Figma's Revenue Surge and Profitability: Why Did the Stock Plummet Despite 41% Growth?

Key Insights

  • Figma's growth trajectory appears to be decelerating quarter by quarter in 2025, a trend that has left investors unsettled.

  • The volatility of IPO stocks in their initial trading months was particularly pronounced for Figma, driven by a straightforward factor.

At the conclusion of July, design software innovator Figma (NYSE: FIG) made its debut on the stock market in what was hailed as one of the most anticipated initial public offerings (IPOs) in recent memory. However, the company's shares took a nosedive of approximately 20% on September 4, following the release of its inaugural quarterly financial report as a publicly traded entity.

Investors are hastily retreating for a singular reason: a marked slowdown in Figma's growth rate.

For the second quarter of 2025, Figma disclosed revenue of $250 million, representing a year-over-year increase of 41%. Undoubtedly, this growth rate stands out as one of the more impressive among publicly listed companies.

Additionally, Figma reported a Q2 net income of $28 million. In a landscape littered with cash-burning software enterprises, the emergence of a company boasting genuine profits is indeed a breath of fresh air.

Nevertheless, Figma's stock price has declined due to the rapid deceleration in growth. This development has clearly caught investors off guard.

The Impact of Decelerating Growth

Figma's software empowers its clientele to craft websites and applications, with its user base including industry giants such as Netflix and Duolingo. However, concerns are mounting that advancements in generative artificial intelligence (AI) could potentially erode Figma's market share. After all, why invest in Figma's services when generative AI might offer a more cost-effective alternative?

Figma's growth, however, had appeared resilient in the face of potential competitive threats from generative AI or other sources. In 2024, its revenue soared by 48% compared to the previous year. The first quarter of 2025 saw a robust 46% increase. These figures were undeniably impressive.

Figma's Q2 growth of 41% remains strong. However, it signifies a more worrying decline in the growth rate. To compound matters, management has projected third-quarter revenue of approximately $265 million, which translates to a growth rate of only 33%.

In essence, Figma's growth is decelerating rapidly, plummeting from a 46% rate in Q1 to an anticipated 33% in the upcoming Q3. Reading between the lines of its full-year guidance, management expects fourth-quarter revenue growth to further slow to just 30%.

The exact cause of Figma's rapidly declining growth rate remains unclear. While competitive pressures could be a factor, this may not be the sole explanation. However, given the prevailing investor anxiety, it didn't take much to trigger a mass exodus following the Q2 report.

The Crux of Figma's Stock Situation

As of this writing, Figma's stock has plummeted over 50% from its peak last month. Yet, the stock still commands a valuation exceeding 30 times sales, as illustrated in the accompanying chart.

Even when valuing Figma based on its projections for 2025, it still trades at approximately 27 times sales. Software stocks typically boast valuations between 10 and 20 times sales, provided growth and margins are sufficiently robust. However, 27 times sales is undeniably lofty. With Figma's growth decelerating, investors are left pondering how long this slowdown will persist, casting doubt on its valuation.

Some may question why Figma's valuation reached such heights initially. There's a relatively straightforward explanation: Post-IPO, Figma had over 487 million outstanding shares. However, the company and selling stockholders only offered about 37 million, or roughly 8%.

Following a couple of years of a stagnant IPO market, investors were eager to acquire Figma shares. Yet, the supply was relatively limited. This imbalance catapulted the share price. It's worth remembering that the IPO's original price was $33 per share. Even after the 50% pullback, it still boasts a gain of over 60% from its starting point.

This underscores why many experienced investors opt to wait before purchasing IPO stocks, regardless of their apparent attractiveness. IPO stocks can exhibit significant volatility in the initial months of trading.

The Road Ahead for Figma Shareholders

Ideally, those who invested in Figma are long-term investors with a well-defined investment thesis - a rationale explaining how the company will generate value in the coming years. Even the most successful companies experience periods of decelerated growth. Stocks can routinely undergo significant corrections before ascending to new highs.

Figma's management has publicly stated its intention to create shareholder value by taking "big swings." This could manifest as an acquisition, investment in emerging technologies, or other strategic moves. Investors in Figma stock hopefully factored this into their decision-making process. Given that the company has only been public for a month, insufficient time has elapsed for management to execute these swings. Patience, therefore, is paramount.

From a personal standpoint, I would be hesitant to invest in a company based solely on the prospect of some undefined future move - I would prefer to invest in a growing market opportunity and the ongoing potential of the business. Moreover, I would seek to invest at a reasonable valuation. Figma didn't meet these criteria for me.

While investors may have been disappointed by Figma's Q2 report and guidance for the remainder of 2025, it's premature for shareholders to abandon ship at this juncture, despite the valid concerns.

This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.
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