Figma stock has plunged amid SaaSpocalypse fears: Is this an unfair punishment?

Figma's stock price has imploded since its initial public offering (IPO) last year as the exuberance that fueled its private-market valuation collided with the realities of life as a publicly traded company. FIG dropped to $16 on Thursday, down sharply from the all-time high of $142.

Private valuation and public reality

Figma is one of the best-known software companies in the corporate world. Over the years it has become a beloved name among designers because of the collaborative aspect. 

This popularity surged before it became a publicly traded company. At its peak, it reached a $20 billion valuation when Adobe placed a bid. Adobe terminated the agreement after it faced opposition in the UK and the EU, forcing it to pay a $1 billion breakup fee. 

Figma’s popularity helped its valuation to surge to over $60 billion following its IPO. Today, the figure has tumbled to $8.9 billion, and the situation is getting worse by the day.

The rise and fall of Figma is emblematic of what has been going on in the market today. It is common for highly valued companies to suffer a rude awakening when they go public. A good example of this is Klarna, whose valuation peaked at $17 billion following its IPO. Today, the company is valued at $7.2 billion.

Another example of this phenomenon is Circle Internet Group whose valuation peaked at $60 billion before plummeting to $17 billion today.

Figma is facing SaasPocalypse headwinds

The main reason why the Figma stock price is imploding is known as SaaSpocalypse, a situation where investors are dumping software stocks in fear that their businesses will be disrupted by AI tools.

These fears explain why other companies in the software industry like Salesforce, Adobe, Intuit, and ServiceNow are in a freefall this year.

However, in reality, some popular individuals, including Jensen Huang, argues that the fear that AI will disrupt software companies is not backed by reality. 

Instead, AI will improve these companies by helping them reduce their operational costs and improve their service offerings.

Indeed, the most recent results showed that Figma’s business is still firing on all cylinders this year. Its revenue surged by 46% in the first quarter to $334 million, with the management boosting its forward guidance citing demand and seat expansion. 

The management now expects that its second-quarter revenue will jump by 40% to between $348 million and $350 million. For the year, the company is expected to make between $1.42 billion and $1.428 billion.

Therefore, there are signs that Figma is being punished unfairly, as the management is also predicting that profitability will happen soon. It is also showing that more companies are subscribing to its services. 

Figma stock price technical analysis

FIG stock price chart | Source: TradingView

The daily chart shows that the FIG stock price has imploded and is now sitting at a crucial support level of $16.85. A closer look shows that this price coincides with the lowest swing in April this year. That is a sign that it has formed a double-bottom pattern whose neckline is at $27.80.

The double-bottom pattern suggests that a rebound is possible. However, the most likely scenario is where the stock continues falling for a while before bouncing back eventually. This view will be confirmed if it drops below the double-bottom level of $16.85.