Figma (FIG -0.68%) may not be a household name, but the company found itself in the spotlight in conjunction with its recent initial public offering (IPO). Figma's online platform, powered by artificial intelligence (AI), helps teams create, edit, and share ideas to design websites, apps, and other user interfaces. The company boasts an impressive pedigree, as its customer list is packed with some of the world's most recognizable brands.
Figma generated a lot of excitement when it went public on July 31. Ahead of the public offering, the stock was priced at $33 per share, but soared out of the gate and never looked back, climbing to $115.50, surging 250% on its first day of trading. As the initial excitement has worn off, Figma has gradually given back some of its gains, falling 43% from its peak, but is still up 108% (as of this writing).
Figma is scheduled to issue its first report as a public company, releasing its second-quarter financial results after market close on Wednesday, Sept. 3. Investors who missed out on the company's debut are looking for a second bite at the apple, but are faced with a conundrum: Should they buy Figma stock ahead of its highly anticipated earnings report, or wait to see how things unfold? Let's see what the available evidence suggests, and what Wall Street has to say.
Image source: Getty Images.
A little background is in order
Investors may recall that Figma was courted by Adobe in late 2022, which sought to acquire the company for $20 billion. The deal was ultimately quashed by regulators, who said Adobe had a near-monopoly on design software, and that the potential acquisition of Figma would solidify that position.
In the wake of the highly public split, Figma decided to go it alone, opting to go public late last month. In regulatory filings with the Securities and Exchange Commission (SEC) ahead of its IPO, management laid out a compelling case for the investors.
Figma noted that 95% of Fortune 500 companies and 78% of Forbes 2000 companies use Figma. Its prospectus said that Netflix, Alphabet's Google, and Airbnb all use Figma to design their user interfaces. The company boasts 13 million monthly active users in all, while roughly two-thirds of those are not designers.
This has fueled impressive financial results. For the year ended Dec. 31, 2024, revenue of $749 million grew 48% year over year, resulting in a net loss of $732 million. It's worth noting that much of that loss was the result of a spike of 356% in research and development spending to expand Figma's product line. For the quarter ended March 31, revenue grew 46% to $228 million, and the company swung to a profit of $8.6 million, or earnings per share (EPS) of $0.04.
The company also boasts a net dollar retention rate of 132%, meaning existing customers are spending more. Fueling that additional spending is Figma's expanding product line, as 76% of its customers use at least two of the company's products. Management believes this is just the beginning, estimating the company's total addressable market (TAM) at $33 billion.
Is Figma stock a buy now?
In the wake of the company's IPO and its highly volatile stock price, investors are left to wonder if Figma is a buy ahead of its highly anticipated first financial report as a public company. Since it doesn't have much of a public track record, we can gain some insight from Wall Street.
As a newly minted company, Figma isn't widely covered by investment banks, with just nine analysts currently covering the stock. As such, you might be tempted to think that it would be difficult to reach a consensus, but Wall Street has a near-unanimous answer. Of the nine analysts who have proffered an opinion thus far, seven -- or 78% -- rate the stock a hold, while the other two rate it a buy or strong buy. It seems many on Wall Street are wary of the company's prospects.
Much of that caution is likely the result of Figma's valuation. The company doesn't yet have four quarters as a public company, so its price-to-earnings (P/E) ratio doesn't yet register. However, Figma is currently trading for 242 times forward earnings, so there's plenty of expected growth already baked into its stock price.
As with all newly public companies, Figma hasn't yet established a track record. I generally avoid post-IPO companies and wait until the hype dies down, as there are numerous pitfalls associated with Johnny-come-lately stocks. There's a lack of historical financial data, particularly under the glare of the public spotlight. I tend to wait for a couple of quarters to assess the company's financial performance.
Furthermore, Figma has a 180-day lockup period, meaning insiders are prohibited from selling their shares for a period of six months. The end of these lockup periods can generate wild volatility, which makes some investors nervous.
Fear of missing out, or FOMO, is real, but history is rife with examples of newly public stocks plunging at some point in their first year of trading. Netflix stock lost 71% of its value within five months of its IPO, while Amazon lost 29% of its value in just weeks. This shows that there are plenty of opportunities to pick up quality stocks at discounted prices.
Given the preponderance of the evidence, I would submit there's no need to rush in to buy Figma stock before its freshman financial report on Sept. 3.
