Figma's Stock Plunges After First Public Earnings: Opportunity or Warning Sign?

Figma’s stock took a significant hit, dropping 16.1% to a post-IPO low following its first earnings report as a public company. Despite this dramatic decline, the design software company is still trading over 50% above its initial $33 IPO price - cold comfort for investors who bought in at higher levels.

The Q2 results themselves weren’t terrible. Revenue grew 41% to $249.6 million, slightly beating analyst expectations. Customer metrics looked healthy too, with a 129% net dollar retention rate among customers spending over $10,000 annually. Cross-selling appears effective, with 80% of customers using multiple Figma products.

What spooked investors was the guidance. Figma forecasts Q3 revenue growth to slow to 33%, though still above consensus estimates. For the full year, they project 37% growth but expect adjusted operating income to decline substantially from last year’s figures.

I’m skeptical about management’s conservative approach here. As a newly public company, they’re likely underpromising to ensure they can overdeliver later. The uncertainty around their four newly launched products - Figma Make, Draw, Sites, and Buzz - also contributes to their cautious outlook.

The stock’s valuation has become more reasonable after the drop, with its price-to-sales ratio falling from 40 to 29. Still expensive compared to many software companies, but more aligned with high-growth tech stocks.

For risk-tolerant investors, this dip might actually present an entry opportunity. The fundamentals remain strong - solid revenue growth, profitability, and an expanding product portfolio. However, I’d recommend a measured approach - perhaps buying a small position now while keeping cash ready if the stock continues to decline.

The market’s initial enthusiasm for Figma wasn’t misplaced, but as with many tech IPOs, investors are now demanding more concrete evidence of sustainable growth. The next few quarters will be crucial for Figma to prove its long-term potential and find its footing in the public markets.