To The Moon

$Figma(FIG)$

Figma (NASDAQ: FIGM), the design software company that has become a darling of creative professionals and enterprises alike, has just delivered its highly anticipated first earnings report as a publicly traded company. At first glance, the results looked solid: the company exceeded revenue expectations, delivered breakeven earnings per share, and issued guidance that came in ahead of consensus forecasts.

Yet despite the strong showing on paper, shares of Figma plunged by as much as 15% immediately following the report. For a high-profile IPO with strong growth narratives, this decline rattled both retail and institutional investors. Some questioned whether this was simply a “buy the rumor, sell the news” moment, while others worried that cracks in Figma’s story may be emerging just as Wall Street turns its microscope on the business.

The question now is clear: was this pullback a temporary dip in a long-term growth story, or a warning signal that Figma’s best days could already be behind it?

A Strong First Earnings Report

Figma reported revenue of $249.6 million in the second quarter of 2025, slightly above the $248.8 million expected by analysts. While the beat was modest, it was an important signal for a newly public company, affirming that management can deliver against Wall Street’s expectations.

Equally significant was Figma’s bottom-line improvement. The company posted breakeven EPS and net income of $846,000, compared to a staggering $827.9 million loss in Q2 2024. This is more than just a financial headline—it demonstrates that Figma is successfully transitioning from “growth at all costs” to a more disciplined, profitable operating model.

This pivot is particularly important in today’s macro environment, where investors have become increasingly intolerant of companies burning through cash without a clear path to profitability.

Forward Guidance: Stronger Than Expected

Beyond headline results, Figma provided forward guidance that surpassed expectations. Management projected both third-quarter and full-year results ahead of consensus, signaling confidence in its demand pipeline and ability to scale.

Key takeaways from guidance:

• Revenue growth is expected to accelerate modestly, reflecting strong enterprise adoption.

• Margins are expected to improve, as the company continues to optimize spending and leverages its subscription-driven business model.

• Net income is likely to remain near breakeven or modestly positive, barring unforeseen headwinds.

This guidance paints a picture of a company with solid fundamentals and strong visibility into customer demand. Yet, the market’s reaction was less about fundamentals and more about expectations, supply overhang, and valuation dynamics.

Lock-Up Extensions: A Double-Edged Sword

One of the more underappreciated elements of Figma’s announcement was the update on shareholder lock-ups. Roughly 35% of insiders have voluntarily agreed to extend their lock-up period, meaning they will refrain from selling their shares when restrictions begin to expire.

On the surface, this is a bullish signal. Extended lock-ups are typically interpreted as insider confidence in the company’s long-term value. If early backers—who arguably know the business best—are willing to hold, that implies faith in Figma’s growth trajectory.

However, the other side of this story is less flattering. The remaining 65% of insider-held shares will still be eligible for sale once the standard lock-up period ends. Investors are understandably nervous about this potential supply hitting the market, which could put significant downward pressure on the stock, regardless of fundamentals.

This dynamic is common in the months following an IPO. Early employees, VCs, and institutional investors often take profits, and the sheer volume of shares unlocked can outweigh the underlying health of the business in the short term.

Why Did Shares Fall Despite Strong Results?

The sharp post-earnings decline might appear counterintuitive given Figma’s beats on both revenue and guidance. But in the stock market, the narrative often matters as much as the numbers. Several factors explain why shares fell so sharply:

1. Premium Valuation Figma debuted as one of the most richly valued software companies in recent memory. With revenue growth slowing from hyper-growth levels and the stock priced for near-perfection, even modest results can feel underwhelming.

2. High Investor Expectations The IPO hype around Figma painted it as the “future of collaborative design,” setting the bar extremely high. Investors likely wanted to see a blowout quarter, not just a narrow beat.

3. Lock-Up Overhang Concerns about insider selling remain a weight on the stock, despite the partial extension agreements.

4. Sector Sentiment Growth tech stocks have faced increased volatility amid rising interest rates, inflationary concerns, and a shifting macro landscape. Even high-quality names are not immune from sector-wide sell-offs.

Figma’s Fundamentals: Strengths and Weaknesses

Let’s zoom out from the market reaction and assess Figma’s core business.

