Figma has sent shockwaves through the marketplace with its first quarter results several months after a blockbuster IPO. Its quarterly revenue rose 41% to 249.6 million, slightly above Wall Street’s expectations. The earnings per share were equally marginally higher than the projection, but the stock declined 19% on a single day and the response was savage.
This is an affirmation of extremely high investor expectations after the spectacular introduction of the company into the markets in July. Having momentum drift a little in the wrong direction when a stock moves that fast, can be the trigger to serious sell-offs.
It was neither an operating weakness, nor a valuation weakness. Figma is far more multiple than Adobe (or S&P sector overall), with a far more expected profitability of approximately 300x. As the business develops, investors are naturally taking a more direct part in the procedure and are inquiring whether it is justifiable to pay that kind of price in a portion of the company’s future expansion potential.
A sell-off that removes a wave of up to $6 billion market capitalization in a day is a difficult twist to one of the purple-hazed technology companies in the world. But, when you consider it as it really is, you will prevent momentum. Revenue growth remains high and can be further increased in the foreseeable future due to the layering of the platform with AI and scaling.
However, the hyper-volatile times we experience today can be viewed as a necessary reset, assuming you also think that Figma can run a profitable high-growth scale in the long-term. Investors are now being reminded that even hot stocks cannot defy the laws of gravity when their expectations get too far out of view with reality.
