Shares of Figma (FIG 4.36%) recorded gains for one day following the user interface design specialist's initial public offering (IPO) on July 31. Sadly, the good times didn't last very long. From the closing bell on Aug. 1 through Aug. 15, the newly minted stock fell by 34.9%.
Figma shares are way down from their previous peak, but it would be dead wrong to suggest the IPO wasn't a success. The stock finished Aug. 15 above $79 per share, which was 141% more than the initial offering price of $33 per share.
As is usually the case when a popular stock falls dramatically, investors want to know whether it could be a smart buy on the dip. Let's weigh reasons to buy the stock now against some of the challenges that lie ahead to find out.
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Reasons to buy Figma Stock now
Whether you engage with Netflix, Uber, or Duolingo, the user interface you interact with was made by Figma. Many design companies that already spend heavily for access to Adobe's Creative Cloud ignore a competing application, Adobe XD, and end up paying for Figma too. In fact, 95% of Fortune 500 companies use Figma's software to design and maintain their user interfaces.
Effective interface design isn't limited to developers willing to pay for a full subscription to specialized software. The process pulls in writers, researchers, marketers, and other collaborators. With Figma, nondevelopment collaborators can access projects for one-seventh the price developers with enterprise subscriptions pay.
Figma's in the right place at the right time. Companies across industries are investing heavily in their digital transformations, and the trend is helping Figma grow by leaps and bounds. In 2024, revenue grew 48% to $749 million.
Sales growth decelerated slightly in the first quarter of 2025, but this business is still expanding at a rapid pace. Figma reported first-quarter sales that rose 46% year over year to $228.2 million.
At the end of March, Figma had zero debt and a big $1.5 billion cash cushion on its balance sheet. The asset-light software business could become a cash-generating machine for investors. In the first quarter, the company reported free cash flow that equaled 41.4% of total revenue during the period.
Reasons to remain cautious
Figma's stock is down from its peak, but it's still trading at a sky-high valuation. Revenue is expanding rapidly, but so is its employee roster. The company reported a $732 million net loss last year.
In the first quarter of 2025, Figma's bottom line entered positive territory. That said, net income worked out to just $0.04 per share. The stock's closing price on Aug. 15 was 496 times annualized first-quarter earnings.
It isn't impossible for a software business to grow into such a steep valuation, but it doesn't happen often. Investors considering this stock now should understand that it could fall much further if it reports another growth deceleration in any of its next several quarterly reports. Unfortunately, Figma expects its revenue growth rate to decline in the future as its business matures.
Figma hasn't set a date yet for reporting results from the second quarter that ended on June 30. If you're considering this stock, it's probably best to wait until after we see at least one or two more quarterly reports so we can gauge just how rapidly growth will decelerate.
