Adobe's (ADBE 0.68%) stock rose 5% during after-hours trading after it posted its latest earnings report. For the first quarter of fiscal 2023, which ended on March 3, the cloud-based software company's revenue grew 9% year over year (13% in constant currency terms) to $4.66 billion and beat analysts' estimates by $40 million. Its adjusted EPS increased 13% to $3.80 and also cleared the consensus forecast by $0.12.

For the second quarter, Adobe expects its revenue to rise 8%-9% year over year on a reported basis as its adjusted EPS increases 12%-13%. Those headline numbers looked stable, but Adobe's stock remains nearly 50% below its all-time high. Should investors pick up some shares of this cloud software giant today?

Two designers digitally edit a photo.

Image source: Getty Images.

Adobe's growth is still decelerating

Adobe's revenue growth has been slowing. After rising 15% in fiscal 2020 and 23% in 2021, it increased just 12% in 2022. The software giant expects revenue to rise about 9% in fiscal 2023 as it encounters more macroeconomic and currency headwinds.

Yet, Adobe's full-year outlook doesn't account for its planned acquisition of the design software firm Figma for $20 billion in a half-cash, half-stock deal. The company believes it can close that deal by the end of 2023, but it already faces a lot of regulatory resistance. The E.U. and U.K. are both closely scrutinizing the proposed takeover, and the U.S. Department of Justice (DOJ) is reportedly building a case to challenge the acquisition.

Those regulators are all concerned that Adobe -- which already dominates the creativity software space with Photoshop, Premiere, Illustrator, and other industry-standard tools -- would gain an unfair advantage by buying Figma, which directly competes against Adobe's own XD platform in the user interface (UI) and user experience (UX) markets.

Figma already more than doubled its annual recurring revenue (ARR) for the second consecutive year to $400 million in 2022. That's only equivalent to about 2% of Adobe's fiscal 2022 revenue, but Figma's breakneck growth suggests it could become a much larger piece of Adobe's pie and significantly boost its long-term revenue growth.

Adobe's core businesses are still healthy

But even without Figma, Adobe's Digital Media segment -- which houses its Creative Cloud services -- is still healthy. That core segment's revenue rose 11% in fiscal 2022, and grew 9% year over year (14% in constant currency terms) to $3.4 billion, or 73% of the company's total revenue, in the first quarter of fiscal 2023.

Adobe expects the Digital Media segment to add $1.7 billion in net new ARR in fiscal 2023, compared to $1.9 billion in net new ARR in fiscal 2022. Its ability to maintain that stable growth in this tough macro environment can be attributed to its lack of meaningful competitors in the creative software space and the stickiness of its cloud-based subscriptions.

But in the first quarter, Adobe's gross margin still dipped 20 basis points year over year to 87.8% as its operating margin declined 300 basis points to 34.1%. That pressure can be largely attributed to the macro and currency headwinds instead of a loss of pricing power, but its planned acquisition of Figma could further squeeze its near-term operating margins. On the bright side, Figma already generates gross margins of about 90% -- so it could boost Adobe's long-term gross margins.

Adobe's operating cash flow dipped 5% year over year to $1.69 billion in the first quarter, but it still bought back about five million shares. Those ongoing buybacks could boost its near-term EPS and offset some of the dilution from the Figma deal.

Adobe expects its adjusted EPS to rise 12%-14% in fiscal 2024. That outlook, which also doesn't include Figma, is higher than its previous forecast for 11%-13% growth.

Its stock is reasonably valued

At $350, Adobe trades at 23 times this year's adjusted EPS estimate. Its industry peer Autodesk (ADSK 1.50%), which is expected to grow at a similar clip this year, trades at 28 times forward earnings. Salesforce (CRM 0.58%), which competes against Adobe with some of its cloud-based sales and marketing services, trades at 26 times forward earnings. Salesforce's sales growth looks comparable to Adobe's, but it's expanding its operating margins and growing its EPS at a much faster rate.

Therefore, Adobe's stock looks reasonably valued -- but not necessarily cheap -- relative to its growth rates and peers. It's also a fine company with or without Figma, but an approval of that deal should strengthen its long-term prospects, reduce its forward valuations, and eliminate the near-term uncertainties. I don't expect Adobe's stock to revisit its all-time highs anytime soon, but it's still worth buying as a stable blue-chip play that should keep growing over the next few years.