Figma Stock Looks Great, But the Price Tag Will Make Your Wallet Weep
Figma's fundamentals shine brighter than a Bitcoin at ATH—until you see the valuation.
Design Dominance Meets Financial Reality
The platform's user growth rockets while traditional SaaS stocks crawl. Enterprise adoption hits record highs as remote work cements Figma's throne. Integration capabilities slice through legacy design tools like a hot knife through butter.
But that premium pricing? Makes Wall Street's fee structures look almost reasonable. Bulls tout recurring revenue streams while bears whisper about valuation multiples that defy gravity—and basic math.
Investors face the classic tech dilemma: pay today's premium for tomorrow's potential, or watch from sidelines as another disruptor eats the market. Just remember—every 'can't miss' opportunity usually comes with a price tag that already assumes it won't.
Image source: Getty Images.
Quick growth and rising profits
Figma generated $249.6 million in revenue during the second quarter, up 41% year over year. Growth will slow a bit in the third quarter, with the company guiding for revenue between $263 million and $265 million, good for a 33% increase. For the full year, Figma sees revenue expanding by 37% and topping $1 billion.
Much of Figma's growth is being driven by successfully expanding relationships with existing customers. For customers spending at least $10,000 annually, the net dollar retention rate was 129% in the second quarter. There are nearly 12,000 customers that fall into that group, and they're aggressively expanding spending on Figma's products.
More impressive than Figma's growth is its profitability. Figma is already profitable on a GAAP basis, a rare sight among software IPOs. The company's 89% gross margin certainly helps, but so does restrained spending. Figma spent $97.7 million on sales and marketing in the second quarter, or 39% of revenue, while research and development spending was lower at $83 million. This led to an operating income of $2 million, a small but notably positive number. Free cash FLOW was also positive at $60.6 million for the quarter. Both numbers show a major improvement year over year.
A rapid pace of product launches is one thing driving Figma's growth. The company launched four new products in the second quarter alone, including Figma Make for AI prototyping, Figma Draw for illustrations, Figma Sites for publishing websites, and Figma Buzz for marketing assets. More than 80% of Figma's customers used at least two products during the second quarter, and around 66% used at least three products.
The valuation is a big problem
Even with Figma's strong growth and improving profitability, it's tough to justify the stock's valuation. Despite the post-IPO and post-earnings plunges, Figma is still valued at roughly $25 billion. That puts the price-to-sales ratio based on the company's outlook for this year at an eyewatering 25. The price-to-earnings ratio, based on analyst estimates for full-year adjusted EPS, is around 170.
For investors to win at the current valuation, Figma must not only continue to grow quickly, but the market must also remain wildly optimistic on the stock. With the economic picture darkening, the latter seems unlikely.
At a more reasonable price, Figma has all the makings of a great long-term investment. But until the valuation comes back to earth, investors should tread carefully.
