Last Thursday (8/19) Adobe announced its intention to acquire Frame.io, a video review and collaboration platform, in a $1,275,000,000.00 all-cash transaction. The deal is expected to close during Adobe’s fourth quarter (which begins in September).
It is remarkable for a business to achieve an all-cash $1 billion+ cash exit shortly after celebrating the sixth anniversary of its launch – and within the post-production technology sector. A more than 15x cash-on-cash return on the aggregate amount of funding raised by Frame.io. We are at a loss to even cite a historical analog for such a deal (IBM buying Aspera? AWS buying Elemental?).
Permit us a few observations and at least one rant. To spoil a takeaway from the latter part of this post: we do not have an explanation for the valuation level. We are welcoming of your individual perspective on how one might work out the valuation or any comment you would like to add to the discussion. Feel free to leave feedback in the comment section of this post, the associated post on Twitter or Linkedin, or to me personally (jstinehour [at] Devoncroft [dot] com).
To level a common understanding, it is necessary to categorize what Frame.io sells. In the parlance of the IABM DC Global Market Valuation Report (GMVR), Frame.io offers a production asset management (PAM) system with a bit of workflow orchestration. The value proposition is bringing – and organization – shot content and in-process content from the production environment to the post-production environment, and then enabling efficient, collaborative work across the post-production team. For the avoidance of confusion, Frame.io integrates with editors and VFX tools, and other components of the post-production workflow such as transcoding or storage, it does not replace them.
Observation 1: SaaS, cloud is the future and the now
This transaction codifies two observations for the media technology community.
- With few exceptions, any suppliers with outside investors must transition to a SaaS business model as fast as possible to maximize shareholder value.
- Any technology professional in the media technology sector (customer or supplier) dithering about moving to the cloud is likely harming their organization’s shareholder value.
We suspect the statement on cloud will draw some intense reaction from certain corners of the sector. To the technology curmudgeons, we grant you there remain technical hurdles preventing all workflows moving there tomorrow. But to that same audience, we submit all the corporate value (budgets, senior executive attention, citations in investor communications, etc.) has or will rapidly transition to cloud-based workflows. For those suppliers (and we argue those customers) wanting to enjoy the valuation levels of peers, you need to be in the cloud. This is reasoning from corporate objectives, though it reflects the deeper, operational benefits.
In our experience, the closer you get to Hollywood, the more difficult it is to have a business discussion. Regardless, the story of Frame.io is as much a discussion of a business model and plan, as it is a creative success. A successful SaaS business model requires more than a reference in sales collateral and an uncompelling purchase option in the price list. It is a lifestyle.
Observation 2: Frame.io is a master class on building to a strategic exit
As we walk through the historical steps taken by Frame.io, it is important to keep in mind the incomparable exit achieved, which is to say all those management decisions were the correct ones. Frame.io – remember $1B+ cash exit – was 100% cloud-based from inception. And in the same way, Frame.io was a SaaS business model from inception.
Frame.io began life as an internal software build at Katabatic Digital, a post-production facility in New York City. This is not an unusual phenomenon. As we have tracked for a decade in the Big Broadcast Survey, internal build rates for asset management and orchestration software ran upwards of 30-40% in post-production environments (because they find the existing solutions lacking?).
The corporate entity was founded in July 2014 by Emery Wells (Founder of Katabatic) and John Traver (Chief Scientist at Katabatic). As described by Wells in a January 2021 podcast edition of ‘This Week in Startups’ (Jason Calacanis), the founders had a $10 million acquisition offer before even launching the product.
Product launch occurred on March 31, 2015, by way of the mechanisms of a new website splash page, social media campaigns, email automation, and press coverage (a listing of the individual tasks does no justice to the effort). The results of the launch – detailed in a blog post – were 10,000+ sign ups across 7,500+ companies in 130 countries. As described by Wells on the podcast, this led to ‘hundreds’ of paying customers and generated a monthly recurring revenue level of $30,000 within the first 90 days of launch.
At launch, ‘sign ups’ could choose from the following pricing tiers.
We are increasingly convinced SaaS pricing in cloud environments is an emergent property of customer and supplier interactions, as opposed to an enlightenment reached through reasoning.
In a blog post the month after the launch, Frame.io management provides a great, candid discussion of the pricing of the service tiers and sets expectations for its evolution.
“Next to launch date, pricing is the number one question we’ve received over the past several months. It’s also one of the most essential for our business to get right. Pricing is not about extracting every penny we can from our users, it’s about finding the right balance across dozens of factors so we can offer great value but still thrive as a business and continue to build an exceptional product for all of you. Let me be the first to say our pricing will change. It could go up or it could go down but our promise to you is you’ll always have the option to keep whatever pricing you signed up with.”
Foreshadowed by Frame.io’s post-launch comments, pricing would change. By July 2017, pricing had transitioned to the below.
As of this week, pricing looks like the below.
Across the iterations the same basic outline persists: a complimentary tier, a complimentary trial period for priced tiers, coupled with added benefits at higher tiers and discounts for annual commitments. Less important than the figures are the simplicity of description and ease of onboarding – oh, and the tremendous escalation of value of all plans (more users, more projects, archival storage, camera to cloud, etc.).
Returning to early 2015, the success of the launch provided validation beyond recurring revenue. Frame.io leveraged the commercial validation to accelerate its year-long dialogue with potential investors into a formal Series A round of founding in October 2015.
Accel Partners led the $2.2 million round at a pre-money valuation of $10 million (priced from acquisition approach) with participation from venture firms SignalFire, Funders Guild, and several individual investors.
About a year later in September 2016, Accel would lead a $10 million Series A round with participation from existing investors SingalFire, Funders Guild, and new firm Shasta Ventures. A year later in October 2017, Frame.io would raise a Series B round of $20 million, led by FirstMark Capital. Two years after the Series B round, Frame.io would raise $50 million in November 2019 in a Series C fundraising, led by Insight Partners. And, of course, a little before the two-year anniversary of the Series C round, the Adobe acquisition has now been announced. (It is interesting to observe how the press description evolves from initial comparisons to Dropbox, then to Slack, and then to describing what Frame.io actually does.)
To make those figures more vivid, consider the below graph.
A remarkable corporate cadence, built on a virtuous cycle of fundraising begetting product innovation, in concert with go-to-market execution, resulting in customer growth, and returning to fundraising.
This is highlighted by Management’s novel approach of announcing – with details – how it intended to invest its fundraising intakes after each round.
Here are relevant excerpts from the Series A and B financing announcements:
- Series A: “We’re doubling down on our product, and almost all of the new funding will go towards hiring more engineers.”
- Series B: “This new funding will be invested in a few key areas: Security, Product Features, A Developer Ecosystem, and a dash of Sales and Marketing for good measure.”
A longer excerpt is deserved for the messaging around the $50 million Series C fundraising.
In an industry awash with meaningless (by which we mean equal parts boring and uninformative) press releases, consider the below paragraph from the founder’s blog post announcing the Series C round of funding (the bullets are abbreviated for brevity).
John and I started building Frame.io because we were sick of being sold software that was overpriced and underwhelming. We set out to create a product that delivered the world’s best design, lightning-fast search, social media-quality commenting and communication, and hardcore professional video capabilities all in one. The past five years of progress has only been our journey to basecamp. We’ve assembled a collection of craftspeople from diverse backgrounds, and now it’s time to kick things into high gear. While I can’t divulge a full roadmap, here’s how we plan to deploy our cash in 2020 and beyond:
- Doubling our product, design, and engineering team from 40 to 80 …
- Opening an LA office and showroom …
- Delivering on Camera to cloud …
- Security …
- Brand new products …
The above doubles as a heartful ‘I am one of you’ pledge and a short-form roadmap reference for customers to expect; employees to execute; and for acquirers to track.
Discussions of recurring revenue dominant the subject of SaaS, leaving underappreciated the business model benefits of actually delivering a better product and customer experience.
