Figma, the maker of cloud-based UX/UI software, is navigating a turbulent market after its July 31 initial public offering (IPO). While excitement surrounding AI continues to dominate headlines, the IPO landscape remains largely subdued, with Figma being the only significant software-as-a-service stock to enter the public arena in the past year.
Initially priced at $33 per share, Figma’s stock surged to a high of $142.92 the day after its debut, only to retreat significantly. As of January 9, the stock closed at $37.33, nearly 75% below its peak, reflecting the volatility typical of IPOs but exacerbated in Figma’s case by two disappointing earnings reports despite strong results.
Currently, Figma’s market capitalization stands at approximately $18.5 billion. Though this valuation may not appear attractive according to traditional metrics, several factors suggest it could be a sound investment at this juncture.
One notable aspect is Figma’s current value is below the $20 billion that Adobe had agreed to pay for the company before regulators blocked the merger on antitrust grounds. At the time, Figma was smaller and the AI conversation had not reached its current fervor. Given the significant growth in Figma’s fundamentals since then, it is likely that Adobe would appraise the company at a considerably higher figure today.
Despite facing initial backlash from investors over AI investments that were expected to impact profitability negatively, Figma’s commitment to AI aligns with emerging industry trends. The company has rolled out several AI-driven tools, including Figma Make, which generates code through a prompt-to-app interface, and Figma Sites, enabling users to publish responsive websites directly from their designs. The acquisition of Weavy, now rebranded as Figma Weave, further underscores the company’s strategic push into AI.
As the software industry approaches a pivotal moment with regard to AI integration, Figma appears well-positioned to capitalize on this shift, potentially establishing itself as a leader in web design software.
Figma’s financial performance also supports its investment case; the company reported revenue growth of 38%, reaching $274.2 million in the third quarter, with an adjusted operating income of $34 million. Historically, Figma has maintained profitability on a generally accepted accounting principles (GAAP) basis, although a one-time non-cash expense associated with the IPO has complicated that picture.
When adjusted for its substantial cash and marketable securities, Figma’s price-to-sales ratio is around 15, which is competitive compared to other software stocks in the current market. Given its investments in AI and the validation from Adobe’s prior offer, there is a strong argument that Figma’s stock is undervalued.
In light of these factors, some analysts speculate that Figma’s shares could double or more over the coming year, presenting an intriguing opportunity for investors willing to navigate the current uncertainties.
The ongoing developments in AI suggest a transformative impact across industries, and Figma’s active involvement in this domain could yield significant dividends, not only for the company but also for its shareholders.
For more information on Figma, visit their official site at figma.com. To explore Adobe’s offerings, check out adobe.com. For insights on AI trends, refer to OpenAI and DeepMind.
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