Figma vs. Adobe: A Comprehensive Investment Analysis

Figma vs. Adobe: The Investor's Dilemma

Figma and Adobe could have been one large company if not for a failed acquisition attempt a couple of years ago. Adobe recognized the significant potential that Figma possessed and wanted to buy the company for $20 billion. But due to competition-related concerns, regulators pushed back on the deal, which ultimately fell through. The two companies remain separate, and investors now face a choice. On one hand, there's Figma, the smaller, newer company with a market capitalization of around $26 billion. On the other, there's Adobe, the large, established tech giant worth nearly $150 billion but struggling to generate strong, consistent growth in recent years. So, which one is the better investment today? Let's delve deeper.

The Case for Figma

Figma's design software prioritizes ease of use and collaboration, making it an appealing option for teams. The software is also significantly cheaper than Adobe's (its lowest plans cost less than $20 per month for a full suite of products, while Adobe's Creative Cloud Pro can easily exceed $60/month), making it a more suitable choice for cost-conscious customers. The company has also been demonstrating impressive growth. Sales for the period ended June 30 totaled $249.6 million, a 41% year-over-year increase. Furthermore, the business, still in its early growth stages, is already profitable, reporting an operating profit of just under $2.1 million for the quarter. It also boasts strong cash flow, with adjusted free cash flow totaling $60.6 million in the most recent quarter. Figma's net dollar retention rate is 129% for customers with annual recurring revenue of $10,000 or more, a positive indicator suggesting continued strong growth in the foreseeable future. This metric highlights customer loyalty and the potential for expanding existing accounts.

The Case for Adobe

Adobe's software commands a higher price point than Figma's, justified by its position as top-tier, globally recognized software. Photoshop has become synonymous with photo editing and remains the go-to option for professionals. While Adobe's growth has slowed over the years, it's important to remember the sheer size of the company. Generating high growth rates becomes increasingly difficult when amassing billions in revenue. In its most recent quarter, which ended on August 29, Adobe's revenue reached just under $6 billion, an 11% year-over-year increase. Operating income totaled $2.2 billion, representing an impressive 36% of revenue. These robust margins provide Adobe with considerable flexibility to potentially reduce prices to stimulate growth in the future. Adobe has also integrated artificial intelligence into its tools and software, a move that appears to be yielding early benefits. With the tech stock trading at a relatively low forward price-to-earnings multiple of 15 and a price-to-earnings-growth multiple of just 1, it could represent a potential value opportunity.

Why Adobe Might Be the Better Choice

Adobe is a well-established and trusted name in the tech industry, and its premium pricing strategy has enabled it to maintain strong profit margins. While Figma is a compelling option for collaborative design teams, Adobe remains the industry standard for serious photo editors and creative professionals. Moreover, Adobe's high profit margins provide the company with the flexibility to potentially lower prices to protect market share while still generating healthy profits. What tips the scales in Adobe's favor is its currently discounted valuation. The stock has lost 35% of its value in the past year. While slowing growth and concerns regarding AI pose some risks, the significant price reduction offers investors an attractive margin of safety, making it the more compelling investment option today. It is important to note this analysis does not take into account individual investment circumstances.