AI Native Workflows And Design Quality Will Drive Long Term Market Leadership

Catalysts

About Figma

Figma provides a collaborative, cloud-native platform for product design, prototyping and developer handoff used by teams of all sizes worldwide.

What are the underlying business or industry changes driving this perspective?

• Rapid adoption of AI native workflows through Figma Make, MCP server and governance grade capabilities is expanding use cases beyond core designers to PMs, researchers and developers, which should sustain high net dollar retention and accelerate seat and product expansion driven revenue growth.
• Growing recognition that design quality is how digital products differentiate in crowded software and AI heavy markets is elevating Figma as the system of record for product development, supporting multiyear commitments and a larger mix of $100,000 plus customers that can compound recurring revenue.
• Deep integrations with leading AI and developer ecosystems, including ChatGPT, Gemini, GitHub and others, make Figma more embedded in customer workflows, which should reduce churn, increase attach of additional modules and support long term net margin leverage as integration costs scale efficiently.
• Expansion into creative and brand centric personas through products like Buzz and the Weavy acquisition broadens the addressable market from product design to marketing and content production, creating new monetization surfaces that can lift total ARR and diversify earnings streams.
• Disciplined but sustained investment in AI infrastructure and platform interop, funded from a strong cash position and current profitability, positions Figma to introduce usage based pricing and premium AI features over time, which can enhance revenue per customer and support faster earnings growth once AI spend normalizes.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Figma's revenue will grow by 21.2% annually over the next 3 years.
• Analysts are not forecasting that Figma will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Figma's profit margin will increase from -95.6% to the average US Software industry of 12.4% in 3 years.
• If Figma's profit margin were to converge on the industry average, you could expect earnings to reach $214.1 million (and earnings per share of $0.35) by about December 2028, up from $-926.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 236.2x on those 2028 earnings, up from -21.0x today. This future PE is greater than the current PE for the US Software industry at 31.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long-term shift to AI native tooling may erode Figma's differentiation if general purpose AI platforms or competitors replicate core design and prototyping capabilities, which could slow new customer additions and pressure revenue growth.
• Sustained heavy investment in AI infrastructure, inference and M&A, combined with delayed monetization of consumption based pricing, may outpace the revenue uplift from new products, compressing gross margin and operating margin over time.
• If enterprise customers do not adopt AI features like Make, Buzz and Weave as deeply as expected or usage normalizes after initial enthusiasm, expansion within large accounts could slow, weakening net dollar retention and earnings growth.
• High stock based compensation tied to the go public process and ongoing equity grants, together with share count growth, could dilute per share earnings even if absolute net income continues to rise.
• A greater mix of international revenue and increased reliance on large, multiyear contracts in cyclical software and creative markets leaves Figma exposed to regional slowdowns or budget tightening, which could weigh on subscription renewals, revenue and free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $65.25 for Figma based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $96.0, and the most bearish reporting a price target of just $52.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $214.1 million, and it would be trading on a PE ratio of 236.2x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $39.26, the analyst price target of $65.25 is 39.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.