Figma’s Hot IPO Is This Week. Adobe Is Still Alive and Kickin’.

Software design company Figma is going public this week. At the top end of its offering range, it would be valued at $19 billion. (Gabby Jones/Bloomberg)

Adobe and Figma, fierce software design rivals, had once planned to merge—until they realized they couldn’t get the go-ahead from European regulators.

Now, just a few years later, Figma is poised to take on Adobe as a stand-alone public company.

Figma will make its debut on the New York Stock Exchange this week, the latest unicorn to test Wall Street’s appetite for initial public offerings in a red-hot market.

At the top of its proposed $30-to-$32 offering range, Figma would be valued at about $19 billion—a bit below the $20 billion price tag that Adobe offered for it in the scuttled merger. The company, which will list under the ticker symbol of FIG, plans to raise nearly $1.2 billion through the sale of 36.9 million shares.

Figma’s valuation could quickly eclipse Adobe’s $20-billion price tag if the stock soars in its debut. The company already has boosted the proposed price range from its initial expectation of $25 to $28 a share.

A valuation pop isn’t far-fetched, considering the state of the stock market. The S&P 500 and Nasdaq keep setting all-time highs, buoyed by optimism about trade deals, earnings, and the resilience of the economy.

The IPO market has benefited, too. Stablecoin provider Circle, fintech Chime, drone maker AIRO, and CoreWeave , a Nvidia -backed artificial intelligence cloud infrastructure firm, have all gone public in the past couple of months—and all are trading well above their debut prices.

For Adobe, a strong debut by Figma would be yet another headache. The Barron’s stock pick has stumbled badly on worries that it is missing the mark on AI. Adobe stock is down more than 15% this year and over 30% in the past 12 months.

Still, D.A. Davidson analyst Gil Luria thinks the market is big enough for Adobe and Figma and even Canva, a privately held design software developer, to all thrive.

“We believe that all three companies have strong growth prospects
due to the democratization of creative tools and the ramping demand for digital products,” he wrote in a report.

Luria has a price target of $500 on Adobe, 35% higher than its current price of around $370. The consensus Wall Street estimate is about $486.

Others are onboard with Luria about Adobe. One, for example, is Dave Novosel, a senior analyst for U.S. investment grade bonds at fixed income research Gimme Credit.

About Adobe, Novosel wrote this month: “We expect robust revenue growth to continue, aided by the strong demand for content.” And he noted that the company’s profit margins are “enormous.”

Novosel thinks Adobe’s solid fundamentals, relatively low debt ratio, and healthy level of free cash flow should allow the company to do more deals if it has compelling opportunities.

Adobe is getting the attention of BofA Securities analyst Brad Sills because it raised its fiscal-year earnings outlook last month.

“This suggests a more resilient, diversified business, and good execution on growth initiatives,” Sills said, adding that AI revenue is “building and likely to drive a gradually improving growth rate over time.”

With that in mind, Sills thinks Adobe investors should be patient and will ultimately be rewarded.

We agree. Even though Figma could wow Wall Street with its IPO, investors shouldn’t sleep on Adobe.

Adobe’s stock is cheap, trading at just 18 times earnings estimates for this year—a price/earnings ratio that is only slightly above its five-year average.

Plus, Adobe’s average annual earnings gains will be 13% a year over the next few years if the forecasts by analysts are on the money. It’s certainly not as if the software powerhouse has suddenly turned into a slow growth stock.

A blockbuster debut for Figma should actually be a wake-up call that boosts the price that investors are willing to pay for Adobe.

Write to Paul R. La Monica at paul.lamonica@barrons.com