As alluded above, the pricing tiers have changed, but all tiers have become more valuable because of product innovation. Below is a visual attempt to highlight the velocity of upgrades made to the Frame.io platform since inception.
Yes, the above reflects substantial engineering investment. It is, however, only possible because the business model enables the engineering investment to reach all customers (across a single platform) on a timely, efficient basis. A capability foreign to an installed base of distinct, disjointed, on-premise customer installations.
As an aside, strategic exits are only possible when there is an existing commercial partnership. Adobe’s commercial partnership with Frame.io began in early 2016.
We find it easier to describe what Frame.io’s sales and marketing approach is not, then what it is. Efforts to describe directly lean to heavily on terms like ‘trials,’ ‘sales automation,’ ‘viral’, and ‘word of mouth.’ Perhaps an anecdote is the best place to start.
In my younger banking days working with post-production technology suppliers, I would always marvel at an industry-wide sales phenomena. Most suppliers employed some hideously expensive business development professional, usually in the Los Angeles area. This person was well-armed with an endless entertainment budget to take the largest 6 to 8 technology buyers in Hollywood out to lunch and dinner in a revolving cycle. The business logic was to keep a friendly face in front of large customers such that when capital budgets were deployed the supplier would have a slightly better competitive position in the upcoming purchase evaluation.
The theory of this sales approach was poor; its practical application a disaster.
The skillset of these business development executives was navigating corporate hierarchies at the customers, selecting restaurants, and pairing wines with seasonal entrees. Human nature would ultimately drive discussions over the course of lunch to product wish lists. So, while not the intention of the relationship, it become an expensive bridge of customers carping for features and enhancements, funneled through a sales-commission entity, into the pole position of a supplier’s product roadmap.
The net result of the experiment in business development did not source deals as much as it bought to heel the research and development progress of suppliers and made them slavishly dependent on a few large customers, which in turn destroyed all prospect of scaling the supplier business.
Amplifying on the business development problem were the structural issues inherent in deploying on-premise workflow and asset management software in the media industry. The orthodoxy of the time was to rely on a single vendor for enough of the solution to anoint them the ‘throat-to-choke’ in the instance of a problem. Since in practice the appointment of a workflow supplier was an undivorceable lifetime commitment, these installations proceeded in maddeningly slow increments to attempt to anticipate any possible future want, issue, or integration.
An all-time quote we gathered about the process of buying a media asset management system from then Program Architect – Digital Asset Management at CBC, Bruce MacCormack. The full quote is below (excerpt from 2019 Devoncroft Executive Summit | Las Vegas).
The sad consequence of this market failure was unhappy customers balanced by a multitude of equally unhappy suppliers. Unhappy is a gentler term than most customers would cite in anonymous studies. The opinion and recommendation scores recorded in the annual Big Broadcast Survey over the past decade (and associated free text) described an emotional state at customers bordering on anger. We would often cite charts like the below to highlight the frustration of asset management users (another excerpt from the 2019 Devoncroft Executive Summit | Las Vegas).
Curiously, most supplier would react to the above data point, by rationalization they were the one well-liked supplier in the ocean of unliked. They were not.
The larger, tragic mosaic is assembled from these individual business model tales. Because the business model is unattractive, the technology suppliers struggled to attract investment, and lacking investment it has been challenging for those same suppliers to produce any meaningful innovation in the tools. We are not the only ones having noticed this structural failure.
The below is excerpted from Frame.io’s Series A press release in September 2016 (in the voice of CEO Emery Wells):
“I’ve been a professional filmmaker for nearly 14 years and it’s frustrating to see how underserved our market is. Sure we have cool desktop tools like Adobe Premiere and Final Cut Pro X and new distribution channels like YouTube, Vimeo, and Netflix. But that’s where the innovation stops. Great video is created by teams of specialists in multiple disciplines. There’s very little software being built to help us work better together, removing the barriers to collaboration so we can focus on what we do best. The software that does exist certainly isn’t being built by people who deeply understand how video gets made. We’ve been stuck collaborating with a mishmash of consumer software solutions that were designed for a totally different purpose.”