Strengths:

• Rapid Adoption Curve: Figma has become the default design platform for many companies, replacing legacy desktop tools with a cloud-based, collaborative model.

• Recurring Revenue: Subscription-based revenue provides predictability and scalability.

• Global TAM Expansion: The total addressable market (TAM) for design and collaboration software continues to expand, particularly as remote and hybrid work persist.

Weaknesses:

• Competitive Pressures: Adobe remains a formidable competitor, with deep pockets and entrenched user bases. Canva is also making inroads with accessible, low-cost solutions.

• Dependence on Enterprise Adoption: While Figma has strong grassroots adoption among designers, scaling enterprise contracts is essential for sustainable revenue growth.

• Valuation Sensitivity: At a premium multiple, Figma has little margin for error.

Financial Highlights and Valuation

Valuation is the elephant in the room. At current levels—even after a 15% drop—Figma trades at a forward revenue multiple significantly higher than many established software peers.

• Revenue Growth: Strong, but decelerating from hyper-growth (>70%) to more sustainable levels (~25–30%).

• Profitability: Now breakeven, which is impressive for a newly public growth stock, but future margins remain uncertain.

• Cash Flow: Investors will closely monitor whether operating cash flow follows net income into positive territory.

Compared with Adobe (ADBE), which trades at ~8–9x forward revenue with entrenched dominance and diversified cash flows, Figma’s valuation premium looks difficult to sustain.

Competitive Landscape: Can Figma Defend Its Moat?

Figma’s rise has been meteoric, but competition looms large. Adobe still controls much of the professional design market, and its Creative Cloud ecosystem remains the industry standard. While Adobe’s failed attempt to acquire Figma for $20 billion in 2022 underscores the threat Figma posed, it also highlights that Adobe will not cede ground easily.

Meanwhile, Canva continues to grow as a mass-market design platform with a simplified user experience. While Canva is not a direct substitute for Figma’s professional-grade features, its appeal among small businesses and individuals creates a strong competitive alternative.

Figma’s moat lies in its real-time collaboration, ease of use, and strong community adoption. The company has become the “Google Docs of design,” but maintaining this edge will require constant innovation.

Risks Investors Must Consider

1. Valuation Compression – If growth slows even slightly, multiples could compress rapidly.

2. Lock-Up Expiry – Insider selling may add supply-driven pressure.

3. Competitive Threats – Adobe, Canva, and future entrants all threaten market share.

4. Macro Volatility – Rising rates and inflation may weigh on high-growth stocks disproportionately.

5. Execution Risk – Moving from breakeven to sustainable profitability requires flawless operational discipline.

Dip or Dead End?

The central question for investors: is this a buying opportunity or a red flag?

The bull case is straightforward:

• Figma has built a category-defining platform with sticky adoption.

• Earnings show a clear path to profitability.

• Guidance indicates management confidence in continued growth.

• The 15% sell-off may represent a sentiment-driven overreaction.

The bear case is equally clear:

• Valuation remains stretched even after the decline.

• Competition from Adobe and Canva is intensifying.

• Lock-up expirations pose near-term selling risks.

• A premium multiple leaves little room for execution missteps.

Verdict: Volatile but Attractive on Pullbacks

Figma’s fundamentals remain strong, and the earnings report should have been a confidence-builder rather than a trigger for panic. However, market dynamics, valuation concerns, and lock-up fears combined to overshadow the positives.

For long-term investors, this looks like a buy-the-dip opportunity, provided they are comfortable with near-term volatility. The company is still in the early innings of scaling enterprise adoption and international expansion.

Entry Zone: $34–$38 looks like an attractive accumulation range, with upside potential if Figma executes on its growth strategy and defends its moat.

Key Takeaways

1. Figma reported a strong first quarter as a public company, beating on revenue and posting breakeven EPS.

2. Guidance for Q3 and full year exceeded expectations, signaling management confidence.

3. Extended lock-ups cover 35% of shares, but the rest could create near-term selling pressure.

4. Shares plunged 15% on valuation concerns and investor expectations, despite solid fundamentals.

5. Long-term investors may see this as an attractive entry point, though short-term turbulence is likely.