Adobe perfects the art of Faceplant for investors

Solve this riddle for me, how do you shock investors into a two-day selling frenzy that vaporizes (-20%) on your stock price and (-30%) on your market capitalization right after you made great profits? Response, by announcing a cash and stock acquisition paying 50 times sales ($20 billion) for a company with $400 million in ARR revenue… and doing it a day before expected earnings (taking investors completely in the dark). bereft) in a fear-driven market. in the wake of a bearish tech market. Digital cloud building software company Adobe (NASDAQ:ADBE) has just perfected the art of faceplanting for its investors. The acquisition of Figma for $20 billion overshadowed an otherwise strong performance in Q3 2022. While its recent earnings performance has been impressive, growth momentum is clearly slowing, as evidenced by growth of 12, 6% of revenue in the third quarter of 2022 compared to 21% a year ago. The company also faced some nasty currency headwinds due to the strength of the US dollar, such as Salesforce (NYSE: CRM) and Oracle (NASDAQ: ORCL). However, investors are more concerned about the Figma acquisition, signaling that it could be a defensive play born out of desperation despite revenue reaching all-time highs. Investors were clearly taken by surprise by the news and the ensuing stock market crash. Could this be an amazing buying opportunity or the start of a painful Adobe stock valuation reset?

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Earnings were good until…

On September 15, 2022, Adobe released its fiscal third quarter 2022 results for the three months ended August 2022. The company reported earnings per share (EPS) of $3.40 versus an estimate of $3.34 analysts, an overshoot of $0.06. Revenue rose 12.6% year-over-year (YoY) to $4.43 billion, missing analyst estimates for $4.44 billion. The digital media segment grew 13% or 16% in constant currency year-on-year to $3.23 billion. Creative revenue increased 11% or 14% in constant currency to $2.63 billion and Document Cloud revenue increased 23% or 25% in constant currency year-over-year to $600 million. The company offered a mixed outlook for Q4 2022 with EPS expected at $3.50 vs $3.47 analyst estimates on revenue of $4.52 billion vs $4.6 billion forecast. analysts' estimates. Adobe CEO Shantanu Narayen commented, “Building on our breakthrough technology, our track record of creating and leading categories, and consistent execution, Adobe delivered another record-breaking quarter. With the announcement of our intention to acquire Figma, we believe we have a unique opportunity to usher in a new era of collaborative creativity.

Is dilution a solution? Mama Mia!

The acquisition will consist of a 50/50 split of cash and shares. Cash on hand will be used and a term loan if needed. Adobe will grant nearly six million additional restricted stock units to Figma employees that will vest over four years after closing. The deal is expected to close in 2023. Adobe expects the deal to be non-GAAP EPS dilutive for two years post-closing, break-even in the third year, and accretive by the end of the third year.

Attractive withdrawal levels

The use of rifle charts on the weekly and daily time frames provides a short-term interpretation of the price action of ADBE stock. The Rifle's weekly chart bottomed in June near the $338.65 Fibonacci (fib) level. Shares were able to rebound as high as $451.15 before slipping into profits. There ...