Good Morning Toasters!

Ssup friends!! Ah, we spoke too soon, didn’t we? The markets had sort of a late reaction (?) to the US Fed numbers, with the headline Nifty50 dropping ~346 points during trading, ending the week on a very sour note. FIIs sold in high volumes, to continue next week as well?

In today’s issue, we cover the recently announced Adobe acquisition of Figma, which at USD 20 Bn is amongst the Top 10 largest SaaS transactions ever. Wow! Adobe shareholders’ weren’t best pleased with the announcement, as the stock dipped >10% post.

In other news, RBI has approved the appointment of the MD & CEO for Catholic Syrian Bank, which amidst this market had a positive reaction on the stock. Likewise, while Nifty dipped ~2%, IndusInd Bank, on disclosing plans to recommend the incumbent MD & CEO for a fresh three-year term, rose ~4% during intraday trading. Banking appointments and their impact, a match made in heaven?

Market Watch

Nifty 50: 17,530.85 | −346.55 (1.94%)
FII Net Sold: INR 3260.05 crore

Sensex: 58,840.79 | −1,093.22 (1.82%)
DII Net Sold: INR 36.57 crore

Global Company News

Adobe acquires Figma for USD 20 Bn

Figma is a cloud-based software that helps engineers and designers collaborate on web interfaces in real-time, designing and ideating on concepts.

• Big news in the world of digital creative technology: Adobe today announced the acquisition of Figma for $20 billion, eliminating one of its main competitors in the field of digital design, while acquiring a rapidly growing enterprise
• Purchased in a half cash/half stock deal, Figma’s acquisition accounts for ~11.5% of Adobe’s MCAP (USD 173 Bn, before dipping), and is likely expected to be financed via a combination of debt
• The $20 billion valuation is a significant increase in valuation for Figma, which was valued at $10 billion in its most recent investment round in 2021, when the company raised USD 200 Mn from a clutch of investors, including Sequoia Capital, who have doubled their investment in the short span of 1 year (nice nice!)

How’s Adobe done btw?

• Adobe, a Wall Street shining star for more than a decade, has been battered by the IT collapse, with its stock losing 45% of its value since the beginning of the year
• Investors have been more suspicious about Adobe’s dominance in design software, which accounts for around 60% of its sales
• Adobe’s stock is anticipated to suffer as a result of the deal’s “extremely high” value. Figma may contribute less than 2% to Adobe’s revenue growth rate and will very likely reduce profits; the stock dropped 17% to $309.13 at the closing in New York on Thursday, making it the worst performer on the S&P 500
• On Thursday, Adobe also reported third-quarter earnings, with sales increasing 13% to $4.43 billion, while this was in line with analysts’ expectations, but it was Adobe’s third straight quarter of less than 15% growth, as the company has been buffeted by economic uncertainties

Damn! That’s quite bad? Any positives? Yess my man

• Figma’s total addressable market is $16.5 billion by 2025 and the company is expected to add approximately $200 million in net new ARR this year, surpassing $400 million in total ARR exiting 2022
• The product has best-in-class net dollar retention of greater than 150 percent, coupled with gross margins of approximately 90 percent and positive operating cash flows, Figma has built an efficient, high-growth business, which given Figma will continue to operate independently, is likely to turn out value accretive for Adobe in the future
• Figma has perfected the freemium model (so to say), operating a free version for millions of users globally, and successfully building out collaborative tools that are paid, charting a coherent free-to-paid user journey, reflective in their retention metrics
• Adobe has snapped up companies in the past, including Workfront (USD 1.5 Bn) in 2020 and Frame.io (USD 1.3 Bn) in 2021, with the objective of staying relevant via acquisitions; that being said, this is their largest ever acquisition, and investors clearly aren’t okay with the price they’ve paid

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Around the World 🌎

• West breaks yet another partnership: The famous Gap – Kanye West partnership to develop a collection of clothing brand ‘Yeezy Gap’ is coming to an end. While the company announced that they are ‘ not aligned ‘ to work together, the singer complained that the company has been too slow in releasing the new merchandise and has not opened dedicated new stores as promised in the agreement.  According to his latest social media posts, Mr West is planning to open his own retail stores soon, starting from Atlanta
• Google starts its day with a fine:  A top European Court has fined Google a whopping $4.13 billion for imposing unlawful restrictions on Android device manufacturers and mobile network operators to prevent competition. This is the 2nd of the three cases that Google has lost against the European Commission which wants to set an example for other regulators for antitrust violations. The win comes as a big relief for  EU antitrust chief Margrethe Vestager who has earlier lost cases against other tech giants Intel and Qualcomm
• Netflix giving in to peer pressure?: Netflix Inc. had managed to remain ad-free for so long but is now finally planning to introduce a  low-cost ad-supported plan to boost revenue. The company which lost 1 million subscribers in the last quarter expects to add 40 million new viewers across the world for its content with its new strategy. The company executives have already started approaching ad buyers to get premium prices for good brands to advertise on its service

