WHEN: Today, Thursday, September 15, 2022
WHERE: CNBC's "Squawk on the Street"
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Following is the unofficial transcript of a CNBC interview with Adobe Chairman & CEO Shantanu Narayen on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET) today, Thursday, September 15th. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2022/09/15/adobe-acquires-figma-for-20-billion.html
All references must be sourced to CNBC.
JIM CRAMER: Let's bring in Adobe Chairman & CEO Shantanu Narayen. It's a great treat Shantanu to have you and I want to get right at it because you've got earnings that are solid, but you've got a deal that is going to I think transform the company because once again and you care tremendously about creativity. You care about wonderment, the mind, how people can change. Let's talk Figma and why it's worth $20 billion.
SHANTANU NARAYEN: Well, Jim, it's always great to be on your show and this is a really exciting and transformative day for Adobe. When you think about what's happening in the world of collaborative creativity, it's very clear that every single person has a story to tell and when you think about the entire world of anybody who's trying to create a mobile app, trying to create an interactive web experience, trying to do things that are exciting in terms of how they collaborate and ideate, we believe that the combination of Adobe and Figma is going to be one of these unique combinations that completely ushers in a new era of collaborative creativity.
CRAMER: Now I know as you know I care passionately about your stock and earlier right when the Fed started getting tight, your stock was at 700 and it's dropped now probably look like 330. This company you're buying was valued at about $10 billion in June of last year. Now you're paying 20. Can you rationalize what's happening in the stock market versus what's happening at Adobe?
NARAYEN: Well, let's talk about Adobe Jim and, you know, Figma is actually one of these rare companies that has achieved incredible escaped velocity. They have a fabulous product that appeals to millions of people. They have escaped velocity as it relates to their financial performance and a profitable company which is very rare, as you know, in software as a service companies. And while they are a rare company, the ability to put together that as well as a company like Adobe is even rarer in terms of how we can both harness as well as accelerate that business. So, you know, from our perspective, when you think about it from the perspective of shareholders, which was your question, we really believe that the combination whether it's creating this new world of creativity and productivity, it's what we can do as it relates to accelerating creativity on the web, inspiring an entire new generation of designers and developers and stakeholders. It is going to be a great value for their shareholders as well as Adobe's shareholders.
CRAMER: I know it's tremendous retention and along with your company, but I guess what I'm trying to go at it, look, you know, you know internet commerce better than anyone I speak to and I when I look at how your stocks trading, it's almost as if you were internet commerce part of the bubble that came from Covid when people worked at home, and now somehow internet commerce must be slowing or your stock wouldn't be going down. Isn't that completely untrue?
NARAYEN: You're right, I mean, when you look at our quarterly results as well, and if you look at it even relative to what we had said at the beginning of the year, Jim, I mean the company is really executing. We had strong Q3 results. When you look at our creative business, the creative business grew 16%, we've exceeded over 13 billion in ARR, you know, which is a record, the document business and everything associated with Acrobat grew north of 20% and powering digital businesses, which is enabling any business anywhere in the world, as you said, to engage in commerce, engage with their digital customers is also growing double digits so you put them all together and we clearly are in rarefied atmosphere. As it relates to the stock market I think if you look at all of tech, certainly all of tech has perhaps, you know, been impacted a little bit by the macro-economic environment. But you know, we're focused on the next few decades and we continue to believe that Adobe is great value, our best days are ahead of us and you know, it's up to us to go demonstrate how we can drive both top line growth as well as profitability of the bottom line.
CARL QUINTANILLA: Shantanu, you mentioned the macro and the street did look at the Q4 digital media net new annual recurring revenue a little bit below expectations. I mean, is it fair to say that customers are scrutinizing deals at least at the at the large end right now?
