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On September 15, Adobe (ADBE) agreed to purchase the privately held design software company Figma for roughly $20 billion.

The purchase price, which Adobe will pay half in cash and half in stock, is double what Figma was valued at in its most recent private funding round in 2021, and 10 times its 2019 valuation. At the time of signing, the acquisition was the most expensive ever of a private U.S. company, topping Facebook’s $19 billion purchase of WhatsApp in 2014.

The deal valued the company, founded in 2012, at 50 times its annual recurring revenue, which Adobe said would top $400 million in 2022.

Is Adobe a buy after this deal? Let’s take a look…

What Figma Does

Figma allows software developers to collaborate remotely and design everything from slides for presentations to user interfaces on mobile apps. It is part of a wave of new browser-based design tools that have opened up the creative process to millions of non-designers—something that expanded the market and presented a potential threat to Adobe, the traditional leader in design software. Figma’s collaborative-design-workspace is in direct competition with Adobe’s XD.

The main difference is that Figma is free for individual users. Adopting a try-before-you-buy model has allowed product teams to experiment with Figma without the need for a sign-off from an IT purchasing manager. This is how it crept into the operations of many important Adobe customers, including Microsoft (MSFT).

In August, CNBC profiled Figma’s growth inside Microsoft. Here is one item from that profile: “The product has since become so central to how Microsoft’s designers do their jobs that Jon Friedman, corporate vice-president of design and research, said Figma is “like air and water for us.”

With its importance to such a major customer, it’s really no surprise that Adobe bought Figma—it was obviously afraid of losing market share.

Figma’s web-based tools would give Adobe a better shot at the “more modern, cloud based, composable and open future” that is opening up for design software, said Liz Miller, an analyst at Constellation Research, to the Financial Times. The merger will also allow Figma to bring Adobe’s capabilities in imaging, 3D and video on to its platform. And obviously, Adobe will have the opportunity to tap into the millions of customers using Figma, which enjoyed a boom during the pandemic as remote work flourished.

Wall Street’s Thumbs Down

Wall Street hated the deal though, sending Adobe’s stock tumbling more than 20% after the announcement, saying it is paying too much for Figma.

But Adobe has been here before. In 2011, it was running out of room to grow in the market for selling desktop software to professional designers, so it took a gamble, becoming one of the first software companies that cut off sales of packaged software and moved to the cloud in pursuit of growth.

At the time, Wall Street analysts turned their thumbs down on that strategy, too. Analysts saw the move as merely a way to sell a bit more design software to Adobe’s existing 12 million to 13 million customers. They were spectacularly wrong. What actually did happen was that user numbers for Adobe’s Creative Cloud have today risen to more than 30 million.

Adobe’s bet paid off, setting an example of how to navigate the transition to the cloud for the entire software industry.

The move remains a stupendous success was a stupendous success. Abobe’s transition to cloud-based subscriptions, under which users pay a monthly fee, has been a bonanza for the company. Subscriptions now account for about 92% of the company’s revenue.

It’s a Needed Deal

Figma’s web-first approach gives customers new ways to use design software and opens the market up to a lot more users, much as the cloud had before. It also appeals to a new generation of users who have grown up using the web.

Adobe’s gamble is that once again—as often occurs when new generations of technology appear—the new market will end up being much larger than the old one. That translates to offering very low-priced versions of a product or letting some customers use the product for free.

Adobe was already moving in this direction, announcing a “freemium” version of its software last year that was aimed at taking on Canva. This Australian start-up design software company is the most notable exponent of this browser-based revolution in design software and the most direct long-term threat to Adobe’s mainstream design business.

In other words, Adobe’s purchase of Figma was a necessary deal in its battle against Canva, which has just begun.

While ADBE stock has recovered 13% from the September low, it is still down nearly 50% over the past year and more than 40% year-to-date.

But I like the Figma acquisition, so I believe Adobe is a buy anywhere up to $350 a share.
That’s what my old coworker told me years ago. I listened up because he was the most successful broker I ever worked with. And also incredibly lazy. He found a small niche in the market no one talks about and made enough to buy in the most expensive zip code in Maryland. Here’s what he invested in.

Last week, several formerly high-flying, large-cap tech stocks fell back to earth after disappointing third-quarter earnings results. Investors counting on these well-known names will be disappointed.