Here is a quote from the venture lead in Frame.io’s Series B round, Amish Jani Managing Director of FirstMarket Capital:
“Frame.io is transforming the way companies approach the business of creating video. This latest investment will help Frame.io scale and continue developing a world class product for a creative community that has traditionally been underserved by technology.”
In direct contrast to “yesterday business model” described above, anyone at any organization can start using Frame.io at any time. Further, the nature of the tiers of pricing, allows multiple anyones at an organization to grow their commercial commitment to Frame.io. Because of this characteristic, sales and marketing resources do not have to be concentrated on a few senior buyers, at a few large companies, in single geographic location. Instead, a supplier is freed to invest in the product and in a coherent manner altogether different than reacting to what one person at a large customer happened to want over lunch on a Wednesday.
First among the innovations noted earlier was Frame.io’s introduction of its ‘Camera to Cloud’ workflow in early 2021 (announced in early February, shipped in late May). With an assist from SVG’s Brandon Costa, this is a big deal.
Movielabs – the studio consortium of Paramount, Sony, Disney, Universal, and Warner Bros – published a whitepaper in October 2019 titled, “The Evolution of Media Creation: A 10-Year Vision for the Future of Media Production.” Under the section heading of “What could media creation look like in 2030?” you will find the following passage: “We can expect that media creation workflows will be cloud based with every file (from first script, to camera captures, VFX assets and audio tracks) stored in the cloud.”
The example sets up the already well-understood conclusion: customers want this functionality.
During the Frame.io live event announcing C2C, CEO Emery Wells appeared on the Paramount backlot to set the context for what this announcement meant for the industry.
“We are standing at the precipice of the next major change in the way that we capture and distribute moving images, and this will be as profound a change as the transition from film to tape, and tape to files. To get through this next transition, we need the industry to come together to connect the set to the cloud” stated Wells.
We are at a loss for suggestions on how to further improve the announcement.
Of course, regardless of level of innovation or quality of announcement, Frame.io did still need to market its solutions to the buying community. It’s manner and execution are worth a review.
A July 2019 post by Frame.io’s Head of Data, Matt Ruttley provides a window onto the Company’s sales process. “We leverage a variety of different channels for growth – drip email campaigns, Facebook, YouTube, Twitter, Google AdWords” writes Ruttley.
Across all its marketing efforts, its own web properties, and platform signups, Frame.io was organizing these discrete interactions into ‘user sessions’ (which is defined as contiguous activities without a 20-minute gap).
The tie back to the platform signups and usage completes the circuit of understanding. Ruttley indicates 71% of Frame.io users signed up during their first tracked session. In a series of comments, Ruttley describes the capabilities this intelligence gave the marketing department.
“We can easily calculate the average LTV per campaign or channel with a simple SQL group-by. We can gauge the stickiness of a source — e.g. do our YouTube ads give us customers who last for a long time or quickly churn?”
LTV is an abbreviation for ‘life time value’ of a customer relationship. All the inherent data (from a SaaS platform) of customer usage yields an informed view of the value of a customer, and the data described in Ruttley’s post allows for a detailed understanding of the cost of acquisition (and by extension the effectiveness of various marketing channels). This enables marketing optimization.
In other words, the marketing approach was not flash for flash’s sake. There was sophistication in every activity – trade show attendance, campaign, pricing decisions, etc.
Incidentally, here is a chart adopted from the post, which illustrates where Frame.io users first heard about the product.
We query suppliers about stats like LTV of a customer relationship and receive honest and disappointing responses of the ilk “it is hard to track.” Well, a certain supplier that just managed a $1B cash exit in your market was calculating it every four hours.
To complete the discussion of sales, the below lists the booth presence for Frame.io at the major trade events in the media technology industry.
Depending on your viewpoint, you can view the 2019 NAB Booth commitment as the capstone or the aberration of the team’s trade show strategy.
Source: Frame.io blog | NAB Show 2019
In Adobe’s press release announcing the transaction, Frame.io’s user base is described as “over a million users across media and entertainment companies, agencies, and global brands.” The fact sheet about the deal on Adobe’s investor relations site has a softer statement, “nearly 1 million users across media and entertainment companies, agencies, and global brands.” For the purposes of estimating Frame.io’s revenue it is really important to highlight how neither statement uses the modifier ‘paying’ before the noun ‘users.’
