Adobe stock fell Friday on news that the U.S. Department of Justice plans to block the software giant's $20 billion acquisition of Figma. ADBE stock dropped more than 7%.
Bloomberg reported late Thursday that the Justice Department is preparing to file an antitrust lawsuit against the deal as soon as next month. The deal also is facing antitrust reviews in the European Union and U.K.
The Justice Department is concerned that Adobe's acquisition of Figma would reduce options for design software used by creative professionals. Adobe makes such software applications as Photoshop, Illustrator, Premiere and Acrobat.
Adobe announced its intent to buy Figma, a web-first collaborative design platform, in September. At the time, analysts said the $20 billion purchase price was excessive.
ADBE Stock Falls After Report
On the stock market today, ADBE stock sank 7.6% to 320.54.
Investors are concerned that an antitrust lawsuit could lead to distraction and execution issues for Adobe's core business, William Blair analyst Jake Roberge said in a note to clients.
"While we acknowledge that a prolonged legal dispute regarding the Figma acquisition adds a layer of complexity to the Adobe story, we continue to be long-term believers in the stock," Roberge said. He rates ADBE stock as outperform.
If the Figma deal is blocked, it would be a "material negative" for Adobe's growth, SVB MoffettNathanson analyst Sterling Auty said in a note to clients. The acquisition would shave two years off the development road map to make Adobe's Creative Cloud suite fully cloud native.
"You would think a product named Creative Cloud would be in the cloud already, but it is not," Auty said. "The key functionality of Creative Cloud runs on devices as compared to competitor Canva that truly runs in the cloud and you access via a browser."
He added, "Adobe has already begun the development process to bring Creative Cloud to the cloud, but what Figma brings is the underlying architecture that is proven to scale."
Auty rates ADBE stock as market perform, or neutral.
Big Tech In Regulators' Crosshairs
U.S. antitrust regulators under the Biden administration have sought to stop other acquisitions by Big Tech firms, including Microsoft and Facebook owner Meta Platforms.
In December, the Federal Trade Commission filed an antitrust lawsuit to block Microsoft's $68.7 billion purchase of video game publisher Activision Blizzard.
Earlier this month, the FTC failed in its bid to stop Meta from buying virtual reality fitness startup Within.
ADBE stock ranks fourth out of six stocks in IBD's Computer Software-Desktop industry group, according to IBD Stock Checkup. It has a middling IBD Composite Rating of 60 out of 99. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
