Figma Inc.
02/18/2026 | Press release | Distributed by Public on 02/18/2026 16:11
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see the sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements" appearing elsewhere in this Annual Report on Form 10-K for a discussion of the uncertainties, risks, and assumptions associated with these statements. This section of our Annual Report on Form 10-K discusses our financial condition and results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. A discussion of our financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Final Prospectus.
Overview
Figma is where teams come together to turn ideas into the world's best digital products and experiences. We launched Figma Design in 2015 using WebGL technology to bring design into the browser for the first time, making it easier and more efficient for designers to work alongside developers, PMs, researchers, and other participants in the product development process. Since then, we have added products and features to support the process of going from idea to product.
In 2021, we launched our second product: FigJam, an online whiteboarding tool. Then, in 2023 we launched Dev Mode, a product tailored for developers. In 2024, we introduced Figma Slides to give teams a new tool to drive strategy and alignment along the way.
In 2025, we doubled our product portfolio with the launch of four new products: Figma Sites, Figma Make, Figma Buzz, and Figma Draw. Figma Make lets users go directly from prompt to working prototype, at which point they can immediately validate an idea and choose to iterate on it. Users can improve the design of their product via further prompting, editing code directly, or through visual manipulation. Figma Sites is a product that lets you design a website and directly publish it to the web, with a URL of your choice. Figma Buzz is a product for easily creating marketing assets, like social media assets and digital ads, at scale. Figma Draw provides a dedicated space for finer vector editing required when drawing detailed iconography and product illustrations. We've also added our own MCP server, which allows developers to connect an agent in their code editor directly to designs in Figma. Developers can ask the agent to inspect the design and use this context to convert it into working code in their codebase.
With the addition of these new products and increasing AI functionality across our platform, Figma has expanded to help teams go from idea to shipped product all in one place. We believe AI will continue to accelerate this journey by helping users of all skill levels to ideate, iterate, and build faster. We are continuing to invest in AI so our customers can continue to innovate and push what is possible on our platform. We have also made acquisitions that expand Figma's capabilities, such as Payload, a leading open-source headless content management system, and Weavy, now Figma Weave, which brings the world's leading AI models together with professional editing tools on a single, browser-based canvas.
As we have grown our platform, we have also grown our community of both free and paying users, in part by offering enhanced features and functionality based on user and organizational needs. Our free Starter plan makes it easy for anyone to quickly get started with Figma and experience the benefits of our platform. More
advanced functionality is available on our paid plans, including our Professional, Organization, and Enterprise plans, each of which are designed to meet the specific and sometimes complex needs of teams. In 2025, we introduced AI credits across all Figma seats. Starting in March 2026, we intend to begin enforcing AI credit limits and start rolling out the ability for customers to purchase an additional AI credit subscription or opt into a pay-as-you-go AI credit plan based on their needs.
Factors Impacting our Operating Results
Initial Public Offering
On August 1, 2025, we completed the IPO, in which we issued 12.5 million shares of our Class A common stock at a public offering price of $33.00 per share, which resulted in net proceeds of $393.1 million after deducting underwriting discounts and commissions and before deducting offering costs payable by us. In addition, selling stockholders sold 30.0 million shares of Class A common stock in the IPO, including 5.5 million shares of Class A common stock in connection with the full exercise of the underwriters' over-allotment option to purchase shares of Class A common stock, at the public offering price of $33.00 per share. We did not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders.
In connection with the IPO, all outstanding shares of our convertible preferred stock automatically converted into 246.0 million shares of Class A common stock on a one-to-one basis.
In connection with the IPO, we recognized a one-time cumulative stock-based compensation expense of $975.7 million associated with the vested RSUs with a liquidity-event performance-based vesting condition, which was satisfied in connection with the IPO and for which the service-based vesting condition had also been satisfied as of that date. Concurrently with the IPO, we issued 9.6 million shares of our Class A common stock and 3.9 million shares of our Class B common stock upon settlement of the RSUs vested in connection with the IPO, net of 12.5 million shares withheld to satisfy related tax withholding and remittance obligations. Based on the IPO price of $33.00 per share, our related tax withholding obligations were $411.4 million and were paid during the year ended December 31, 2025.
Prior to the IPO, deferred offering costs, which consisted of direct incremental legal, accounting, consulting, and other fees relating to the IPO, were capitalized within prepaid expenses and other current assets on our consolidated balance sheets. In connection with the IPO, deferred offering costs of $10.8 million were reclassified to stockholders' equity as a reduction of the net proceeds received from the IPO. There were no deferred offering costs incurred as of December 31, 2024.
Abandoned Merger with Adobe, Inc.
On September 15, 2022, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Adobe, Inc. ("Adobe") and certain of Adobe's wholly-owned subsidiaries.
