The stock market temporarily lost its footing as the repercussions of Tuesday’s massive drop continued to reverberate through the financial world. Investors saw no significant signs of a rebound from the early week decline, and on Thursday morning, futures on the Dow Jones Industrial Average (^ DJI -0.45%), S&P500 (^GSPC -0.72%)and Nasdaq Compound (^IXIC -0.90%) all suggested another mixed-to-top down trading opening.
A few stocks fell sharply in premarket trading on Thursday, but the reasons actually suggested better long-term future prospects. Adobe (ADBE -3.12%) and NextEra Energy (BORN -1.42%) took actions that often lead to short-term price declines, and traders reacted as they usually would. Yet when you look at the strategy behind the decisions made by these companies, you might agree that their stocks look more interesting than ever.
Adobe gets creative and makes a big purchase
Adobe shares were down nearly 9% in premarket trading Thursday morning. The creative software platform provider released its fiscal third quarter financial report a little earlier, but the big news that rocked the stock was a major acquisition that could give its growth trajectory a big boost. long term.
Adobe’s financial results for the quarter ending September 2 were strong. Revenue rose 13% to $4.43 billion, hitting a new record high. Adjusted earnings of $3.40 per share were up 9% year over year. The growth was fairly evenly split between Adobe’s digital media and digital experience segments. Additionally, Adobe provided a reasonable fiscal fourth quarter guidance, forecasting revenue of $4.52 billion, adjusted earnings of $3.50 per share, and mid-teens percent sales growth in its key segments.
Still, investors paid more attention to Adobe’s $20 billion purchase of collaborative design platform specialist Figma. Figma is privately held, but its shareholders will receive approximately half of the transaction proceeds in cash and the other half in Adobe stock. Adobe hopes that by partnering with Figma, the combined company will be able to accelerate online creativity, integrate creator-centric collaboration tools into their software offerings, and increase the number of designers and developers within the Adobe-Figma ecosystem.
With the move, Adobe expects Figma to add approximately $400 million in long-term annual recurring revenue, and Figma’s high margins should only boost Adobe’s already impressive financial performance. Although the issuance of new shares will dilute current shareholders, long-term investors in Adobe should be excited about the potential of this acquisition to support growth.
NextEra raises funds
Elsewhere, NextEra Energy shares fell more than 4%. The clean energy utility has successfully raised additional capital to continue its growth efforts in an important sub-sector of its industry.
NextEra announced late Wednesday that it would sell $2 billion worth of stock. The units resemble mandatory convertible preferred shares, with each unit consisting of an interest in a five-year fixed income security plus a binding contract to purchase NextEra shares in the future at a price to be determined.
The offering was successfully completed on Thursday morning, with the final price giving buyers a 6.9% yield and compelling a future purchase of shares at prices between $88.88 and $110.10 per action over the next three years.
NextEra makes significant investments in energy and power projects, and the recent passage of legislation promoting renewable energy fits well with the company’s long-term business model. The conditions of the capital increase show that the costs of obtaining liquidity on the public markets are increasing. With some intriguing projects to invest in, NextEra looks likely to use its newfound capital well to increase its overall fortune in the years to come.
Dan Caplinger has no position in the stocks mentioned. The Motley Fool fills positions and recommends Adobe Inc. and NextEra Energy. The Motley Fool recommends the following options: $420 long calls in January 2024 on Adobe Inc. and $430 short calls in January 2024 on Adobe Inc. The Motley Fool has a disclosure policy.