Figma Stock Falls 55%: Deal or Falling Knife at $50?
Interface design software company Figma’s stock (NYSE:FIG) has faced a steep correction, sliding nearly 24% over the past month and remains down more than 55% from the highs it reached shortly after its IPO in July. To be sure, such volatility is not uncommon for newly public companies, but Figma’s sky-high valuation at listing – trading at more than 60x forward sales – made the subsequent sell-off more severe. Investors who chased the post-IPO rally are potentially now nursing big losses, while new buyers are wondering if the dip is a rare entry point. So the key question now is whether this sharp reset now makes the stock a buy.
Why The Stock Sold Off
A couple of factors have driven the price correction. Revenue momentum is starting to cool. While FIG’s second-quarter sales rose 41% year-over-year to $249.6 million, that marks a step-down from the 46% revenue growth rate the company posted in Q1. The slowdown appears that it will persist, with Q3 revenue projected to rise 33% at the midpoint of guidance. Even though that remains a healthy expansion by most standards, it represents a steep deceleration in Figma’s growth trajectory and especially considering Figma’s high valuation. The company’s full-year forecast of about 37% growth implies that Q4 growth might actually ease further to levels of 30%, underscoring a clear trend of a slowdown.
The company’s move to make about 25% of employee-held shares eligible for sales from September 5 were also a big reason behind the sell off. IPO lock-up expirations often create selling pressure as insiders and employees gain the ability to cash out. Although top executives were excluded, many employees would have likely taken profits after the stock’s sharp post-IPO appreciation. There is also a longer, extended lock-up agreement covering most major stakeholders that will continue until around mid-2026.
So Is The Sell Off An Opportunity To Buy?
Post the sell-off, Figma stock trades at just about 25x estimated 2025 revenue, down sharply from the 60x levels of its post IPO peak. At these levels, the stock may appear more approachable, but investors need to weigh growth prospects against risks. In comparison, Adobe (NASDAQ:ADBE) trades at about 7x forward sales, Microsoft (NASDAQ:MSFT) at 12x, while Snowflake (NYSE:SNOW) at 17x times revenues.
There are clearly still a lot of positives for Figma. The company’s product is well-loved by customers who are highly engaged with the company’s offerings, with a strong customer retention and workflow lock-in among design and product teams. 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. The company also counts 78% of the Forbes 2000 as customers, indicating that its software is widely adopted.
However, the lead is hardly unassailable. Microsoft (NASDAQ:MSFT) is integrating design tools into its widely used Office 365 suite, and this could potentially capture more enterprise users. See Microsoft’s revenue breakdown. Smaller but rapidly expanding players like Canva are broadening their product offerings. Additionally, emerging AI-native tools, including those from companies such as OpenAI, could disrupt traditional design platforms altogether and reduce market share for incumbents like Figma. Ultimately, the stock’s future depends less on its past hype and more on execution – how well Figma can grow beyond its core designer base to capture a broader enterprise audience. Without progress in these adjacent markets, Figma risks becoming stagnant in a relatively niche segment, which could hinder its ability to command valuations seen with big tech giants.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap — and has achieved returns exceeding 91% since its inception. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates