Lockup Jitters Tank Figma Stock. What’s Next?

Figma’s stock (NYSE:FIG) fell nearly 15% in after-hours trading despite reporting a strong set of second-quarter results which saw revenues rise 41% with the company raising its full-year guidance to $1.021 to $1.025 billion, reflecting strong demand for design tools. The sell-off comes amid investor concerns beyond the headline financials, with news that about 25% of employee-held shares have become eligible for sales from September 5, sparking fears of higher supply and a stock price correction.

Image by Mudassar Iqbal from Pixabay

Earnings Strength

Financially, the quarter was robust. Revenue grew 41% year-over-year to $249.6 million, supported by strong customer demand and multiple product launches. Figma posted net income of $28.2 million, with the non-GAAP net income standing at $19.8 million, up from $14.28 million last year. Other operating metrics also remained strong. The company’s 129% Net Dollar Retention rate indicates impressive customer loyalty and expansion, while its Rule of 40 score (sum of margins and revenue growth rates) stood at 63 indicating that the company is balancing growth and profitability. During the quarter, Figma launched four new tools – Make, Draw, Sites, and Buzz – broadening its platform across design, prototyping, publishing, and marketing. Besides this, the strategic acquisitions of Modify and Payload also enhanced the companies capabilities in areas such as motion, animation, and content management. Figma Stock Downside To $40

Stock Sell-Off

The strong fundamental performance was overshadowed by concerns about a rising supply of the stock. IPO lock-up expirations often create selling pressure as insiders and employees gain the ability to cash out. In this case, about 25% of employee-held shares will become eligible for sale post the earnings report, creating an overhang on the stock. Although top executives were excluded, investors are assuming that many employees would take profits after the stock’s sharp post-IPO appreciation. Figma debuted at $33 per share and, even after the sell-off, still trades around $58. The current early expiration of the lock-up period is tied to performance and timing conditions, and investors likely didn’t see this coming. There is also a longer, extended lock-up agreement covering most major stakeholders that will continue until around mid-2026.

Valuation Concerns

Looking ahead, management guided for Q3 revenue of $263 to $265 million and a full-year target between $1.021 billion and $1.025 billion. While the ongoing investments in AI-powered tools and platform expansion remain key drivers for Figma, valuation remains a sticking point. Trading at over 30x forward revenues, Figma stock is valued at a premium multiple that already prices in substantial growth. In comparison, Adobe (NASDAQ:ADBE) trades at under 7x forward sales, Microsoft (NASDAQ:MSFT) at 12x, while Snowflake (NYSE:SNOW) at 18x times revenues. Figma’s long-term bullish outlook relies on expanding its market beyond its original designer base to include software developers, marketers, and cross-functional teams. Without significant progress in these adjacent markets, Figma risks becoming stagnant in a niche, which could hinder its ability to command valuations seen with big tech giants.

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