Why Figma Stock Just Sank

The Motley Fool · 1d ago

Key Points

  • Figma beat revenue and earnings estimates, but its cost of revenue surged 117% as AI infrastructure expenses outpaced growth.

  • Third-quarter guidance implies a significant slowdown to 36% revenue growth, and two C-suite executives are departing.

  • Despite strong customer retention metrics, rising competition and an upcoming lock-up expiration add to near-term headwinds.

Figma, Inc. (NYSE: FIG) stock finished Thursday down 14.9%, while the S&P 500 was down 0.2% and the Nasdaq Composite was flat.

Shares of the design software company are falling after disappointing earnings, showing the cost of running its AI features is climbing much faster than revenue.

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Figma beats estimates but AI costs tell a different story

Figma reported second-quarter results after the close on Wednesday. Revenue rose 48% year over year to just above $370 million. That beats the $351.5 million analysts were looking for. Adjusted earnings came in at $0.08 per share, twice the consensus estimate.

But the costs are where it got ugly. Cost of revenue jumped a whopping 117%, with AI infrastructure and hosting responsible for most of that increase. Third-quarter revenue guidance of $373 million to $375 million implies growth of about 36% -- considerably less than this quarter's 48%.

And to round things out, CEO Dylan Field announced on the call that both the chief marketing officer and the chief product officer are leaving.

Management explains the AI spending problem

The company said that it is paying to run AI features it isn't fully charging for yet. Newer products like its Figma agent are still in beta and early access, and management said those aren't drawing down the paid AI credits customers buy.

Why I'm staying on the sidelines

Much of the underlying business still looks healthy. Net dollar retention -- how much more existing customers spend compared with a year ago -- was 136%, and the number of customers paying at least $10,000 a year grew 34% to 15,964.

But I'm not a fan of the stock. There are too many headwinds and rising competition from new entrants like Claude Design. And there's a supply problem arriving soon: a lock-up expiration frees up millions of new shares that could hit the market in the coming weeks.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Figma. The Motley Fool has a disclosure policy.