Figma's IPO: Can It Justify a $19.2B Valuation in a Market Still Dominated by Adobe?

The software-as-a-service (SaaS) design market has long been a duopoly between Adobe and Figma. But as Figma prepares for its 2025 U.S. IPO with a $19.2 billion valuation target—nearly 12% of Adobe's $156.7 billion market cap—the question looms: Does Figma's sky-high valuation reflect its growth potential in a space where Adobe remains a behemoth? Let's dissect the numbers, strategies, and market dynamics to determine whether Figma's IPO represents a compelling investment opportunity or a speculative overreach.

Figma's IPO: A “Rule of 40” Star

Figma's financials are nothing short of impressive. In Q1 2025, it reported $228.2 million in revenue, up 46% year-over-year, and a net income of $44.9 million. Preliminary Q2 results suggest revenue between $247 million and $250 million, with operating income of $9 million to $12 million. At this pace, Figma is on track to cross $1 billion in annual revenue in 2025—a milestone that would cement its status as a high-growth SaaS darling.

The company's SaaS metrics are equally stellar. A 132% net revenue retention rate (NRR)—well above the industry average of 120%—indicates strong customer loyalty and expansion revenue. Its Rule of 40 score of 63 (46% growth + 17% non-GAAP operating margin) outperforms nearly all peers, including Adobe, which scores closer to 50. With a forward revenue multiple of ~19.9x, Figma trades at a premium to SaaS benchmarks but is justified by its hypergrowth and product-led model.

Figma's product strategy also bolsters its valuation. The company has expanded beyond UI/UX design into AI-driven tools like Figma Make 2.0 and generative design, aligning with the AI-first future of software. Its user base of 13 million (two-thirds of whom are non-designers) and 95% of Fortune 500 companies using its platform highlight its broad adoption.

Adobe's Response: Ecosystem Lock-In and AI Bet

Adobe, the 40-year-old design giant, isn't standing still. Its Q2 2025 results showed $5.87 billion in revenue, up 11% YoY, and a $5.06 non-GAAP EPS, exceeding expectations. The company's Digital Media segment (Photoshop, Illustrator, XD) grew 12% YoY to $4.35 billion, while its Digital Experience segment (marketing tools) rose 10% to $1.46 billion.

Adobe's competitive strategy hinges on ecosystem lock-in and AI-driven innovation. While Adobe XD holds a 13.54% market share in UI/UX design, it has shifted focus from direct competition with Figma to deepening integration with its Creative Cloud suite. For example, XD users can seamlessly share assets with Photoshop and Illustrator, creating a workflow that's hard for standalone tools like Figma to replicate.

Adobe's AI bets are equally aggressive. The Firefly app, which supports generative image, video, and audio creation, has attracted 30% more monthly active users quarter-over-quarter. New tools like generative fill in Photoshop and Acrobat AI Assistant are redefining creative workflows. By 2025, Adobe expects its AI-driven offerings to generate over $250 million in ARR, a figure that could grow rapidly as AI becomes a standard in design.

However, Adobe faces headwinds. Its decision to discontinue XD as a standalone app in 2023 and reduce investment in UI/UX design signaled a retreat from a segment where Figma dominates. The failed $20 billion acquisition of Figma in late 2023 also exposed regulatory and market risks, with regulators citing antitrust concerns. While Adobe's ecosystem remains a moat, its slower pace of innovation in collaboration tools (Figma's real-time editing vs. XD's offline focus) has allowed Figma to capture mindshare, particularly among remote teams.

Valuation Justification: Figma's Edge vs. Adobe's Scale

Figma's IPO valuation hinges on three key arguments:
1. Product-Led Growth: Figma's freemium model and collaborative tools have democratized design, attracting 13 million users. Its 132% NRR and 76% multi-product adoption rate (e.g., Figma Sites, Figma Draw) suggest a sticky, expanding customer base.
2. AI First-Mover Advantage: Figma's early integration of AI tools like Figma AI and Make 2.0 positions it to dominate the AI-driven design space, a $200+ billion market by 2030.
3. Enterprise Stickiness: With 95% of Fortune 500 companies using Figma, the platform is entrenched in enterprise workflows. Its 132% NRR and 91% customer retention indicate high switching costs.

Yet skeptics argue that Figma's valuation assumes continued outperformance against Adobe. Adobe's $1.56 billion cash reserves, $330 million in debt, and $156.7 billion market cap give it firepower to innovate or acquire smaller players. Additionally, Figma's 19.9x forward multiple is steep compared to Adobe's 10x multiple, suggesting investors are betting on Figma's growth rather than its current profitability.

Investment Implications

For investors, Figma's IPO presents a high-risk, high-reward opportunity. The company's 30x oversubscribed order book and auction-style pricing model suggest strong demand, but its valuation is sensitive to slowing growth or Adobe's counteroffensives. Key risks include:
- Adobe's AI-driven product updates (e.g., Firefly, generative XD features).
- Market saturation in UI/UX design, where Figma already holds 40.65% of the market.
- Macroeconomic headwinds that could dampen SaaS valuations.

However, Figma's 46% YoY growth, $1 billion revenue trajectory, and AI-first roadmap make it a compelling long-term play for those comfortable with SaaS volatility. Adobe, while a safer bet, is trading at a discount to its fair value and faces margin pressure as it shifts resources to AI.

Conclusion: A Toss-Up or a Clear Winner?

Figma's IPO valuation is ambitious but justified by its Rule of 40 outperformance, AI integration, and enterprise dominance. Adobe's ecosystem and financial scale remain formidable, but Figma's agility and product-led growth strategy have allowed it to carve out a niche in UI/UX design.

For investors, the choice hinges on risk tolerance. Figma offers explosive growth potential but comes with a premium price tag. Adobe, meanwhile, provides stability and a broader SaaS footprint but may struggle to match Figma's innovation pace. In a market where AI and collaboration are king, Figma's IPO could be the “next Canva” or a cautionary tale—only time will tell.