Figma draws 'neutral' ratings as Wall Street wary of lofty valuation, rising competition
Wall Street analysts started coverage on Figma with "neutral" ratings, as they flagged the design software maker's lofty valuation amid stiff competition, sending the company's shares 4 per cent lower on Monday.
Figma made a stellar debut on the New York Stock Exchange last month, with its stock soaring to $85 from its IPO price of $33.
As the industry-mandated quiet period ended on Monday, BofA Global Research, J.P. Morgan, RBC Capital Markets and Morgan Stanley initiated coverage with the equivalent of 'hold' ratings.
"We view Figma as a market-leading platform, but valuation at a market-leading multiple is pricing a long runway for growth, limiting the near-term risk/reward and leaving us on the sidelines," Morgan Stanley analysts said.
Figma's enterprise value is 48.69 times analysts' estimates for its sales for the next 12 months, compared with 6.82 for industry leader Adobe, as per LSEG data.
The company's market value of $37.68 billion as of last close now far exceeds the $20 billion price tag from a now-abandoned buyout deal with Adobe in December 2023.
Figma makes collaborative design software used to build websites, apps and digital products. Its customers include streaming major Netflix and travel firm Airbnb.
In its IPO filing, Figma had flagged a potential loss of market share due to intense competition, particularly from rapid adoption of artificial intelligence.
Design software firms have been aggressively working towards integrating generative AI tools to enhance efficiency of workflows and cut costs.
"While investors may have concerns that AI may simplify application design/development, therefore competing with Figma, we believe AI could be a real tailwind for Figma," RBC analysts said.
On the other hand, William Blair and Piper Sandler, which began coverage last week, held bullish views.
Morgan Stanley, Goldman Sachs, Allen & Co and J.P. Morgan were the lead underwriters of Figma's IPO. The company's prominent backers include venture capital firms Kleiner Perkins and Sequoia.
Below are brokerage ratings and price targets on Figma:
Brokerage Rating PT
J.P.Morgan Neutral $65
RBC Capital Sector Perform $75
Markets
Morgan Stanley Equal-weight $80
Piper Sandler Overweight $85
William Blair
Outperform NA
BofA Global Neutral $85
Research
