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TMT Weekly: Figma, VRSN, CMCSA, and the Greatest Remaining Threat to ADBE

Austin Moorhead | September 21, 2022

ADBE to Acquire Figma for $20 Billion

Last Thursday, ADBE announced that it would acquire Figma for $20 billion, or 50x ARR. The following day, an analyst conducted an interview with a former ADBE VP that covered Figma, Canva, and much more. I’ll excerpt a few highlights below, but you’ll need to share your email address with us to read the full transcript.

The expert thinks this deal was defensive due to the price tag, and that the most threatening potential acquirers would have been Salesforce or Canva.

“All acquisitions are some percent offensive and some percent defensive. I view this one as 75%-80% defensive. My guess is that someone started an M&A process with Figma, and Adobe did not want that acquisition to happen, and got involved directly in order to not have that fall into competitive hands.

There are offensive reasons they might want to do this. It certainly makes their products in design and in collaboration far better than what they have today. I don’t see that as something that they would have paid $20 billion to go out and acquire if they didn’t see the risk of it falling into somebody else’s hands. There are very few players in the market that can afford a $20 billion acquisition other than Adobe.

Perhaps, this was someone like Salesforce who was looking to get into the creative space, they could inflict some damage… there’s also a possibility that their other main threat, which is Canva at the low end of the market, at the nonprofessional market, may have somehow been looking to combine with Figma.”

VP, ADBE (Prior)

In terms of product, Adobe XD never even caught up with Sketch or InVision before Figma started taking share.

When Adobe XD was brought out in 2019, the competition was not Figma. InVision and Sketch were the two big players at that point. Adobe never achieved product excellence… trailing behind InVision despite the amount of research dollars that Adobe was throwing at it. It didn’t really catch up until the point that Figma began to take away that market share.

VP, ADBE (Prior)

Going forward, the expert expects ADBE to retire Adobe XD, and likely roll Figma Jam out across all products.

“I think that you will see the relatively quick sunsetting of XD when they can, and they’ll need to bring in Figma in as a replacement. The other piece which I see as one of the big synergistic offensive reasons they would do this is the Figma Jam product, the collaboration piece, is an important cog for Adobe, that they may apply, not just with screen design, but they may take that and apply that across other disciplines.”

VP, ADBE (Prior)

That’s all well and good, but when these big deals happen I like to look back to see if we could have seen it coming. When I search Stream using ticker ADBE and keyword Figma, I find six expert call transcripts prior to the acquisition that paint a pretty clear picture of how we got here.  All of them mention Figma taking market share from ADBE, and two big trends jump out.

First, Figma took share because design has evolved, and ADBE hasn’t kept up : 

“The API integrations that Figma has put together are fitting the theme where design is not a thing that somebody does and then hands it over as a picture. It’s more like a blueprint that then gets used computationally or gets built in parts computationally using APIs and plugins, etc. If you want to do something fast or repetitively or interact with specific third-party systems with your designs, then that starts building up momentum.

Figma is a really strong tool for larger collaborations or cases where you may want to involve more than one person. For example, being able to make edits to these designs and share them across a variety of different platforms.. The web browser focus there is absolutely aimed at that so that you have at least a way of making trivial changes to these documents and share them between executives or development teams and design teams.”

Sketch – Engineering Manager (Prior)

Second, the evolution of design means that the addressable market is larger, but ADBE wasn’t addressing it:

Figma is really focusing on two things: UI and UX design, and the real-time collaboration aspect of graphic design.

Instead of going to the market of the high-end professionals, which is a very tip of the pyramid, I’d say it’s the 10%, 20% of the total addressable market that could do some graphics is the traditional Adobe target audience.

You have the bottom 80% who have no clue about graphics, and would be lost in an Adobe product. They can just go in that tool and very quickly create something that looks good enough and then can move on. It’s quite an attractive space, but it’s about volume at low price, much more than it is a low volume at high price.”

Corel Corporation – Executive Vice President (Prior)

The other transcripts make similar points, which is basically that ADBE missed something here. Are they missing anything else? According to the same former VP quoted above, there’s an even greater threat to ADBE: Canva.