Industry News

RBI gets major approvals out of the way

• In what definitely enthused the market, as Catholic Syrian Bank (CSB) stock was up ~2%, the RBI approved the appointment of interim MD & CEO, Mr. Mondal as the new MD & CEO of CSB for a tenure of 3 years
• MD & CEO appointments at scheduled commercial banks, both public & private are very closely watched by the RBI, with banks having to submit applications with the regulator, and gaining approval to on-board CXO candidates
• CSB, a scheduled commercial bank had poached Mr. Mondal from Axis Bank in 2020 to build out their retail banking franchise, in addition to leading other functions of technology, operations and SME
• He had assumed the role of interim MD & CEO some months ago, as the incumbent / previous leader had departed abruptly owing to ill health, who had a considerable impact at CSB, initially by successfully building out their retail franchise, and subsequently by managing employee unions, and onboarding marquee investor Mr. Prem Watsa, in a large capacity
• There were previous concerns regarding Mr. Mondal’s appointment approval, owing to his stake in other banks (probably Axis & HDFC), which seem to have been resolved, assuming RBI approval has been received for his tenure

Nice! What else?

• In similar news, and probably what drove IndusInd Bank to be the top earner for the day (at one point was up 4% in intraday trading), the Bank has recommended an extension of the current MD & CEO term for another 3 years, taking out concern (in the markets) regarding succession planning & business continuity
• Much like at CSB, the MD & CEO, Mr. Sumath Kathpalia has been credited with instituting a comeback at IndusInd Bank, ‘creating a new and robust organisational structure to place a greater focus on customer interaction, portfolio & risk management, and support new business direction’ according to a regulatory filing by the Bank
• The bank has managed to emerge from asset quality issues, reducing Gross NPA numbers, while also improving earnings over multiple quarters; lately, the markets have been abuzz with news of Mr. Kathpalia not continuing in his current position
• The bank touched its 52-week high on news of the board’s recommendation, with RBI approval expected (?) as past issues in the MFI book pertaining to disbursements have not caused any challenges at RBI

What else caught our eye? 👀

Jio: Jug Jug Jiyo!

• Reliance Jio outperformed Bharti Airtel and Vodafone Idea and improved its subscriber base by 29.4 lakh in July to touch 41.59 crores. Bharti Airtel also added 5.1 lakh wireless subscribers but Vodafone slipped down by 15.4 lakh customers
• India’s wireless user base has risen by 0.06% to reach 114.8 crores. Most of these subscribers hail from the urban areas where the count has reached 65.04 crores. On the other hand, rural India saw a decline in its subscriber count and stands at 52.33 crores
• While Jio and Airtel enjoy a market share of 36.23% and 31.66% respectively, Vodafone-Idea’s share has narrowed to 22.22%. Even in the broadband internet category, Jio holds an advantageous market share of 52.29%

UPL strikes a deal with Clean Max Kratos

• UPL Limited, which is a renAgro chemical firm, has acquired a 26% stake in Clean Max Kratos, which was recently incorporated on July 28 as a part of the solar and wind power generation industry even though its operations haven’t commenced yet
• Now, Clean Max Kratos will develop and maintain a hybrid 28.05 MW solar and 33 MW wind power project under the captive model and enable UPL to expand its renewable energy usage from 8% to 30%
• UPL is a global provider of sustainable agriculture products and solutions with an annual revenue of $6 billion. It will initially acquire 2,600 shares of Clean Max Kratos for ₹26,000 and will further invest to maintain its shareholding pattern to 26%

Educational Topic of the day

Price-to-earnings ratio (P/E ratio)

• The price-to-earnings (P/E) ratio compares the share price of a company to its earnings per share
• A high P/E ratio may indicate that a company’s stock is overpriced or that investors anticipate rapid growth in the future
• Enterprises that do not generate earnings or are incurring losses cannot calculate a P/E ratio since the denominator is empty
• In practice, two types of P/E ratios are used: forward and trailing P/E
• When compared against similar companies in the same industry or for a single company over time, a P/E ratio has the most value to an analyst

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com