TLDR
- Figma stock crashed 26% this week and is down 55% from its post-IPO high of around $298
- The company reported solid Q2 results with 41% revenue growth year-over-year but provided weak guidance
- Q3 revenue guidance of $263-265 million implies growth slowdown to 33% from 41%
- Morgan Stanley cut price target from $80 to $70 while maintaining Equal Weight rating
- Stock trades at extreme valuations with 185x earnings and 25x price-to-sales ratio
Figma stock took a beating this week, falling 26% through Friday morning despite reporting what appeared to be solid quarterly earnings. The design software company has now crashed 55% from its post-IPO peak.
The stock opened at $85 on its first trading day after pricing at $33, soaring over 250% in a single session. Those glory days seem like ancient history now.
Figma’s Q2 results showed impressive top-line growth. Revenue jumped 41% year-over-year as the cloud-based collaboration platform continued gaining users. The company also posted positive cash flow and profitability.
But investors weren’t buying the good news. The problem lies in what comes next.
Growth Concerns Mount
Figma’s third-quarter guidance painted a different picture. The company expects revenue between $263 million and $265 million for Q3. That represents just 33% year-over-year growth at the midpoint.
The deceleration from 41% to 33% growth spooked investors who had become accustomed to breakneck expansion. For a stock trading at such lofty multiples, any hint of slowdown triggers selling.
Full-year 2025 guidance wasn’t much better. Figma projects revenue between $1.021 billion and $1.025 billion. That works out to 37% growth at the midpoint, still strong but below recent trends.
Morgan Stanley analysts weren’t impressed either. The firm reduced its price target from $80 to $70 while keeping an Equal Weight rating.
Valuation Reality Check
The analyst’s concerns center on valuation. Even after this week’s plunge, Figma trades at 185 times forward earnings estimates. The price-to-sales ratio sits above 25 based on current year projections.
Those multiples are extreme even for a high-growth software company. Most successful tech stocks trade at fractions of those levels once growth begins normalizing.
Morgan Stanley sees Figma as a market-leading platform well-positioned for generative AI integration. But the firm believes current valuations limit near-term upside potential.
The comparison to other overvalued growth stocks is telling. Tesla trades at roughly 200 times forward earnings, but investors justify that premium based on robotaxi and humanoid robot potential.
Figma operates in a more mature market. While design software continues growing, artificial intelligence could eventually automate many tasks the platform currently handles.
The company delivered best-in-class revenue growth and positive operating margins in Q2 while investing in AI capabilities. Management continues building out generative AI features across the platform.
But for investors, the math doesn’t add up at current prices. The stock needs either accelerating growth or a major valuation reset to become attractive again.
Wall Street consensus puts the one-year price target at $71.12, suggesting limited upside even with analyst optimism. Most coverage remains neutral to cautious given valuation concerns.
