Figma is on the cusp of a potential breakout, even as the IPO market has generally remained quiet in the wake of the AI boom. With significant excitement surrounding artificial intelligence initiatives, Figma stands out as the only major software-as-a-service (SaaS) company to have launched an IPO in the last year.
After going public on July 31 at an opening price of $33 per share, Figma saw its stock soar to a high of $142.92 the next day, before subsequently losing nearly all its gains. By January 9, the company’s stock closed at $37.33, just marginally above its initial offering price and down almost 75% from its all-time high. This level of volatility is not uncommon for IPOs, yet Figma’s performance has raised alarms, especially after the company reported earnings twice post-IPO, disappointing the market despite posting strong financial results.
Currently, Figma holds a market capitalization of approximately $18.5 billion. Although traditional valuation metrics suggest that the stock may not be a bargain, there are several compelling reasons to consider it a smart investment at this juncture.
One key factor is Figma’s current market cap, which is surprisingly lower than Adobe’s previous valuation when it attempted to acquire Figma for $20 billion in 2022. The failed acquisition was thwarted by regulatory issues concerning antitrust, but this comparison highlights Figma’s decreased valuation from a time when it was considerably smaller and before the AI revolution came into play.
Significantly, Figma is making strides in the AI sector. While many companies are benefiting from increased investment in AI technologies, Figma faced backlash from Wall Street for announcing that its own spending on AI might impact profits. This investment, however, seems prudent given that UX/UI development aligns naturally with AI-driven features. The company has recently introduced a suite of AI-centric tools, including Figma Make, a tool for generating code, Figma Sites, for creating responsive websites, and Figma Buzz, targeted at marketing and branding teams. Furthermore, Figma’s acquisition of Weavy—now rebranded as Figma Weave—reflects its commitment to integrating AI capabilities into its offerings.
The company’s financial performance is also noteworthy, reporting a healthy 38% increase in revenue to $274.2 million in the third quarter, alongside a solid adjusted operating income of $34 million. Despite a one-time non-cash expense related to its IPO, Figma has demonstrated a consistent history of profitability. Currently, the company has a price-to-sales ratio of approximately 15 when accounting for $1.5 billion in cash and marketable securities, positioning it favorably against other software stocks.
Taking all of these factors into consideration, Figma’s stock appears to have some substantial upside potential. With support from both its strong financial metrics and the validation from Adobe’s past interest, there’s ample groundwork for the stock to potentially double or even exceed its previous highs within the year. As Figma navigates this tumultuous market landscape, its investments in AI technologies and persistent growth could position it as a dominant player in the web design software arena.