On December 17, 2023, we mutually agreed with Adobe to terminate the Merger Agreement based on the joint assessment that there was no clear path to obtain the required regulatory approvals for the transaction to close (the "Abandoned Merger with Adobe"). We incurred transaction costs and other related expenses associated with the Abandoned Merger with Adobe of $18.1 million and $97.9 million for the years ended December 31, 2024 and 2023, respectively. The operating cash outflow associated with these transaction costs and other related expenses was $68.5 million and $50.8 million for the years ended December 31, 2024 and 2023, respectively. Additionally, we paid $181.0 million in federal and state income taxes related to the transaction during the year ended December 31, 2024, which was included in cash flows used in operating activities in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
May 2024 Restricted Stock Unit Release and 2024 Stock Option Grants
Following the Abandoned Merger with Adobe, we provided our existing equity holders, including holders of RSUs, the opportunity to sell a portion of their eligible equity holdings in a tender offer (the "2024 Tender Offer"). In order to allow holders of RSUs to participate, in May 2024, we modified certain RSUs for which the service-based condition was satisfied to remove the performance-based vesting condition (the "May 2024 RSU Release"), resulting in the recognition of stock-based compensation expense, net of amounts capitalized, of $801.2 million during the year ended December 31, 2024.
On August 22, 2024, we also granted stock options to purchase shares of our common stock to eligible employees in connection with the 2024 Tender Offer (the "2024 Stock Option Grants"). These stock options were fully vested at grant and therefore the related stock-based compensation expense, net of amounts capitalized, of $88.1 million was recognized during the year ended December 31, 2024.
Key Business Metrics
We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.
| As of December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Paid Customers with more than $10,000 in ARR | 13,861 | 10,517 | 7,233 | ||||||||||||||
| Paid Customers with more than $100,000 in ARR | 1,405 | 963 | 630 | ||||||||||||||
| Net Dollar Retention Rate | 136 | % | 134 | % | 122 | % | |||||||||||
We define a Paid Customer as a customer account that is billed separately for which we have an active paid subscription as of the last day of the applicable period of measurement.1A single organization with multiple divisions, segments, subsidiaries, or subscribing teams that are each billed separately are counted as multiple Paid Customers.
We calculate annual recurring revenue ("ARR") as the annualized value of our active customer agreements as of the measurement date, assuming any agreement that expires during the next twelve months following the measurement date is renewed on existing terms.2ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates.
Paid Customers with more than $10,000 in ARR
We believe that the number of Paid Customers with more than $10,000 in ARR on our platform is an important indication of the value that our products deliver. We define a Paid Customer with more than $10,000 in ARR as a Paid Customer with a total of $10,000 or more of ARR as of the last day of the applicable period of measurement. We believe that $10,000 in ARR is an important threshold, as it is a strong indicator of significant paid usage of our products.
(1)A customer account is considered active when seats are provisioned to the customer at the start of their subscription. In cases where contracts are signed but not provisioned as of the last date of the applicable period of measurement, the customer account is counted as active if provisioning takes place no more than 15 days after the last day of the applicable period of measurement.
(2)A customer agreement is considered active when seats are provisioned to the customer at the start of their subscription. In cases where contracts are signed but not provisioned prior to the measurement date, the customer agreement is counted as active if provisioning takes place no more than 15 days after the measurement date.
Paid Customers with more than $100,000 in ARR
We believe that the number of Paid Customers with $100,000 or more in ARR on our platform is indicative of our ability to scale our platform with our customers as well as our ability to support larger organizations. We define a Paid Customer with more than $100,000 in ARR as a Paid Customer with $100,000 or more of ARR as of the last day of the applicable period of measurement.
Net Dollar Retention Rate
We believe that Net Dollar Retention Rate is an important metric as it measures our ability to both retain our existing customers and grow within our customer base. We calculate Net Dollar Retention Rate as of the applicable period of measurement by starting with the ARR of Paid Customers with more than $10,000 in ARR as of twelve months prior to such date of measurement ("Prior Period ARR"). We then calculate the ARR for those same customers as of the applicable period of measurement ("Current Period ARR"). We then divide Current Period ARR by Prior Period ARR to calculate our Net Dollar Retention Rate for the applicable date of measurement. Our Net Dollar Retention Rate reflects customer expansion, contraction, and churn. We calculate Net Dollar Retention Rate using ARR from Paid Customers with more than $10,000 in ARR because we believe that $10,000 in ARR is an important threshold, as it is a strong indicator of significant paid usage of our products.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the below non-GAAP financial measures are useful in evaluating our operating performance. We use the below non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.