Frame.io began using various forms of the 1 million users with its Series C announcement in November 2019. The 1 million figure has persisted into the collateral around this acquisition, suggesting either tremendous attrition with free users, a sluggish update of the collateral, or a view that finer visibility above 1 million was not meaningful. Going backwards, the below chart highlights the growth of platform users taken from various public statements by Frame.io management since the Company’s inception.
To better understand developments during the COVID disruption in early 2020, Frame.io conducted a survey of its customer base. The demographics of the survey respondents is a good stand-in for the overall demographics of the Frame.io customer base (illustrated below).
One of the more interesting observations is the familiarity of the user breakdown. Production, Freelance, and Media/Tech are familiar buyers and represent 80% of the respondents. If this is representative of the Frame.io customer base, it is a familiar group of buyers; rather than some here-to-fore unseen buyer category.
TechCrunch’s coverage of the Series C fundraising extracted the following data point from Frame.io’s CEO: of the 1 million active customers, around 17,000 were from paying accounts (or about 1.7% of the user base).
In the context of discussing revenue that may seem disappointing, in the context of discussing future revenue that represents a fantastic opportunity. By virtue of its business model, Frame.io was already well on your way to convincing the next set of customers to start paying for the product.
Having already reviewed the price points of the product, we can use the paying account figure to bookend estimates for the Frame.io’s run-rate in late 2019. To keep it simple let’s lay out the implied annual revenue run-rate from the givens of 17,000 paying customers across average price points of $19 – $25 (note: the 3-person rate works out to a little over $16 and there is a 13% discount for an annual commitment).
For those attempting to better triangulate possible revenue levels across the average price spectrum, in late October 2017 Emery Wells told Techcrunch 70% of users were from the self-service tiers, with the balance at large enterprise clients.
At 100 employees, weighted to engineers and sitting in New York, the business was not only unprofitable in late 2019, but almost certainly running at a meaningful loss. Again, consider the exit, prioritizing revenue growth over profitability was emphatically the correct decision by management.
In the roughly 18 months between the Series C disclosure and the acquisition announcement much has occurred. During the January 2021 podcast, Wells indicated the 2020 work disruption was a significant accelerant to Frame.io’s business (unsurprisingly).
As a thought experiment let’s attempt to estimate the current run-rate of Frame.io by re-using the blended average price points from above and adding a sensitivity for the growth of the paying customer base.
At 240 employees at acquisition date, sitting in Los Angeles and New York, it is unlikely profitability had been achieved. But again, consider the exit, this was the correct decision.
The next observation is the valuation.
Observation 3: A $1,275,000,000.00 cash valuation
Notwithstanding all the above, we confess our first reaction to the acquisition price was that Adobe’s calculator has a sticky zero key.
Bloomberg’s article covering the acquisition quotes Scott Belsky, Adobe’s chief product officer and EVP of Creative Cloud, offering a rationale for the transaction. Bloomberg writes “Belsky said Adobe wanted to buy New York-based Frame.io after it realized that its customers were using it with Adobe’s suite of products. Adobe considered building its own tools to make it easier for teams to edit video together but ultimately decided to buy Frame.io instead.”
The logic is simple and no need to complicate. We want it, you have it. Up to and including the moment of negotiation Frame.io did everything needed to get a $1,275,000,000.00 valuation. Not a bad result when measured against total fundraising of $82,200,000 or a variety of other business components in the public domain.
When one considers Deluxe’s bankruptcy in late 2019 ($0 equity value), Technicolor’s quasi-bankruptcy in 2020 (negligible equity value), public comparable trading levels, and recent M&A valuations, a persuasive case could be made the valuation of Frame.io is larger than the entire equity value of the post-production services market.
