Figma's $20 Billion IPO Splash: What It Really Means for Adobe Investors

Figma (FIG) made Wall Street history this summer with one of the most explosive IPOs in years...

Originally priced at $33 a share, the stock closed its first day of trading at $115.50 – a jaw-dropping 250% jump – before settling around $88 as of last night. That's still more than double the IPO price.

This makes Figma the largest venture-backed tech IPO since 2021.

Most investors take this success as a blow for Adobe, the decadeslong leader in the graphic-design industry. But I'm here to tell you that's not the case... far from it.

While the headlines focus on a supposed "Figma vs. Adobe" showdown, the reality is more nuanced. Just because Figma is having success doesn't mean folks should dump their Adobe shares.

Quite the opposite, actually.

Let's dig in...

Figma Has a Better Graphic-Design Product

First, let's briefly talk about what Figma does. It lets teams design apps and websites together in real time. Think of it as the "Google Docs of design."

Most folks know Adobe because of Adobe Acrobat and the Portable Document Format ("PDF"). But the company is so much more...

Adobe has a whole suite of tools that cater to professional creatives.

Its main products are Photoshop (editing image files), Illustrator (graphics), Premiere Pro (video editing), After Effects (motion graphics and visual effects), Lightroom (photo organization and editing), and InDesign (page design and layout).

These products are included in Adobe's "Creative Cloud" business segment. And it's the workhorse of the company, accounting for 59% of sales in 2024 (more on that in a minute).

Figma doesn't compete with these products, though there is some overlap. But it is a direct competitor with Adobe XD, a product Adobe launched to take back market share from Figma. Adobe XD is a product for designers to create websites and mobile apps... just like Figma's core product.

According to just about every graphic designer we talk to, Figma is better. XD has collaboration capabilities, but it's not as seamless as Figma's. Figma owns just over one-third of the collaborative design and prototyping market, while XD's share comes in around 15%.

And even Adobe would have admitted to Figma's product being better a few years ago... It tried to buy Figma for a massive price tag of $20 billion in 2022.

Ever since the acquisition got nixed, Adobe has been trying to make Adobe XD more competitive with Figma.

But here's the important point: Adobe XD's competition with Figma is not an existential threat to Adobe's core business.

Adobe has been the industry standard in graphic design for a long time. And its vast portfolio of products will continue to be the industry standard – regardless of what Figma does.

The Real Adobe-Figma Overlap Is Small

Most serious graphic designers have grown up on Adobe.

They teach it in college courses.

And many of the biggest businesses in the world have become so entrenched in the Adobe ecosystem that switching costs would be sky-high. (Some companies that use its "Experience Cloud" can take several months to onboard it.)

In that sense, Adobe's products are like Microsoft's (MSFT) Excel.

If you've ever worked in accounting, done general bookkeeping, or worked as an analyst, you know that people love to hate Excel.

The spreadsheet app from Microsoft is filled with quirks and flaws. A handful of users even defect to rival spreadsheet tools from Apple or Google. But most of them stay put and keep paying for Excel.

For major businesses, the alternatives would have to be many multiples better than Excel to make those companies consider switching... and converting years and years of data into a new format.

Adobe is the same way for designers and creators. It's established in the graphic-design world. Even if you prefer an app from another company, you'll more than likely sit tight with Adobe for convenience's sake if nothing else.

But given Adobe's $4 billion in annual research-and-development spending, we expect its products to improve quickly.

Adobe XD doesn't have to be as good as Figma for the company to have success. Many designers I talk to use Figma, but that doesn't mean they cancel their subscriptions to Adobe's other tools. They use both.

Also, Adobe is more than just its Creative Cloud business – creative tools like Photoshop and Illustrator. Here's a breakdown of sales...

Experience Cloud is housed within Adobe's Digital Experience segment. It's aimed at the marketing side of creative industries and is mainly for large businesses. It offers analytics, data analysis, and customer profiles that allow for more effective marketing.

Document Cloud revolves around PDF workflows and digital signatures. Acrobat is the core application in this division. (Adobe's Acrobat Sign product competes with DocuSign (DOCU) in the electronic-signature space.)

All three of these products are thriving... Creative Cloud grew 9% in its most recent quarter from a year ago. Experience Cloud grew 21% and Document Cloud grew 13%.

Adobe is a business that has grown revenues by a compound annual growth rate ("CAGR") of 13.4% over the past five years.

More clients will sign up with Adobe because that's what everyone else uses. And also, because the company has been heavily investing in AI...

From Photoshop to Firefly: Adobe's Leap Into AI Leadership

Adobe's generative AI platform, Firefly, lets users create images, audio, and videos through simple language prompts. So far, the results have been promising...

Earlier this year, management gave a projection that its AI-first products would rake in $250 million of annual recurring revenue ("ARR") at the end of November. Soon after, management reported that the company is "tracking ahead" of that goal.

First-time subscribers to Firefly were up 30% compared with the first quarter. Paid subscriptions nearly doubled. And AI-influenced ARR was already contributing billions of dollars.

Adobe's AI will only get better over time. And as it does, more and more of Adobe's 22,000 enterprise customers will add AI tools to their subscriptions.

In the end, Figma's success will have a minimal impact on Adobe's business. Adobe's whole suite of products is vital in the graphic-design world... So even if some professionals prefer Figma to Adobe XD, they are still likely going to own another product from Adobe.

Adobe's Stock Is Flying Under the Radar

To get a better idea of Adobe's prospects, I'm turning to our proprietary Stansberry Score...

The score is based on four main factors: capital efficiency (the hallmark of Stansberry Research), financials, valuation, and momentum – with momentum being the smallest factor.

Each stock gets a score, ranging from 0 to 100. Anything above 80 is considered a fantastic opportunity.

Today, Adobe gets a Stansberry Score of 85, with A grades for financials and capital efficiency. Take a look...

It gets dinged only slightly for valuation. But at approximately 22 times earnings, the stock is the cheapest it has been in 12 years.

While the market is focused on Figma's IPO, Adobe has flown under the radar. But according to our Stansberry Score, it's one of the best businesses in the market.

Figma might have stolen some of Adobe's thunder. But the company itself has a long history with enterprise customers, it's growing its business segments, expanding into new AI-powered offerings... and it's about as cheap as it has been in more than a decade.

There's still plenty to like about the king of creative-design tools.

Regards,

Jeff Havenstein