Non-GAAP Operating Income and Non-GAAP Operating Margin
We define non-GAAP operating income and non-GAAP operating margin as income (loss) from operations and operating margin, respectively, excluding stock-based compensation expense, amortization of stock-based compensation expense included in capitalized internal use software development costs, employer payroll taxes on employee stock transactions, and amortization of acquired intangibles from acquisitions. Additionally, we exclude certain non-recurring charges, including transaction costs and other related expenses associated with the Abandoned Merger with Adobe and 2024 Tender Offer transaction costs. Non-GAAP operating margin represents non-GAAP operating income as a percentage of revenue.
The following table reflects the reconciliation of loss from operations to non-GAAP operating income and non-GAAP operating margin for the periods presented:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||
|
Loss from operations
|
$ | (1,290,457) | $ | (877,433) | $ | (73,456) | |||||||||||
|
Plus: Stock-based compensation expense(1)
|
1,364,133 | 947,553 | 2,703 | ||||||||||||||
| Plus: Amortization of stock-based compensation included in capitalized internal use software development costs | 790 | 186 | 28 | ||||||||||||||
|
Plus: Transaction costs and other related expenses associated with the Abandoned Merger with Adobe(2)
|
- | 18,064 | 97,853 | ||||||||||||||
|
Plus: Employer payroll taxes on employee stock transactions(3)
|
46,731 | 27,399 | - | ||||||||||||||
| Plus: Amortization of acquired intangibles from acquisitions | 8,308 | - | - | ||||||||||||||
|
Plus: 2024 Tender Offer transaction costs(4)
|
- | 11,449 | - | ||||||||||||||
|
Non-GAAP operating income
|
$ | 129,505 | $ | 127,218 | $ | 27,128 | |||||||||||
|
Operating margin
|
(122) | % | (117) | % | (15) | % | |||||||||||
|
Non-GAAP operating margin
|
12 | % | 17 | % | 5 | % | |||||||||||
__________________
(1)The stock-based compensation expense for the year ended December 31, 2025 includes the impact of RSUs for which the performance-based and service-based vesting conditions had been satisfied in connection with the IPO. The stock-based compensation expense for the year ended December 31, 2024 is primarily related to the May 2024 RSU Release and 2024 Stock Option Grants. See the section titled "-Factors Impacting our Operating Results-May 2024 Restricted Stock Unit Release and 2024 Stock Option Grants" for further information.
(2)Transaction costs and other related expenses associated with the Abandoned Merger with Adobe include legal, accounting, professional services fees, local business taxes, and non-recurring compensation expenses related to the transaction.
(3)Employer payroll taxes on employee stock transactions for the year ended December 31, 2025 is primarily related to employer taxes paid on RSU releases in connection with and subsequent to the IPO. Employer payroll taxes on employee stock transactions for the year ended December 31, 2024 is related to the May 2024 RSU Release and 2024 Tender Offer.
(4)2024 Tender Offer transaction costs includes legal and professional services fees.
Free Cash Flow and Adjusted Free Cash Flow
We define Free Cash Flow as GAAP net cash provided by (used in) operating activities less capital expenditures and capitalized internal use software development costs, if any. Adjusted Free Cash Flow is a non-GAAP financial measure that we calculate as Free Cash Flow less the termination fee received from the Abandoned Merger with Adobe, plus transaction costs and other related expenses associated with the Abandoned Merger with Adobe and estimated income taxes related to the Abandoned Merger with Adobe. Adjusted Free Cash Flow Margin represents Adjusted Free Cash Flow divided by revenue. Transaction costs and other related expenses include legal, accounting, professional services fees, local business taxes, and non-recurring compensation expenses related to the Abandoned Merger with Adobe. We believe that Free Cash Flow and Adjusted Free Cash Flow are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment and capitalized internal use software development costs, can be used for strategic initiatives, including investing in our business, making strategic acquisitions, and strengthening our balance sheet. We have adjusted our Free Cash Flow by the amount of cash received related to the termination fee from the Abandoned Merger with Adobe, transaction costs and other related expenses associated with the Abandoned Merger with Adobe, and estimated income taxes attributable to the Abandoned Merger with Adobe because we do not expect such items to occur in the future periods and we believe that this provides greater comparability across periods. Free Cash Flow and Adjusted Free Cash Flow have limitations as analytical tools, and they should not be considered in isolation or as substitutes for analysis of other GAAP financial measures, such as net cash provided by (used in) operating activities. Some of the limitations of Free Cash Flow and Adjusted Free Cash Flow are that these metrics do not reflect our future contractual commitments and may be calculated differently by other companies in our industry, limiting their usefulness as comparative measures. We expect our Free Cash Flow to fluctuate in future periods as we invest in our business to support our plans for growth.
These activities, along with certain increased operating expenses as described below, may result in a decrease in Free Cash Flow as a percentage of revenue in future periods.
