Adobe Duped Investors About Figma’s ‘Existential Threat,’ Alleges Class Action

Adobe and its senior executives, including CEO Shantanu Narayen, duped shareholders who owned Adobe stock between July 2021 and September 2022 by repeatedly downplaying “the competitive pressure Adobe was experiencing” from Figma, the supplier of “a simple web-based tool for designing user interfaces,” alleged a securities fraud class action Friday (docket 1:23-cv-09260) in U.S. District Court for Southern New York in Manhattan.

Figma’s success was “exploding,” reaching a $10 billion valuation just before the July 2021 start of the class period, said the class action. Despite that, Adobe cast Figma “as merely a ‘point’ player in the wider digital design market,” it said. Senior Adobe executives maintained that Figma’s customers would eventually switch to Adobe’s “more advanced products,” it said.

In so doing, Abode executives “wrongly led investors to believe that Figma’s only potential threat was as a minor disruption of Adobe’s funnel for new paying customers,” said the class action. They described Adobe’s Express video and photo editing app “as a simple product that was successfully filling that role,” it said. All the while, Adobe “concealed” that its own user-interface design app, XD, “was the true competitor to Figma but was failing to gain traction with customers,” it said.

In light of those concealments and misstatements, “investors were stunned” when on Sept. 15, 2022, Adobe announced that it would acquire Figma for $20 billion -- “double Figma’s valuation from just one year prior and at a multiple of 50 times Figma’s revenues,” said the class action. With that announcement, “investors learned for the first time that they had been misled,” it said. They learned that Adobe management, in fact, “saw Figma as not only a major competitor," but also as "an existential threat,” and that Adobe’s own in-house products weren’t effectively “serving their intended purpose,” it said.

News of Adobe’s Figma buy sent Adobe shares tumbling nearly 17%, “and wiped out billions of dollars of investor value in a single trading day,” said the class action. “Analysts quickly panned the deal as defensive and expensive,” it said. The U.K.’s Competition and Markets Authority (CMA) confirmed in an Aug. 7 report that Adobe viewed Figma as a “competitive threat” throughout the class period and that Adobe’s own XD user-interface design product was a “failure,” it said.

The CMA report also found that Adobe shifted resources out of XD “in favor of a new tool,” said the class action. Internal Adobe documents showed that the new tool “encompassed a range of functionalities designed to compete directly with Figma,” and that Adobe had “a large team of engineers” working on the tool’s development until the project was canceled shortly before the Figma deal's announcement, it said.

The CMA report shows that Adobe’s efforts in product development “were motivated, at least in part, by a desire to compete with Figma,” said the class action. As a result, the CMA determined Adobe and Figma to be “close competitors” in “all-in-one screen design,” and that this competition “would be lost as a result of the merger,” it said. Adobe/Figma remains under investigation before the CMA.

The plaintiffs are Pembroke Pines, Florida, firefighters and police officers, and the Hollywood, Florida, police officers, whose pension funds bought Adobe stock during the class period, said the class action. They allege that they and their class members bought their shares “at artificially inflated prices” that were created and maintained by Adobe’s “materially false or misleading statements and omissions.”

When the truth about Adobe “was belatedly revealed to the market,” said the class action, the plaintiffs and class members “suffered monetary damages.” Their class action “seeks to recover those damages,” it said. Adobe didn’t comment Monday.