What's Wrong With Figma Stock?

On July 31, software company Figma (NYSE: FIG) went public. Things started out great -- its shares hit a high of just under $143 on their second day of trading. Figma looked poised to be the next hot stock to own in the tech sector.

But it has been a far different story since then. Last week, it closed at less than $39, a far cry from those August highs. Investors haven't seen a reason to buy shares of the business, despite Figma's strong growth numbers. While the stock's valuation may have grown a bit rich initially, is this significant decline justifiable, or has the market overreacted and created what could be a great buying opportunity?

Image source: Getty Images.

Figma's business is thriving

What made Figma an attractive investment option was its impressive growth. The company's software makes design projects easy for teams to collaborate on, which is why its top-line growth has been so explosive. In 2024, Figma's revenue totaled $749 million, a 48% increase from the previous year.

While management is anticipating a bit of a slowdown in that impressive growth rate, it's not a steep drop off. The company projects that its revenue for 2025 will be around $1.04 billion, a year-over-year increase of 40%. That's solid growth for a business that may have looked to be in trouble due to competition from artificial intelligence (AI) products and chatbots that can create images to users' specifications with ease.

However, instead, AI appears to be a compelling growth opportunity for the business, as Figma Make enables users to transform ideas and instructions into polished applications. Not only might AI not harm Figma's business, but it may actually enhance it. The company has even partnered with ChatGPT, allowing conversations from the chatbot to help generate diagrams.

Figma's recent earnings looked worse than they really were

In the third quarter, Figma may have spooked investors with its net loss of just under $1.1 billion. That was massive in relation to its quarterly revenue of $274 million. However, management stated that the reason for the sizable loss and sharp increase in expenses related to one-time stock-based compensation expenses of $975.7 million. On an adjusted basis, the company exceeded analysts' expectations, reporting adjusted earnings per share of $0.10, compared to the $0.05 that Wall Street had anticipated.

Figma's lackluster bottom line, however, may be a key reason investors are hesitant to buy the tech stock now. It posted a slim profit of just under $1 million attributable to its shareholders in the second quarter, but incurred significant losses before and after that.

Analysts also don't anticipate Figma delivering significant profitability just yet; the stock trades at a forward price-to-earnings multiple of nearly 100. Many tech stocks are under scrutiny these days due to their high valuations, and that aspect of the market's moon may be part of what's keeping Figma's stock down, despite its strong growth.

Is Figma stock a good buy now?

Figma's market cap was around $18.7 billion as of Monday. That means if you invest in the company today, you'd be buying it at a lower valuation than what tech giant Adobe was willing to pay for it back in 2022 (approximately $20 billion). So the stock does look like it could be a potential bargain buy.

There's some risk associated with investing in Figma due to its inconsistent profitability, but the company appears to be heading in the right direction. And with AI enhancing and diversifying its operations, it could prove to be an underrated AI stock to hold onto for the long haul.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.