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like this deal is really interesting so first let's just give huge kudos to the CEO and the team and the investors what an enormous win for all those folks that's awesome it keeps Silicon Valley kind of going right and that's just awesome to see these kind of big wins I read this incredible profile about the founder and he sounded like such a fascinating person he basically it would the profile basically said that he was spending months and months going from office to office all around the world meeting customers sitting with customers reading trouble tickets that's what he would do you know reading help desk tickets about the product on vacation whenever you see a a CEO that is so customer obsessed typically there's good outcomes and so this is just another validating point on that theme now let's just put figma aside and let's just talk about Adobe for a second what is so incredible is you have a company yes they spent 20 billion dollars or whatever 18 billion now but the way that they did it is really interesting if you go back to zendesk and SurveyMonkey when those guys announce that merger it was above a threshold of stock where you had to go to a shareholder vote and because there was so much turbulence in the market whether the industrial logic of that deal made sense or not didn't matter as much to shareholders when it came time to vote and they voted it down and so these guys have to find a way for figma to drop about a billion and a half dollars of free cash flow into the business for this to kind of make sense in the short term so I think those are all the mechanics that's sort of putting a lot of pressure on the Adobe stock but it just goes to show you the amount of disruption that happens this movement to the cloud or the movement to collaboration oh yeah one thing that they have not done which I think is the real reason they had to buy figma Adobe see this is the problem with these big public companies Adobe and all of their investors got very addicted to the free cash flow generation of that stock and it's been an incredible performer and let's just be honest shantanu is one of the best CEOs of the last few decades in the public markets period end of story okay since 2007 he has just run a masterful Playbook at the tail end of that though you know in 2022 this is a company that has I think six or seven maybe I think maybe eight billion dollars of free cash flow it is a gargantuan money-making business and so they refused in Creative Cloud to go to that free tier that figma has and if you look at all of the stories around figma one of the most powerful things they did was basically allow people to use this for free effectively forever that is probably the biggest reason why they had to buy this thing which was that they needed to tuck it in and they're like how can I do it well I just have to do it by diluting the stock one time every industry by the way I think there's another takeaway that's really interesting here which is that if you look at big tech companies I think you almost have to sort them into two buckets at least in the Enterprise and sax you can tell me if you disagree but there's one type of Enterprise company which makes basically a single linear monolithic product or a handful of those monolithic products right think work day think Adobe Etc but then there's this other type of company which are more platform level businesses that have this you know mixture of things that they do relatively well integrated maybe each product is not so great but together they're pretty decent and you have distribution leverage and you have pricing power think Microsoft and the totality of those products so what's interesting to me is you cannot effectively compete as it turns out against Microsoft at any Point product and slack I think is the best example where you know Microsoft teams was fundamentally cannibalizing this business which is what drove slack into the arms of Salesforce and you know you could say that teams was not as great of a product I would have I would make that claim but what Microsoft had was distribution scale and pricing power where you could discount and effectively give it away for free Adobe isn't in that situation right they can't do that kind of stuff and so when you compete against those kinds of businesses you have a better chance of winning the takeaway I think for the entrepreneur funny it's like she's more focused on you know making sure Amazon doesn't buy Roomba that you know this stuff Facebook doesn't buy one VR app yeah it's not very sophisticated approach right this is the kind of stuff that actually really matters I really think you nailed it on the head sacks it's a it's an impossible strategy to defend against the the other thing that is interesting by the way about all of this is you know if you think that the valuation the takeout premium was basically 2x post to post what that means is that if figma was last valued at 10 is now worth 20 you know does that mean that canva which was last priced at 40 is worth 80.
well potentially two well potentially to Adobe right and if you add those two together now you know what you really have is basically the the entire totality of the Creative Cloud for Adobe is basically embedded now in these two businesses at in in an extreme premium and so it makes it very difficult now I think as well for Adobe to execute a strategy here without it being forced to do some more expensive um dilutive m a I think canva should absolutely go public versus sell because it seems like they'll have a much easier time competing against whomever that they compete with I do think that David you're right that there is a lot here for regulatory review because if you go back and think about Visa plaid you know it's not dissimilar meaning you have a young startup that has this really credible and viable technology potentially being acquired by in that case it was you know one of a duopoly but here you could make a very credible claim that it's in a market where it's roughly a monopoly because there aren't really that that many meaningful Alternatives so I think sax is right that there's that there's some you know oh there's a scale if you look at what happened to the Visa plaid thing it was an enormous blessing in disguise because you know the the thing went away and that was I think like a five billion dollar acquisition and then plaid turned around to raise money and it's like a you know multiple teens billion it's going to be a wonderful independent company to your point Jason that will now you know uh create more competition in a space that desperately needed now in that case that was sort of like Financial payments and rails and Visa Mastercard blah blah blah but that that that could also be you know if there is a lot of attention paid to the deal and it doesn't end up being consummated that could be the positive outcome but it will get made not by the sales teams and not by the product teams but it will get made by the CEO and the CFO in talking to their largest shareholders and the reason is because there is an implied cost of capital that adobe has in fact right now if you look at like all of the models that all of the analysts use is roughly around nine percent and so you know they're going to have to achieve a return on top of that cost of capital what that means is that they're going to be forced to find a way in short order to make this accretive and to start generating incremental cash flow and I think that they will be hard-pressed not to bundle and not to do these creative packaging strategies because otherwise I think that there's a risk that this free cash flow machine that folks have become very addicted to it Adobe starts to shrink and that will have huge ramifications I think to the stock and to the executives into the morale and so I think that they're going to do whatever it takes and by the way you see that you've seen that in other companies who've gone into this phase of their growth Oracle being the best example you know they have consistently found ways to package to bundle to cross-sell to upsell and they have incrementally walked free cash flow generation up there needs to be an industrial logic that is beyond just let me just buy this thing and stick it on the shelf and let it be on its own so I I think that you know that guy is sort of cast I think we're just debating the timeline in which it happened
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