Is Figma’s Stock a Falling Knife or a Hidden Bargain?

It didn’t take long for Figma to go from Wall Street’s darling to one of its biggest disappointments.

After a blockbuster debut this summer, the stock has been sliding steadily, leaving many early investors deep in the red. But is the sell-off a warning sign, or has the market simply overreacted?

Key Points

• Figma grew revenue 41% year over year and turned a $178 million cash burn into $62.5 million in positive operating cash flow, but it still trades at about 30x sales, far richer than Adobe.

• Despite improving fundamentals, shares have plunged because investors worry about high multiples and the rising threat of AI-powered design rivals.

• With sticky customers (129% net retention) and projected 30%+ growth ahead, Figma may well justify its premium.

From Hot IPO to Cold Reality

When Figma (ticker: FIG) went public in late July, enthusiasm was sky-high. Shares opened at $85, pricing in enormous expectations for a company best known for its collaborative design software.

Today, just weeks later, the stock is down by around 40%, a painful reminder that valuation always catches up to momentum.

What spooked the market? In short, Figma’s first quarterly report as a public company didn’t match its lofty multiple. Investors, nervous about growth stocks in general, decided not to wait around for perfection.

Digging Into the Numbers

The company’s September earnings release wasn’t a disaster, far from it. Revenue for the June quarter came in just shy of $250 million, up 41% year over year. That’s a growth rate most SaaS companies would kill for.

Even more telling was Figma’s net dollar retention rate nearly hit 130% among large customers, a metric that shows existing clients are not just sticking around, but spending more.

The real surprise was cash flow. This quarter, it generated over $62 million in positive operating cash flow, a turnaround from losing a year ago.

Management guided for roughly 33% revenue growth next quarter, which, while lower than the prior pace, is still a healthy clip for a company of its size.

Why Valuation Still Haunts the Stock

The problem is that Wall Street doesn’t measure Figma in a vacuum. At a market cap of $27 billion, shares trade at roughly 30x trailing revenue.

Figma’s forward P/E ratio looks outrageous at 286, but that’s almost beside the point when a company is barely profitable, the earnings multiple can be misleading.

Growth investors are instead watching whether Figma can eventually expand margins the way other successful SaaS companies have.

Back in 2022, Adobe tried to acquire Figma for $20 billion. At the time, many analysts called that deal overpriced. Today, Figma is trading at a valuation 35% higher than Adobe’s offer, even after the stock’s recent slump.

That’s a telling data point, either Adobe was willing to pay up for a once-in-a-generation asset, or today’s market is still assigning too much credit for potential growth.

Competitive Wild Card Is AI

Another risk is how quickly artificial intelligence is reshaping creative tools. Startups like Runway, MidJourney, and Canva are embedding AI directly into their platforms, allowing users to generate images, designs, and prototypes with minimal effort.

Figma’s collaborative strength has always been its moat, but if AI lowers the barriers to creating design work, the company may need to move faster to protect its advantage.

It’s worth remembering that Figma grew up as the cloud-native alternative to Adobe Photoshop and Illustrator, tools built for a different era. That disruptor’s edge may well erode if AI accelerates the pace of competition.

Why Some Investors See Opportunity

Despite the risks, Figma’s improving cash flow, sticky customer base, and continued growth give bulls a reason to be patient.

Companies don’t often flip from deep negative cash flow to generating over $60 million in operating cash in just twelve months. That’s the kind of financial momentum that can change a company’s long-term trajectory.

And while the stock looks expensive on traditional metrics, high-quality SaaS companies rarely look cheap when they’re in the scaling phase. Sustaining 30%+ growth while nudging margins higher will move the needle and today’s valuation may not look unreasonable in hindsight.

So, Now What?

Figma is a classic case of expectations colliding with reality. The IPO priced in flawless execution, and the first quarter out of the gate reminded everyone that building a category-defining software company takes time.

For cautious investors, waiting for clearer signs of profitability is the safer play. But for believers in Figma’s product and its growing dominance in design collaboration, the recent drop could mark the beginning of a long-term buying opportunity.