Though no financial numbers are disclosed, the prior revenue sensitivity analysis is strong evidence that trailing financial performance of Frame.io is not the basis of the valuation by Adobe; nor is any reasonable extrapolation of near-term growth. Taken to the extreme, one could replace Frame.io revenue with the sum of spend for the functional category and would still fail to offer a traditional, financial baseline for the valuation.
Let me pause and relay an anecdote from my banker days. The setting is a board meeting. Having completed a 45-minute presentation reviewing the valuation of the business, a board member asked the following: ‘this has been an exercise in valuing the business, as opposed to valuing the business to a specific, potential acquirer.’ It struck me then as precisely the statement a formerly important person says to feign profundity, though it has a kernel of truth.
What is Frame.io worth to Adobe?
Adobe has $5.7 billion of cash reserves, generates almost $6 billion of cash a year, borrows at sub-300 basis point interest rates, and its shares trade in notional daily values of greater than $1B. If Adobe wants something in the media technology sector, price is not a materially concern.
Adobe has limited options to invest the massive amounts of cash generated by its business. It does not pay a dividend. It bought back almost $2 billion worth of its stock in the first part of its 2021 fiscal year at valuations more than 50x annual EBITDA (we used to consider such levels expensive).
Adobe is not a bank. Meaning it is unwise to amass large cash balances for the purposes of generating interest income. Adobe’s management needs to generate technology sector equity returns with its resources. At the close of stock trading yesterday, Adobe had a market capitalization of $312 billion. Only really big growth ideas are worth Adobe’s time.
Growth rates have not been a challenge for Adobe since its own transition to SaaS in the early 2010s.
For those less familiar, Adobe’s Creative Cloud offering is a subset of its Digital Media Report group. The apps constituting Creative Cloud are illustrated below. Most relevant to Frame.io is Premier Pro (editor) and After Effects (Rendering).
Creative Cloud business has grown ~85% in the past three years, and Adobe’s investor communications indicated Premier Pro’s annual recurring revenue increased by more than 40% during 2020.
Organic growth initiatives (hiring employees, expanding service offerings) take time, are difficult in practice within large business, and are funded through the income statement. Adobe’s has a lauded profitability reputation to maintain, with its 35%+ operating margins. Acquisition initiatives get to the same end-goals as organic, just faster, and through balance sheet transactions.
Cash goes out, Frame.io assets come in, and a goodwill ledger entry balances the equation. Frame.io will have no material income statement impact on Adobe ($13 billion annually), its digital media reporting group ($9.2 billion annually), or Creative Cloud ($7.7 billion annually).
Since Adobe needs to invest in growth, Video – broadly stated – is in fact a growth story. Expect some additional mentions of video during updating investor communications.
To get to such a lofty valuation level, you can’t use too many data points from today, you need future estimates.
“Just add Adobe” makes a lot of business planning easier. But feeding the machine of “just add Adobe” requires dependable multi-billion, steady revenue streams – oh and with an operating margin profile of 30%+.
One possible approach to back into the valuation is stop thinking in terms of revenue and profit or annual time scales. A more creative approach might focus solely on lifetime value of the customer base. Frame.io may have a view of not only the lifetime value of its paying users, but the lifetime value of its not-paying users (some portion of which will become paying users). Such a figure when applied to the Creative Cloud user base may start to get you into the ballpark of this valuation because the addition of the Adobe install base adds an equation variable with lots of zeros. This approach would lead to a simplified equation of the form below.
Some might chuckle at the above mental gymnastics. Adobe’s accountants will need to conduct some form of the above analysis to justify the goodwill balance entry going onto Adobe’s accounts.
Adding fodder to the potential communications from enterprising readers, Adobe believes that by 2023 there will be 49M Creative Professionals globally in the target market for Creative Cloud. There is no crisp disclosure of the number of Creative Cloud users. Working backwards from annual recurring revenue and price points yields a figure likely greater than 20 million paying users. In what quantity and in what manner would you need to attach Frame.io’s offering to the Creative Cloud future install base to justify this valuation level?
