Figma Stock Tumbles 20%. Why Its First Earnings Report Since IPO Was Disappointing.

Figma CEO Dylan Field. (Michael Nagle/Bloomberg)

Figma, the design software developer that went public in late July and has more than doubled from its initial public offering price, reported its first quarterly earnings since its IPO Wednesday. The results missed forecasts, sending its stock sharply lower.

Figma posted sales of $249.6 million for the second quarter, up 41% from a year ago but slightly below Wall Street’s estimates for $250 million. The company earned $846,000, essentially a break-even quarter, and less than expectations for a profit of 9 cents a share. Net income was dragged down by allocations of profits to preferred shareholders. Backing that out, Figma earned $28.2 million.

Shares of Figma tumbled nearly 20% in early morning trading Thursday.

The company’s outlook appeared to underwhelm investors as well. Figma said it expects third-quarter revenue to be between $263 million and $265 million and that sales for the full year would be between $1.021 billion and $1.025 billion. Analysts were expecting third-quarter sales of $262 million and revenue of $1.022 billion for all of 2025.

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Figma, which went public on July 31 and soared 250% on its first day of trading, lost money in the second quarter of 2024. So the latest numbers are a vast improvement, and revenue growth continues to be robust, but hopes were high for an even stronger quarter.

Still, Wall Street has a lukewarm opinion of the stock. Only four of the 11 analysts tracked by FactSet that have initiated coverage on Figma recommend the stock as a Buy, with the remaining seven rating it a Hold.

A potential problem? Figma’s exorbitant valuation — shares trade for nearly 200 times earnings estimates for this year.

BofA Securities analyst Brad Sills said in an Aug. 25 report that Figma trades at “a significant premium to the large-cap software group.” Rival Adobe, which actually had a deal to buy Figma in 2022 for $20 billion, is valued at just 17 times earnings forecasts. The merger plans were scuttled in December 2023 due to antitrust concerns.

Figma’s earnings will be a test of investors’ appetite for pricey new stocks. Shares of Stablecoin company Circle Internet Group, which soared on its first day of trading in June, have cooled off lately, despite the company posting healthy earnings in August.

In fact, both Circle and Figma are well off the highs they hit in the immediate aftermath of their debuts—even though they remain well above their IPO prices. Circle, which went public at $31 and now trades around $122, surged to just under $300 in its first two weeks as a public company. Figma, hovering around $65.50 after pricing its IPO at $33, peaked at a little below $143 on its second day of trading.

BofA’s Sills, who has a Neutral rating on Figma, thinks “near-term upside is largely priced in” to the stock. He also is concerned about competition that “could take share and cause disruption,” as well as the potential for artificial-intelligence leading to more automation, which could impact revenue.

The AI threat looms large over much of the software industry. Shares of Salesforce, which is also reported earnings on Wednesday, have plunged this year, largely due to fears about AI hurting sales.

Figma Chief Financial Officer Praveer Melwani dismissed those concerns, saying the company has continued to invest in AI and expand its platform. CEO and co-founder Dylan Field added that “we’re excited to keep building for our customers and help define the next era of digital products and experiences.”

Rishi Jaluria, an analyst with RBC Capital Markets, also isn’t as worried about AI cannibalizing Figma’s business. He wrote in a report on Aug. 25 that “while investors may have concerns that AI may simplify application design/development, therefore competing with Figma, we believe AI could be a real tailwind for Figma.” That is because Figma is developing AI products of its own, such as Figma Make, an AI-powered prototyping tool.

However, Jaluria—who initiated coverage on Figma with a Sector Perform, essentially a Hold rating—is also worried about the stock’s lofty price. “We view shares as fully valued and would wait for a better entry,” Jaluria wrote.

Figma arguably benefited from too much hype surrounding its IPO, just like Circle and other recent buzzy debuts, such as crypto trading platform Bullish and medical imaging software company Heartflow. Even though a company may be a promising growth story, that doesn’t necessarily mean it’s a great investment at any price. It looks like Figma and several other newly public companies just got way ahead of themselves.

Write to Paul R. La Monica at paul.lamonica@barrons.com