(Bloomberg) — Figma Inc.’s expected US initial public offering is shaping up as a potential summer blockbuster first-time stock sale, as investors look to back a rare debut from a fast-growing software company.
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The design software maker’s 46% year on year increase in first-quarter revenue, as well as high customer retention rates and gross margins, should see investors value the company alongside the top rung of the enterprise software sector, said Charlie Miner, senior analyst at research firm Third Bridge.
“It’s the kind of profile that commands a premium, even as the broader application software market becomes more selective,” Miner said in an interview with Bloomberg News.
If all goes well, Figma may even have a chance of reclaiming its $20 billion valuation from a failed acquisition by rival Adobe Inc. agreed in 2022. A tender offer two years later to allow employees to sell some shares valued Figma at a lower mark of $12.5 billion.
The company’s hard-to-find combination of growth and profitability could capture the current investor fervor witnessed for IPOs such as Circle Internet Group Inc. and CoreWeave Inc.
Figma may ultimately be able to secure a valuation multiple of more than 20 times its annual revenue, said Matt Kennedy, Renaissance Capital’s senior strategist. With 13 million monthly active users, Figma generated $821 million of revenue in the 12 months ended March 31 and would top $1 billion of annual revenue this year at its current growth rate.
Figma tops all other publicly traded subscription software companies when using the Rule of 40 metric, according to data compiled and published by Jamin Ball, a partner at venture capital firm Altimeter Capital and author of a Substack on software valuations.
A popular back-of-the-envelope calculation, the Rule of 40 adds a company’s revenue growth rate to its earnings or free cash flow margin. A number above 40 indicates a good balance between growth and profitability and is viewed favorably by investors.
On Ball’s numbers, Figma’s current Rule of 40 metric comes in at a lofty 77 after adding its 49% trailing 12-month growth rate and 28% adjusted free cash flow margin. This is above Palantir Technologies Inc. at 76, Datadog Inc. at 55 and a median of 32 for more than 70 public software-as-a-service companies.
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