The stock market has temporarily lost its footing, with the ripples from Tuesday’s massive plunge still working their way across the financial world. Investors haven’t gotten any significant signs of a rebound from the decline earlier this week, and on Thursday morning, futures contracts on the Dow Jones Industrial Average (^DJI 0.00%), S&P 500 (^GSPC 0.34%), and Nasdaq Composite (^IXIC 0.00%) all suggested another mixed to downward open of trading.
A couple of stocks moved sharply lower in premarket trading on Thursday, but the reasons actually suggested better future prospects in the long run. Adobe (ADBE 0.85%) and NextEra Energy (NEE 0.02%) made moves that often lead to short-term price declines, and traders responded the way they usually would. Still, when you look at the underlying strategy behind the decisions these companies made, you might well agree that their stocks look more interesting than ever.
Adobe gets creative, makes a big purchase
Shares of Adobe were down almost 9% in premarket trading Thursday morning. The creative-software platform provider released its fiscal third-quarter financial report a bit early, but the big news making the stock move was a major acquisition that could give a big boost to its long-term growth trajectory.
Adobe’s financial results for the quarter ending Sept. 2 were solid. 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. Growth was fairly evenly distributed across Adobe’s digital media and digital experience segments. Moreover, Adobe gave reasonable guidance for the fiscal fourth quarter, expecting revenue of $4.52 billion, adjusted earnings of $3.50 per share, and percentage sales growth in the mid teens in its key segments.
Yet investors paid closer attention to Adobe’s $20 billion purchase of collaborative design platform specialist Figma. Figma is privately held, but its shareholders will receive roughly half of the proceeds from the transaction in cash and the other half in Adobe shares. Adobe hopes that by joining forces with Figma, the combined company will be able to accelerate online creativity, integrate creator-centered collaboration tools into their software offerings, and boost the number of designers and developers within the Adobe-Figma ecosystem.
With the move, Adobe expects Figma to add about $400 million in long-run annual recurring revenue, and high margins at Figma should only boost Adobe’s already impressive financial performance. Even though issuing new stock will dilute current shareholders, long-term Adobe investors should be excited about the potential this acquisition has to bolster growth.
NextEra raises cash
Elsewhere, shares of NextEra Energy were down more than 4%. The clean-energy utility successfully raised additional capital to further its growth efforts in an important subsector of its industry.
NextEra said late Wednesday that it would sell $2 billion in equity units. The units resemble mandatory convertible preferred stock, 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 went through successfully on Thursday morning, with the final pricing giving buyers a 6.9% yield and obligating a future purchase of stock at prices between $88.88 and $110.10 per share within the next three years.
NextEra is making considerable 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 terms of the capital raise show that the costs of obtaining cash from public markets are rising. With intriguing projects to invest in, though, NextEra appears likely to use its new capital well to boost its overall fortunes in the years ahead.
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe Inc. and NextEra Energy. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe Inc. and short January 2024 $430 calls on Adobe Inc. The Motley Fool has a disclosure policy.