Is Figma a Good Buy on the Dip? Pros and Cons of Investing in the User Interface Design Specialist

Figma's stock fell 34.9% after its IPO, but the company still finished above its initial offering price of $33 per share. Figma is well-positioned in the user interface design market, with 95% of Fortune 500 companies using its software. Revenue grew 48% to $749 million in 2024, and sales increased 46% YoY to $228.2 million in Q1 2025. However, the stock is trading at a high valuation, with a price-to-earnings ratio of 496 times annualized first-quarter earnings. Investors should weigh the reasons to buy Figma stock against the challenges it may face.

Figma's stock experienced a significant drop after its initial public offering (IPO), falling by 34.9% from its peak [1]. Despite this decline, the stock remained above its initial offering price of $33 per share. Figma's position in the user interface design market is strong, with 95% of Fortune 500 companies utilizing its software [1]. The company's revenue growth was robust, with a 48% increase to $749 million in 2024 and a 46% year-over-year (YoY) sales increase to $228.2 million in the first quarter of 2025 [1].

However, Figma's stock is trading at a high valuation. The stock's price-to-earnings (P/E) ratio is 496 times annualized first-quarter earnings, indicating a steep valuation [1]. Investors should weigh the reasons to buy Figma stock against the challenges it may face.

Reasons to Buy Figma Stock

1. Market Position: Figma is well-positioned in the user interface design market, with widespread adoption among Fortune 500 companies. The company's software is used by developers, writers, researchers, marketers, and other collaborators, making it a versatile tool for various industries [1].

2. Growth Potential: Figma's revenue growth has been impressive, with a 48% increase in 2024 and a 46% YoY increase in the first quarter of 2025. The company's strong growth trajectory is supported by its asset-light business model, which generated free cash flow equal to 41.4% of total revenue in the first quarter of 2025 [1].

Challenges Ahead

1. Valuation: Figma's stock is trading at a high valuation, with a P/E ratio of 496. This steep valuation could lead to significant losses if the company fails to meet earnings expectations [1].

2. Growth Deceleration: Figma expects its revenue growth rate to decline in the future as its business matures. The company has not yet set a date for reporting results from the second quarter that ended on June 30, making it difficult to gauge the extent of the growth deceleration [1].

3. Market Conditions: Figma's stock decline coincides with broader market concerns, including economic warnings and increased inflation. These factors could negatively impact Figma's stock price [2].

Conclusion

Figma's post-IPO stock decline highlights the challenges of high-growth tech companies in a volatile market. While the company's strong market position and growth potential offer compelling reasons to buy, investors should be cautious given the high valuation and potential for growth deceleration. It is essential to monitor Figma's earnings reports and broader market conditions to make informed investment decisions.

References:
[1] https://finance.yahoo.com/news/down-35-2-weeks-figma-085200784.html
[2] https://www.mitrade.com/au/insights/news/live-news/article-3-1010681-20250805