Key Takeaways:
- Newly public stocks often crash months after their debut once IPO hype fades and lockup periods let early investors sell, not because the underlying business is failing.
- Figma’s revenue growth actually accelerated to 46% year over year in the first quarter, and its forward P/E has fallen from about 375 times to roughly 90 times.
- Reddit is GAAP profitable with gross margins above 90%, and its forward P/E has dropped from about 59 times to around 24 times.
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Every year, a handful of hot new stocks hit the market to huge fanfare, only to fall back to earth a few months later. It happened with countless names before them, and it is happening right now with Figma (FIG) and Reddit (RDDT).
For investors willing to do the homework, that drop is not always a red flag. Sometimes it is an opportunity.
Here is how to tell the difference, using Figma and Reddit as real, current examples.
See analysts’ full growth forecasts and estimates for Reddit stock (It’s free) >>>
Why newly public stocks tend to crash
The pattern is almost a script at this point. A company goes public, the stock pops on opening day, and headlines call it the hottest IPO of the year. Then, months later, the stock quietly slides, and nobody is writing headlines about it anymore.
There are a few reasons this keeps happening.
First, IPO hype pushes the price well above what the underlying business can support in the near term. Early demand is driven by excitement, media coverage, and limited share supply, not by a careful look at earnings.
Second, most IPOs come with a lockup period, typically about six months, that prevents company insiders and early investors from selling their shares.
When that lockup expires, a wave of new selling can hit the stock all at once, pushing the price down even if nothing about the business has changed.
Third, once the excitement fades, Wall Street starts holding the stock to the same standard as every other public company: growth, margins and a believable path to profits.
Richly priced stocks that cannot keep meeting sky-high expectations tend to get repriced lower.
None of that necessarily says anything about whether the company itself is doing well. That is the distinction worth focusing on.
What Figma and Reddit do
Figma makes design software that lets teams build and collaborate on digital products in real time, from app interfaces to marketing materials.
It has become a standard tool for designers and increasingly for engineers and product teams too, especially as the company pushes further into AI-powered features like Figma Make and Figma Weave.
Reddit runs one of the internet’s largest collections of online communities, organized around basically every interest imaginable. Its business rests on two legs: advertising sold against that traffic, and licensing deals that let artificial intelligence companies train and ground their models on Reddit’s conversations and data.
Both stocks have fallen sharply from their highs.
According to valuation data from TIKR.com, Figma’s forward price-to-normalized-earnings ratio has dropped from a peak near 375 times to about 90 times today, while its mean over the past year sits near 155 times.
Reddit’s forward P/E has fallen from a high near 59 times to about 24 times, versus a one-year mean of roughly 34 times.
That is a steep repricing for both names. The question for investors is whether the businesses underneath deserve it.
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Figma’s growth is accelerating
Figma’s first quarter results, reported in its May 14 earnings call, do not read like a company losing steam.
Revenue grew 46% year over year to $333 million, the second straight quarter of accelerating growth.
Net dollar retention, a measure of how much existing customers spend over time, climbed to 139%, its highest level in over two years.
“Anyone building software today knows that we are living through an extraordinary time,” Figma co-founder and CEO Dylan Field said on the call. “When execution is cheap, design and creativity are the edge.”
Figma also raised its full-year guidance, now projecting $1.422 billion to $1.428 billion in revenue and $125 million to $135 million in non-GAAP operating income.
According to TIKR.com estimates, analysts expect Figma’s revenue to grow from $1.06 billion in 2025 to nearly $3 billion by 2030, with normalized earnings per share climbing from 30 cents to roughly $1.06 over that same stretch.
On margins, which had drawn some investor concern as AI costs rose, Chief Financial Officer Praveer Melwani was direct about the priority. “Our focus right now is to drive gross profit dollars and really focus on growth,” he said, pointing to levers like routing queries across models by task complexity to manage costs as usage scales.
Reddit is leveraging its data for AI
Reddit’s story, laid out by CEO Steve Huffman at a June 3 Bank of America technology conference, centers on two things: turning more weekly users into daily users, and getting properly paid for the role its content plays in training AI.
“There is no LLM on Earth that wasn’t trained on, that wasn’t significantly trained on Reddit’s data, including Google and OpenAI, with whom we have big partnerships, and including other folks with whom we have big lawsuits,” Huffman said.
He also pointed to Reddit’s financial discipline as a differentiator versus other growth companies. Revenue has grown 70% over the past couple of years, gross margin sits above 90%, and the company is already GAAP profitable.
Reddit even bought back one million shares last quarter, a sign management sees value at current levels.
Per TIKR.com estimates, Reddit’s revenue is projected to grow from around $2.2 billion in 2025 to roughly $7.8 billion by 2030, with normalized earnings climbing sharply alongside it.
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How to evaluate a post-IPO dip?
A falling stock price alone tells you very little. The real work is checking whether the fundamentals still justify owning the business, and TIKR.com offers a useful framework for doing that.
Start with the Financials tab to check whether revenue growth is holding up or accelerating, and whether the company is moving toward, or already generating, real profit and free cash flow. Both Figma and Reddit currently pass that test.
Next, use the Valuation tab to see how the stock’s price-to-earnings ratio compares to its own history after the drop. A stock trading well below its own recent average, like both FIG and RDDT are right now, deserves a closer look rather than an automatic pass.
The Valuation tab also builds out price targets based on where a stock’s earnings and multiple could realistically land a few years out, which is where the discount really shows up.
For Figma, a mid case scenario built on TIKR.com’s model points to a target price of $67.83 by the end of 2030, versus a current price of $24.38. That works out to a potential total return of about 178%, or roughly 26% annualized, over the next 4.4 years.
Even the low case, which assumes a more conservative 19.9% revenue growth rate and further multiple compression, still points to a target near $49.93, about double today’s price.
Reddit’s setup looks similar, just less extreme. Against a current price of $178.44, a mid case target of $369.97 implies a potential total return of about 107%, or close to 18% annualized.
The low case target of $269.79 still sits well above where the stock trades today, while the high case reaches $493.26 if growth and margins land at the upper end of expectations.
Neither of these targets is a promise.
They are simply a way to see, in dollar terms, how much of the recent drop in both stocks looks tied to a shrinking multiple rather than a shrinking business, and how much room could be left if that multiple stabilizes while earnings keep growing.
The Estimates tab shows what analysts expect going forward, which is useful for sanity checking whether Wall Street shares your optimism or is signaling caution.
And the Model tab lets investors build out their own low, mid, and high case scenarios, similar to the ones shown above for FIG and RDDT, to see what kind of return might be realistic from today’s price.
None of this guarantees a stock goes up from here. But it is a far more disciplined way to approach a post-IPO crash than simply assuming a lower price means a broken company, or that hype at the top ever told the whole story to begin with.
See what analysts think about Figma stock right now (Free with TIKR) >>>
How Much Upside Does Reddit Stock Have From Here?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
