Figma, a leading provider of cloud-based collaborative design software, is poised to capitalise on the secular shift towards digital-first workflows and the increasing demand for intuitive, accessible design tools. While the broader SaaS market has faced headwinds, Figma’s differentiated product suite, robust growth trajectory, and expanding enterprise footprint position it favourably for long-term value creation.
Industry Overview
The global collaborative design software market is estimated at $16.7 billion in 2023, projected to reach $50.6 billion by 2028, exhibiting a CAGR of 24.7%.1 This growth is driven by the rise of remote work, the proliferation of digital content, and the democratisation of design tools. Key trends include the integration of artificial intelligence (AI) and machine learning (ML) capabilities, the growing adoption of low-code/no-code platforms, and the increasing emphasis on user experience (UX) design.
Company Analysis
Figma’s cloud-native platform offers a compelling alternative to traditional desktop-based design software. Its real-time collaboration features, intuitive user interface, and robust ecosystem of plugins and integrations have resonated strongly with designers and developers. Key product offerings include Figma Design, FigJam, and the emerging AI-powered Figma Make and Figma Sites. The company boasts an impressive customer base, including a significant portion of Fortune 500 companies.2
Investment Thesis
Our investment thesis is predicated on Figma’s dominant market position, strong growth momentum, and expanding product portfolio. The company’s cloud-native architecture provides a competitive advantage, enabling seamless collaboration and rapid iteration cycles. Figma’s AI initiatives, including Figma Make and Figma Sites, represent significant growth opportunities, leveraging the power of AI to streamline design workflows and empower non-designers. The company’s robust net revenue retention rate, exceeding 130%, underscores the stickiness of its platform and the high value proposition for customers.3
Valuation & Forecasts
We employ a multi-faceted valuation approach, incorporating discounted cash flow (DCF) analysis, precedent transactions, and comparable company analysis. Our base case DCF model, assuming a 25% revenue CAGR over the next five years and a terminal growth rate of 5%, yields a target price of $75. Sensitivity analysis, considering variations in discount rate and terminal growth rate, supports a valuation range of $65 to $85. Precedent transactions in the SaaS sector, with enterprise value-to-revenue multiples ranging from 10x to 15x, further corroborate our valuation.4 We forecast revenue to reach $2.5 billion by 2028, driven by continued growth in seat subscriptions, enterprise adoption, and the monetisation of AI-powered offerings.
| Year | 2024 | 2025 | 2026 | 2027 | 2028 |
|---|---|---|---|---|---|
| Revenue ($M) | 1,500 | 1,875 | 2,344 | 2,930 | 3,663 |
| EBITDA ($M) | 225 | 338 | 506 | 759 | 1,139 |
Risks
Key risks to our investment thesis include intensifying competition from established players like Adobe and emerging AI-driven design tools. The broader macroeconomic environment, including potential recessionary pressures and fluctuations in interest rates, could impact SaaS spending and valuations. Execution risks related to the successful development and monetisation of new AI products also warrant consideration.
Recommendation
We initiate coverage on Figma with a Buy rating and a 12-month price target of $75, representing a 30% upside from the current market price. We believe Figma’s robust growth prospects, competitive moat, and expanding product portfolio justify a premium valuation. The company’s strong leadership team, innovative culture, and commitment to customer success further reinforce our positive outlook.
1 Source: MarketsandMarkets, Collaborative Design Software Market
2 Source: AInvest
3 Source: Seeking Alpha
4 Source: P2P Market Data