I continue to think that Canva is a bigger threat than Figma. The traction they have with the non-professional user with the marketing departments now in small to medium-sized businesses and even beginning to show up in enterprises is a bigger threat to Adobe and its growth potential.  I don’t think it’s yet affecting Adobe revenue, but if you look even at enterprises, you’re finding some level of use of Canva for quick-twitch marketing projects…

Canva has a very easy-to-use product. It’s built off of templates, it has the non-professional marketer’s brain as its target, and for Adobe to make this product simple and easy to use when it’s a mesh of a bunch of different Adobe existing products is going to be a challenge.”

VP, ADBE (Prior)

According to another expert, Canva is also a long-term threat to GOOGL and MSFT…

Canva has a suite of products that are very powerful that compete with Microsoft Office. They’re heavily invested in education, they have a free product that the teachers are using and it’s growing rapidly in the education space, K-12. That generation of people are growing up learning how to virtually communicate using Canva tools.

Canva, [Senior Executive] (Prior)

… and has mastered using social media for distribution, a move that ADBE emulated by partnering with META.

Canva, a lot of these do-it-yourself online design/design platforms or visual communication platforms are dependent on distribution through the software channels and awareness through social channels. A few months agot Meta formed a partnership with Adobe. Now you’re starting to see Adobe create service natively inside of Meta Platforms. Adobe needed to catch up. They got bypassed by the Picsarts and the Canvas and they needed a distribution vehicle to catch up, and I think it was a hugely wise move on their part to do that.

I don’t think TikTok and Instagram and Snap and all those companies, Pinterest and Etsy and all these companies are going to sit back and let third-party designs still be prevalent. I think they’re going to try to integrate it into their own platforms in the next 24 months. I think it’s coming very rapidly.

Canva, [Senior Executive] (Prior)

To recap, Canva is a threat to MSFT and GOOGL’s office products, a threat to ADBE’s core business, and also has extensive reach in K-12 education and on social media platforms. That seems like it would be of interest to an acquirer. Who can afford them? News reports put recent private market valuations of Canva as high as $55 billion. It’s a short list!

Top 10 Expert Call Transcripts – Information Technology

  1. ADBE (Adobe Inc) – Customer Thinks ADBE Is Well-Entrenched in the Creative Space and Has the Potential to Increase Penetration in the 3D Space
  2. SNOW (Snowflake Inc) – Competitor Sees Potential for SNOW to Gain Traction Among Data Scientists
  3. ADBE (Adobe Inc) – Former Customer Thinks ADBE Creative Cloud Will Continue to Lose Customers
  4. ASML (ASML Holding NV) – Former Chief Product Owner Thinks ASML Is Growing Its DUV Business to Compete With CAJ and NINOY
  5. ADYEN (Adyen N.V.) – Former Partnerships Lead Believes ADYEN-NA Is a Strong Payments Company and Will Do Well in the Countries It Decides to Launch and Operate In
  6. MSFT (Microsoft Corp) – Partner Believes Acquisitions Will Continue to Play a Role for MSFT and That Candidates Include CRM
  7. MDB (MongoDB Inc) – Customer Believes MDB’s Products Are Solid and Especially Helpful for Blue Chip Companies
  8. VRSN (Verisign Inc) – Former Competitor Sees Little Risk in VRSN Dot-Com Renewals but Sees Risks in Dot-Com Domain Growth
  9. SNOW (Snowflake Inc) – Customer Believes the Future of SNOW and MDB Is Optimistic
  10. DDOG (Datadog Inc) – Former Sales Director Thinks DDOG is Easy to Deploy and Cost-efficient for Customers

We’ve covered ADBE, though that is interesting about 3D. The former ADBE VP quoted above mentioned a competitor offering a better 3D product as the other major risk besides Canva. I’m more interested in this VRSN transcript, as I want  to take control of AustinMoorhead.com, and perhaps breaking up VRSN is the answer…

“One of the avowed mandates of ICANN is to operate or manage a secure, stable, and a resilient domain name system. Now, given ICANN’s bylaws and the fact that there is emphasis on security and stability of a Domain Name System, I can imagine it’ll be impossible for anyone within the empowered community of ICANN to even think about dividing a .com domain business into two or more entities. That would mean replicating multiple such infrastructures across the globe, which Verisign has built and run successfully. There would be so much concern about the stability of the .com domain itself that no one would dare to put a stamp on such a proposal.”

