Figma, Inc. (NYSE: FIG) – the popular design software company – made headlines with its blockbuster IPO on July 31, 2025. The stock jumped by 250% on its debut day, rising from its issue price of $33 to close at $115.50. At its peak, Figma’s valuation touched nearly $60 billion.
Also Read – Will the Figma (FIG) Rally Continue After a 250% Gain on Debut?
However, just four trading sessions later, after reaching an intraday peak of $142.91, the stock dropped significantly to $79 by August 5, 2025 – a 45% slide from its peak.
This sharp correction has made investors ask one key question – Why is Figma’s stock dropping?
Here are five possible reasons behind this sudden drop:
1. Post-IPO Profit-Taking
Figma’s IPO saw overwhelming demand, with subscriptions exceeding 40 times the available shares. This demand pushed the stock to an intraday high of $142.91. However, once trading began, early investors and institutions quickly started booking profits.
Only 7% of the company’s shares were available for trading (free float), making the stock more volatile. In such cases, even modest selling can trigger sharp price swings. This is a classic example of a “buy the hype, sell the news” pattern, often seen in popular tech IPOs.
2. Overvaluation Concerns
After its debut, Figma was trading at a forward price-to-sales (P/S) ratio of over 60x. For context:
- Microsoft trades at about 14.1x
- Datadog trades near 17.8x
What is Price-to-Sales (P/S)?
It’s a metric used to compare a company’s stock price with its sales. A high P/S means investors are paying a premium for every dollar of revenue – which is only justified if the company grows rapidly and profitably.
Even after dropping to $79, Figma’s valuation still looks expensive when compared to its peers. While it grew revenue by 46% year-over-year, some investors are questioning whether that’s enough to support such a high price.
3. Competitive Pressures and AI Disruption
Figma is a market leader in design software with over 40% market share, serving major clients like Google and Netflix. However, the company’s IPO filing mentioned increasing competition, especially from AI-powered design tools.
Startups like Lovable and Bolt are using generative AI to create design systems more efficiently. Meanwhile, giants like Canva and Microsoft are expanding their presence by integrating design tools into existing software platforms.
Some tech analysts believe AI could even replace traditional design tools, allowing developers to convert code directly into designs. Figma has launched Figma Make to stay ahead, but investor concerns about its long-term competitive edge may be weighing on the stock.
4. Macro Market Turbulence
Figma’s decline is also linked to wider market conditions. Around the same time, the NASDAQ Composite and other tech-heavy indices experienced notable pullbacks, driven by:
- Uncertainty over President Trump’s tariff policies
- A general sell-off in high-growth tech stocks
Even though Figma’s business remains strong, the timing of its listing overlapped with broader negative investor sentiment in tech. As a result, it may have been caught in a sector-wide correction.
5. Looming Insider Selling Pressure
A major concern for investors is the upcoming expiration of the IPO lock-up period, set for January 2026. Currently, most of Figma’s shares are held by insiders, including venture firms like Sequoia Capital and Index Ventures, whose stakes are collectively worth around $24 billion.
Although insiders cannot sell now, the fear of future selling often pushes current investors to exit early- adding psychological pressure to the stock.
If a large number of shares are released into the market when the lock-up ends, it could increase supply significantly, putting downward pressure on prices.
Also Read – Bullish Launches $724M IPO – BLSH Targets NYSE Listing
Is the IPO Boom Slowing Down?
Despite Figma’s correction, the overall IPO market remains very active in 2025. So far, 123 tech companies have gone public, raising a total of $19.7 billion, which is 48% higher than last year.
But investors seem to be becoming more cautious and selective. They’re still excited about new listings – but only when valuations are seen as reasonable and the growth story is convincing.
Figma’s 250% debut-day gain was historic, but the subsequent 45% drop is a reminder that post-IPO volatility is common, especially in richly valued tech stocks.
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