Observation 4: Information disclosure by large technology supplier
Out of equal parts frustration and curiosity, let us comment on the lack of any material disclosures about the transaction (at least at this stage). A publicly traded technology supplier has committed to spending over $1 billion of cash (about 20% of its reserves) and offered almost no objective financial rationale for the expenditure to its investors.
Do not misunderstand: the press approach is good, including a great tag line, “Adobe to Acquire Frame.io: Acquisition Brings Together Adobe Creative Cloud’s Leading Video Capabilities with Frame.io’s Cloud-first Workflow Functionality to Create End-to-End Video Collaboration Platform.”
To some extent the story is simple:
- Wonderfully scalable SaaS business model
- Alignment with trend toward distributed work, accelerated by COVID
- Core part of cloud product workflows
Contained in the press release, between the tagline and a series of quotes from the principals – ‘glad to have you on board’ followed by ‘glad to come on board’ – are the following three, bulleted aphorisms:
- Collaboration is the next wave of creativity
- Video workflows must empower all stakeholders
- Innovation benefits the video ecosystem
Can you imagine any point in the historical record or any point in time in the remaining timescale of human civilization where those three points will not be true?
There are no explicit disclosures to cite from Frame.io. It is a private company without any notable regulatory financial disclosures.
We are left longing for some form of paperwork exchange between Adobe and government entities. Not to hold up the deal, but rather to create a public reference about the ACTUAL size of the video production technology markets across – counting all geographies and possible industry verticals.
Our interest stems largely from the curious observation that most industry participants do not want to believe the ACTUAL size of the video production technology market is the sum of the sales of the individual technology suppliers. For those with faith about the size of the non-professional video markets, no evidence is required; for those without faith about the size of the non-professional video markets, no evidence is available. We want to believe.
Like a poke in the eye, the fast facts sheet on Adobe’s investor relations website indicates ‘N/A’ for Frame.io. One presumes the author does not in fact mean ‘not applicable,’ as we would imagine a target acquisition’s revenue level would have great application to an investor understanding its value. Rather the author intended to say something of the form – “don’t have to disclose, won’t disclose.”
Assuming an investor does not have an informed view of the economics of the cloud-based video collaboration software segment, then said investor will need to determine the value of Frame.io (to Adobe) by working forward from the disclosures of its headquarters location (New York), number of employees (240), and a good-old-vague statement about its user base.
Perhaps the closest to a market disclosure we can expect is the next update to Adobe’s investor communication as it pertains to Creative Cloud’s addressable market. One would anticipate this growing to include the potential of Frame.io’s offering. If not, what is the point of the deal?
At the close of last fiscal year, Adobe indicated its addressable market for Creative Cloud would be $31 billion in 2022 and should grow to $41 billion in 2023 ($20 billion of that figure attributable to Creative Professionals).
Adobe has earned the latitude to say nothing. When you trade north of 20x sales and your stock has risen 543% over the past five years, you don’t have to justify decisions – you just say they are good ideas because the investing public believes you implicitly.
In a situation where the audience presumes genius, there is no advantage gained by speaking.
Observation 5: This is good for the media technology sector
For those expecting more of an invective about the pricing of the deal, there is virtue in what was achieved here, and it is broadly beneficial for the ecosystem for a high-profile exit. Most of the broader goals of the media technology community require attracting greater levels of investment to accomplish.
A few months ahead of the anticipated return of in-person trade events, this transaction is a good catalyst for an altogether different discussion about the notion of value in the media technology sector. We are planning a longer review of the matter at the 2021 Devoncroft Executive Summit (co-located at NAB Show). The short form of the statement is value has transitioned away from its historical location within easily described point solutions, solving discrete problems.
The transition has been occurring for some time.
In early 2017, after a lengthy financial restatement, and at the start of a business model transformation, Avid again began communicating publicly about its internal strategic review. Then Avid CEO Luis Hernandez, Jr. talked about how the value proposition of post-production was no longer “about just building a better editor.” The Avid team shared a data point indicating roughly 25% of the cost of post-productions solutions was attributable to the interoperability component.
The $1.275 billion valuation of Frame.io would suggest much more than 25% of the value of a post-production solution is in interoperability.