Evaluating Figma's Earnings Disappointment: A Case Study in Post-IPO Valuation Realism

Figma’s post-IPO earnings report in July 2025 has ignited a critical debate about the sustainability of high-growth SaaS valuations in the face of investor over-optimism and structural risks like lockup expiration. While the company reported a 41% year-over-year revenue increase to $249.6 million and maintained profitability with a 5% non-GAAP operating margin [1], its stock plummeted over 18% following the release. This sharp correction underscores the fragility of valuations built on speculative growth assumptions and highlights the challenges of balancing innovation with investor expectations.

Earnings Highlights and Market Reaction

Figma’s Q2 2025 results showcased its dominance in the UX/UI design space, with a 129% net dollar retention rate for customers spending over $10,000 in ARR [1]. The company also doubled its product portfolio by launching AI-powered tools like Figma Make and Figma Sites, signaling its intent to expand beyond design into broader digital asset management. However, these positives were overshadowed by conservative guidance. Figma projected 33% revenue growth for Q3 and 37% for the full year 2025, a significant slowdown from the 46% growth in Q1 [2]. Analysts interpreted this as a signal of maturing growth, with RBC Capital’s Rishi Jaluria noting, “The deceleration raises questions about whether Figma can sustain its premium valuation without a clear path to margin expansion” [4].

The market’s reaction was swift. Shares fell over 18% in morning trading, with four major Wall Street firms—BofA, Morgan Stanley, RBC Capital, and Wells Fargo—lowering price targets while maintaining neutral ratings [2]. The average analyst target of $71.12, down from a pre-earnings high of $96, reflected a recalibration of expectations [3].

Structural Risks and Investor Psychology

Figma’s earnings disappointment cannot be divorced from broader structural risks inherent to post-IPO SaaS companies. First, the company’s gross margin declined to 90% in Q2 2025, with management warning of further pressure due to AI-related investments [1]. While AI integration is a strategic imperative, the associated costs—ranging from cloud infrastructure to talent acquisition—threaten to erode profitability. This mirrors challenges faced by peers like Canva and Notion, where AI-driven product expansion has temporarily dented margins.

Second, lockup expiration risks amplified investor anxiety. Nonexecutive employees gained the right to sell up to 25% of their vested holdings, while five major venture capital shareholders entered extended lock-ups until 2026 [1]. Such events often trigger volatility, as seen in the 2023 IPO of Databricks, where a similar lockup expiration led to a 20% stock drop. Figma’s situation, however, is compounded by its lofty valuation—trading at over 30 times sales—making it particularly vulnerable to profit-taking and short-term sentiment shifts.

Valuation Realism and SaaS Fundamentals

The broader SaaS sector has long been criticized for prioritizing growth over profitability, but Figma’s case exemplifies the tension between innovation and valuation realism. Despite its 129% net dollar retention rate and robust cross-sell metrics, the market is demanding a clearer path to scaling margins. As stated by a report from Investors.com, “Figma’s product pipeline is impressive, but investors are now scrutinizing whether its AI bets will translate into durable revenue streams rather than short-term gimmicks” [2].

This skepticism is not unwarranted. The SaaS industry’s historical reliance on hypergrowth has led to periodic corrections, such as the 2022 “SaaS Winter,” where valuations contracted by 60% as growth rates normalized. Figma’s current valuation—while still elevated—may be entering a phase of realignment. Analysts like Elizabeth Porter of Morgan Stanley argue that the stock’s 50% decline from its IPO high is a “welcome correction” that aligns expectations with more realistic growth trajectories [4].

Conclusion: A Cautionary Tale for High-Growth SaaS

Figma’s earnings report serves as a microcosm of the challenges facing high-growth SaaS companies post-IPO. While its product innovation and customer retention metrics remain strong, the market’s reaction underscores the fragility of valuations built on speculative narratives. For investors, the key takeaway is the importance of balancing optimism with pragmatism: even the most disruptive platforms must demonstrate scalable profitability to justify premium multiples. As Figma navigates AI integration and lockup expiration, its ability to maintain growth without sacrificing margin discipline will determine whether this correction is a temporary setback or a harbinger of deeper valuation realism.

Source:
[1] Figma Announces Second Quarter 2025 Financial Results [https://investor.figma.com/news-events/news/news-details/2025/Figma-Announces-Second-Quarter-2025-Financial-Results/default.aspx]
[2] Figma Stock Plunges After Disappointing Post-IPO Report [https://www.investors.com/news/technology/figma-stock-q2-2025-earnings/]
[3] Figma, Inc. (FIG) Analyst Ratings, Estimates & Forecasts [https://finance.yahoo.com/quote/FIG/analysis/]
[4] These Analysts Cut Their Forecasts On Figma Following Q2 Results [https://www.benzinga.com/analyst-stock-ratings/price-target/25/09/47508322/these-analysts-cut-their-forecasts-on-figma-following-q2-results]