Instead, it’s time to look at companies that put investors first…

Third-quarter earnings from Alphabet (GOOG), Microsoft (MSFT), and Meta Platforms (META) came out on Wednesday, October 26. Much slower growth than anticipated resulted in one-day declines of 5% to 8%. Year to date, these three large-cap tech stocks are down 33%, 57%, and 58%, respectively. With numbers like these, it’s easy to understand why many 401k accounts are in the tank.

While stock prices of big-name companies are falling, plenty of smaller companies operate profitably in different sectors of the economy. The large companies listed above have businesses that span the globe, which puts them at risk from slowdowns in other countries and adverse currency fluctuations, but smaller companies can be creative and flexible in order to provide better customer service and maintain profitability. When profits grow, dividends do, too—so I look for companies that share those profits in the form of attractive dividends for their shareholders.

Here are three stocks that pay attractive dividends and recently announced great earnings or substantial dividend increases.

Blackstone Mortgage Trust (BXMT) is a finance REIT that originates commercial property mortgages. For the 2022 third quarter, BXMT reported distributable earnings of $0.71 per share, beating the Wall Street consensus by $0.14. The company grew quarterly earnings, while the analysts had forecast a decline. BXMT pays a $0.62 quarterly dividend, so there is potential for an increase. The shares currently yield 10.3%.

Ares Capital (ARCC) surprised the market with a $0.05, or 11.6%, increase in its quarterly dividend—its third dividend increase this year. Ares is a business development company (BDC) that makes loans to small-to-midsize corporations. The company reported that 73% of its loan portfolio is floating rate, allowing ARCC to grow profits in a rising rate environment. The shares currently yield 10.1%.

On October 25, energy midstream company Energy Transfer (ET) increased its dividend by 15%. ET provides oil and gas pipeline, terminal, and processing services. The company owns 120,000 miles of pipeline and transports 35% of the crude oil produced in the U.S. Over the last year, the ET dividend grew by 51%. Over the same period, the stock rewarded investors with a 29.9% total return. ET shares currently yield 7.6%.

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To help hold down fuel and energy prices, the Biden administration has been selling oil out of the Strategic Petroleum Reserve (SPR), to the tune of three million barrels per week since the start of the year.

Now, with the SPR at its lowest level since the 1980s, the administration’s plan to refill the reserve will prop up profits in the energy patch.

That’s creating some nice profit opportunities…

After selling 180 million barrels out of the SPR to keep oil prices down, that tactic has run its course. After peaking at about $125 in early summer, WTI crude now trades for around $85. It’s impossible to say whether the SPR releases helped bring down the price, or whether fear of a global recession and the China COVID lockdowns had the bigger effect.

However, with oil at $85, gasoline remains expensive. Diesel fuel is also costly, with very little supply to fall back on if there is a disruption in the energy supply chain.

The Biden administration recently shifted gears, releasing a press statement with its plan to refill the SPR. Here is an excerpt:

…the President is announcing that the Administration intends to repurchase crude oil for the SPR when prices are at or below about $67-$72 per barrel, adding to global demand when prices are around that range. As part of its commitment to ensure replenishment of the SPR, the DOE is finalizing a rule that will allow it to enter fixed price contracts through a competitive bid process for product delivered at a future date. This repurchase approach will protect taxpayers and help create certainty around future demand for crude oil. That will encourage firms to invest in production right now, helping to improve U.S. energy security and bring down energy prices that have been driven up by Putin’s war in Ukraine.

There is a lot here to parse. First is the assumption that crude oil will drop to the $70 range. But when the administration stops selling out of the SPR, it’s likely to push oil higher, not lower. The plan for a “competitive bid process for product delivered at a future date” seems complicated. The plan appears to encourage production by offering less than current market prices.

Instead, the plan puts a floor on the price of oil. Upstream energy producers are very profitable if they get $70 per barrel. I suspect energy traders will use information from the Biden administration’s announcement to keep the price of oil well above $72. I doubt this move will spur energy companies to ramp up production. They want to see more long-term support, which means more drilling permits and fewer regulatory hassles.

All of this means that oil and gas energy producers will remain very profitable. Energy has been the only profitable stock market sector this year, and it will not give up that lead. To invest in energy, you can go with mega-cap companies like Exxon Mobil Corp. (XOM) and Chevron Corporation (CVX). If you want to go with companies with more leverage to higher energy commodity prices, here are the top 15 holdings of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

PSX, VLO, and MPC are refining companies. The rest are primarily upstream producers and will continue to profit from high energy prices.
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