Is Figma Poised to Be the Next Sizzling Tech Investment?
In the realm of collaborative design software, Figma has made a significant mark, with its revenue soaring to $749 million in 2024, marking a 48% year-over-year increase. This growth has been driven by the software's ideal suite for project collaboration and its adoption by 95% of Fortune 500 companies, with two-thirds of its users being non-designers.
Figma's initial public offering (IPO) last month was met with immense demand, being 40x oversubscribed, and a $19.3 billion pricing, reflecting substantial investor confidence. The company's strong gross margins (91%) and customer retention (132%) suggest scalability and long-term potential for profitability.
However, Figma's valuation, which peaked at $68 billion at its IPO debut before pulling back to about $39 billion, has been a subject of debate. The high valuation is primarily driven by expectations of strong future growth, especially in the AI-powered design space. Figma is recognised as a leader in adopting agentic AI in design projects, an area forecasted to grow into a $60 billion market by 2030.
Critics, however, question the valuation, citing Figma's very high sales multiple (37x revenue) relative to peers, the risks of emerging competition from large tech companies like Adobe and Microsoft, and market volatility post-IPO with a 65% stock price pullback wiping out $21 billion in market value soon after the debut.
The price surge to a $68 billion valuation was partly a product of market hype, raising concerns about sustainability if the company fails to maintain growth or if broader tech sector sentiment shifts. To justify the valuation, Figma needs to continue its strong growth trajectory, successfully innovate with AI tools, and fend off intensifying competition.
Compared to Adobe's Creative Cloud products, Figma offers relatively affordable plans. Its professional plans cost $16 per month, while Adobe's Photoshop subscription costs $23 per month. However, Figma's full suite of design products can cost as much as $70 per month with Adobe.
Interestingly, Adobe announced plans to acquire Figma for $20 billion in 2022, but regulatory hurdles led to the abandonment of the plan. The growing competition in the design space, coupled with the potential for slowing growth and increased competition from AI-enhanced design tools, raises questions about the sustainability of Figma's high valuation.
In conclusion, Figma's high valuation is justified by its growth outlook and leadership in AI-enhanced design tools, but it requires sustained execution and market dominance amid growing competition to avoid valuation corrections. The company's strong performance in the first three months of 2025, with sales totaling $228 million, representing a 46% increase, is a promising sign for Figma's future.
- Figma's impressive $228 million sales in the first quarter of 2025, signifying a 46% increase, underscores investors' confidence in its long-term potential, especially in the rapidly growing AI-powered design market, which is forecasted to reach $60 billion by 2030.
- Amidst the debate about Figma's $39 billion valuation, it's worth noting that the company, compared to Adobe, offers relatively affordable design plans, with professional plans at $16 per month versus Adobe's $23 per month for Photoshop.
- While Figma's high valuation may be driven by investor confidence, the company has some obstacles to navigate, including competition from larger tech companies like Adobe and Microsoft, market volatility, and the risk of overvaluation if it fails to maintain growth or if the broader tech sector sentiment shifts.