NARAYEN: Carl, actually our enterprise business both in Q3 as well as in Q4. You know, we expect to have the seasonally strong quarter and if you put it in perspective Carl at the beginning of the year, we guided to about 1.9 billion in creative and digital media ARR. And if you think about it with our Q1, Q2 and Q3 outperformance and what our initial targets are for Q4, that's approximately 1.8 billion and in these 12 months as you know, the macroeconomic situation has changed. So while we may have expected at the beginning of the year with our targets to exceed it, these are extremely strong results and 1.8 billion, we're adding you know the size of many, many companies every single quarter.
DAVID FABER: It's David, you know, back to the deal itself. I mean you bought back during this quarter 5.1 million shares, but now you're going to be issuing a lot of shares to pay for this deal. I think it's as much as half in stock. Give your, give your shareholders an idea of why that's the one that's the composition of this deal. Why not, you know, all cash particularly if you think your stock is cheap? Froze again, guys. Maybe, you know, maybe this is not a good advertisement for Zoom today. I don't know but.
CRAMER: Well, but David does raise a good point and this is something I talked about during the break, which is that Adobe stock has come down from 700 to 320, which you'd like to have is a $20 billion buyback, not a $10 billion issuance of stock and $10 billion dollars that put into the brand at the same time, David, you got to admit. There has been a divorcing in terms of where tech was in November versus where it is now. It's my least favorite segment versus everybody and I think it's because people have decided this group got too high. Let's look at everything else. And do you see that I mean, you know, look at Disney I think at 112. Well, I want to buy Adobe while I was just told basically they're selling. So there is this disparity among companies don't you think?
FABER: I do. And you know, if we get Shantanu unfrozen perhaps he can answer that question. I also think, listen, you know, the long-term value that he's created for his shareholders, they're not typically going to question his judgment I would assume Jim when it comes to a strategic acquisition, even for one that they seem to be paying a very large premium over the last private market value for this company. You know—
CRAMER: No, this is a great company, and it's a company that anybody fifth, sixth, seventh, eighth grade, knows as the company that is creativity, and it's how to tell the story. So I like it. I know David, though, you take a look at what this company that he's buying was worth a year ago and you look at the other valuations and what's happened in venture capital. Aren't you surprised this one has doubled since June?
FABER: Yeah. You know what, I think we have Shantanu back. He's unfrozen. I think you heard my question Shantanu and so I'd love the answer. You know, in terms of buying back stock and now obviously issuing a lot of it, how do you tell your shareholders how you view your own stock?
NARAYEN: Well David, certainly as it relates to the issuance of new stock, you are right that the transaction is approximately half in cash and half in stock and the deal is really all about the top line and accelerating top line, you know, we're an extremely profitable company. And what we have said is we have some aggressive goals in terms of being able to make this a creative in year three, which is rapid, as well as driving top line growth. So, you know, I think from the perspective of shareholders, what we've said is we will offset, you know, dilution while the transactions underway, but we believe that it rapidly actually enables us to accelerate our bottom line EPS as well.
CRAMER: Now Shantanu, I just want to be sure that no one has the pulse how much business is being done. You've got it. You know what ecommerce looks like. I've got to be sure about this. Is there any sort of ecommerce slowdown or pushback that you see right now?
NARAYEN: Well, Jim, I think the way you have to think about ecommerce is first, what is directionally happening in the ecommerce business and that's up into the right. I think, as it relates to maybe the acceleration or the inflection that happened in ecommerce during the pandemic, certainly that's going to slow down and mute a little bit. But we have said through the Adobe Digital index reports that actually when you think about it month over month, we're still adding billions in ecommerce. So there's no question that directionally it continues to be extremely strong. Maybe the rate of growth given how large it's become has been muted as it relates to the global ecommerce, but I don't think that changes the fundamental secular trend in that business.
CRAMER: Well you're true north as far as I'm concerned and you've created a lot of value. Shantanu Narayen, thank you so much for coming on "Squawk on the Street" and sorry about the stop and start. Good to see you.
NARAYEN: Thanks again for having me on your show. And I think this is the reason why we need a product like Figma to enable online ideation and collaboration.