Figma is down 20% today after their first earnings report where revenue rose 41%. Guidance for 33% Revenue growth next quarter, actually edging out estimates. In September 2022, so 3 years ago now, Adobe and Figma announced an acquisition that failed to materialize. Figma was to be bought out for $20 billion, at a time it expected 2023 ARR Run rate to be $400 million. Figma did not break down ARR in its earnings release, but they are calling for just over $1 billion in revenue in FY 2025, which, their recent earnings release was Q2. This suggests to me had Adobe been willing to pay $20 billion in 2023, they would be willing to pay $27 billion right now.
Adobe wanted to acquire Figma to eliminate a powerful competitor, capture the growing market for web-based collaborative design, and accelerate its own transition to cloud-first platforms. The deal, which was eventually blocked by regulators, was seen as both a defensive and offensive move for Adobe.
Figma was a huge and rapidly growing rival to Adobe’s own product design tool, Adobe XD. In 2021, Figma was used by 77% of UI designers, while XD had never cracked 25%. Adobe had already moved its own tool, Adobe XD, into “maintenance mode” after failing to keep pace with Figma’s innovations.
Adobe has historically been focused on designers, but Figma had built a strong ecosystem that bridged the gap between designers and developers. Acquiring Figma was a way to attract developers to the Adobe ecosystem and become a part of the modern application development workflow.
Despite a massive $20 billion offer, the acquisition was mutually terminated in December 2023 after regulators in the UK and Europe raised significant antitrust concerns.
Adobe eventually paid Figma a $1 billion termination fee. Following the blocked acquisition, Adobe placed its direct competitor to Figma, Adobe XD, into “maintenance mode”. This essentially ended its direct feature-for-feature competition with Figma and signaled a new strategy focusing on enhancing the collaborative nature of its broader product suite, rather than pushing a specific UI/UX tool. Adobe has instead been building plugins to allow for easier migration from Figma into the Creative Cloud ecosystem.
When Adobe announced the acquisition in 2023, they estimated Figma’s TAM to be $16.5 billion by 2025. Figma in their S-1 estimates their current TAM to be $33 billion. Figma’s TAM is not static; it grows as the company expands its products and appeal beyond its core user base of UI/UX designers. Figma’s market expansion strategy focuses on three key areas:
So what we have here is a company that came out with a web-based product that intends to grow market size opportunity by appealing to the “layman” by ease of use and not just niche programmers. An old guard incumbent tried to buy them but was blocked, then eventually conceded the market to them.
FIgma stock recently IPO’ed and just came in too hot. I tried to buy IPO stock through my broker and was awarded 1 precious share. I followed up with another small buy today after their 20% fall today. I see this not as a failed IPO, but a stock correcting to an overinflated IPO initial trade price, where it momentarily traded at $68 billion. Not saying this current price is a “great deal” but it’s palatable for a disruptor.