Public Interest Registry – Board Director (Prior)

…nope. Does not appear likely that VRSN will break up anytime soon. The expert mentions that because VRSN has such a dominant market position, controlling 175 million of the total 350 million domains, that the company has restrictions on how it operates. VRSN can’t bundle services, and has very limited ability to raise prices, yet it has almost 70% EBITDA margins. It’s doing fine. Still. What a strange business. How does it make more money?

“Internet penetration across the world is increasing by so and so, let’s say 5% points every quarter. Now, why isn’t .com increasing its number accordingly? The reason would be that a lot of Internet penetration is happening, and when it is happening, it is thanks to social media.”

Public Interest Registry – Board Director (Prior)

I have heard that in the Philippines, Facebook is the internet. I know small businesses here in New York that only have an Instagram account. I guess you could believe that’s going to change, and that domain growth will accelerate again. VRSN offers .web domains now, so maybe those will be popular? I don’t know. I guess this just isn’t the kind of company for me, which will continue to be my stance until they hand over AustinMoorhead.com.

Top 10 Expert Call Transcripts – Communication Services

  1. GOOG (Alphabet Inc) – Customer Believes GOOGL Will Continue to Grow Its Share Albeit at a Lower Pace
  2. GOOG (Alphabet Inc) – Customer Believes GOOGL Is Positioned to Continue to Gain Share but META and Many Smaller Players Could Lose Share to AMZN TikTok and Reddit
  3. CMCSA (Comcast Corp) – Former Managing Director Thinks CMCSA Led the Game With Its Hybrid Model
  4. EA (Electronic Arts Inc) – Former SVP Believes EA Would Be a Strong Partner and Target for a Company With TV Offerings Such as AMZN NFLX and DIS
  5. CMCSA (Comcast Corp) – Former Director Believes Fixed 5G Is Taking Share From Pricing Not Quality of Service or Capacity
  6. PARA (Paramount Global) – Former SVP Believes Media Is a Tough Business With No Loyalty and Content Wins Are Hard to Predict
  7. GOOG (Alphabet Inc) – Former X The Moonshot Factory Lead Thinks Its Aquaponics Technology Is a Game Changer That Can Be Scaled Across Multiple Verticals
  8. TMUS (T-Mobile US Inc) – Former National Account Manager Believes TMUS is Best Positioned to Take Market Share From VZ in the Near Term
  9. GOOG (Alphabet Inc) – Competitor Thinks the Way GOOGL Navigates Data Privacy Will Be Critical Going Forward
  10. TWTR (Twitter Inc) – Partner Believes that TWTR Will Likely Will Remain an Important Part of the Marketing Tool Kit Unless Security Concerns Become a Headwind

That CMCSA transcript is a phenomenal call. I particularly love the line, “that’s how you take a $40 billion public company and turn it into a $16 billion private asset.” I’ll just share one excerpt, but you should read the whole thing.

I would disagree that Comcast is under-penetrated from an SMB perspective. That is not my experience. Charter, they’re a few years behind. You got to remember, Charter went through a bankruptcy and then Comcast tried to buy them. The Securities and Exchange Commission [did not like] that. 

Charter’s playing catch-up. Spectrum is behind the curve because that was a merger of the lowest performing carriers from a financial perspective. They are trying to grow that commercial mid-market enterprise sector, but they are years behind a Comcast and a Cox, for example.”

Comcast Cable – Director (Prior)

Ok fine, one more excerpt, just because I can’t resist this comment about how analysts misunderstand CMCSA’s business,

“Yes, Comcast has cable, and it is the engine that built all the rest of those sectors, but analysts still look at it through the old lens of video subscribers and residential subscribers in general. Their stock gets clobbered when there’s a quarter where their subscriber numbers go down, even if the rest of the financial metrics are strong and healthy. There are plenty of cases where the content cost of video make that the business that you want to churn.

Comcast Cable – Director (Prior)

To learn what I’ve redacted from the first CMCSA transcript quote, sign up for a free trial.

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