no longer a case of need.
Write to Dan Gallagher at dan.gallagher@wsj.com