The following table presents our cash flows for the periods presented and a reconciliation of Free Cash Flow and Adjusted Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with GAAP:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
|
(In thousands, except percentages)
|
|||||||||||||||||
|
Net cash provided by (used in) operating activities(1)
|
$ | 250,681 | $ | (61,717) | $ | 1,047,334 | |||||||||||
| Less: Capital expenditures | (4,444) | (1,977) | (3,737) | ||||||||||||||
| Less: Capitalized internal use software development costs | (3,553) | (4,524) | (2,630) | ||||||||||||||
| Free Cash Flow | $ | 242,684 | $ | (68,218) | $ | 1,040,967 | |||||||||||
| Less: Termination fee received from the Abandoned Merger with Adobe | - | - | (1,000,000) | ||||||||||||||
|
Add: Transaction costs and other related expenses associated with the Abandoned Merger with Adobe(2)
|
- | 68,492 | 50,842 | ||||||||||||||
|
Add: Estimated income taxes related to the Abandoned Merger with Adobe(3)
|
- | 180,987 | - | ||||||||||||||
| Adjusted Free Cash Flow | $ | 242,684 | $ | 181,261 | $ | 91,809 | |||||||||||
|
Net cash used in investing activities
|
$ | (371,413) | $ | (784,257) | $ | (57,336) | |||||||||||
|
Net cash provided by financing activities
|
$ | 43,338 | $ | 62,450 | $ | - | |||||||||||
|
Operating Cash Flow Margin(4)
|
24 | % | (8) | % | 207 | % | |||||||||||
|
Free Cash Flow Margin(5)
|
23 | % | (9) | % | 206 | % | |||||||||||
|
Adjusted Free Cash Flow Margin(6)
|
23 | % | 24 | % | 18 | % | |||||||||||
__________________
(1)Cash provided by operating activities includes the impact of the $24.5 million tax payment made to the Israeli tax authority related to the transfer of intellectual property to the United States in connection with our acquisition of Weavy during the year ended December 31, 2025.
(2)Transaction costs and other related expenses associated with the Abandoned Merger with Adobe include legal, accounting, professional services fees, local business taxes, and non-recurring compensation expenses related to the transaction.
(3)The estimated income taxes related to the Abandoned Merger with Adobe represents our assessment of the transaction's impact on our 2023 federal and state income tax payments, which were included in cash provided by operating activities for the year ended December 31, 2024.
(4)Operating Cash Flow Margin is calculated as net cash provided by (used in) operating activities divided by revenue.
(5)Free Cash Flow Margin is a non-GAAP financial measure that is calculated as Free Cash Flow divided by revenue.
(6)Adjusted Free Cash Flow Margin is a non-GAAP financial measure that is calculated as Adjusted Free Cash Flow divided by revenue.
Key Components of Results of Operations
Revenue
We generate revenue from sales of subscriptions to our platform. Our subscription agreements generally have monthly or annual contractual terms. Our agreements are generally non-cancelable and we typically invoice our customers in advance. At the end of each quarterly period of the contract, we invoice certain customers for additional seats added during the quarter, inclusive of amounts due for services delivered and amounts due for the remaining term of the subscription. We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable and revenue is recognized ratably over the related contractual term.
Our revenue is driven primarily by the number of paying customers and the price we charge for access to our platform, which varies based on the type of plan and products to which a customer subscribes.
Costs That May Impact Multiple Line Items
Employee-Related Costs and Overhead Allocation.Employee-related costs include salaries, bonuses, benefits, stock-based compensation, and related employer payroll taxes for cost of revenue and each operating expense category. Overhead costs represent shared costs that are not specific to a functional group and are allocated based on headcount. Such costs include costs associated with office facilities, workplace and IT-related personnel expenses, depreciation of property and equipment, and other expenses, such as software subscription fees. As such, allocated shared costs are reflected in cost of revenue and each operating expense category.
AI and Related Costs.As a part of our product innovation, we have made and will continue to make significant investments to integrate AI, including generative AI, into our platform. We expect that the use of AI technologies and our investments to integrate AI into our platform will impact our business, operating results, and financial condition. For example, in the short-term, we expect that our AI investments and use of AI technologies, including spend on AI inference and model training, will impact our cost of revenue, research and development expenses, and sales and marketing expenses, which we expect to negatively impact our gross margins and operating margins. Given the newness and rapid development of these technologies, the impacts on our gross margins and operating margins, and our business, operating results, financial condition, and future prospects over the longer term are currently unknown.
Cost of Revenue
Cost of revenue consists primarily of technical infrastructure and hosting costs, including AI inference, employee-related costs, including stock-based compensation and related employer payroll taxes, for infrastructure and product support teams for paid users of Figma, payment processing fees, amortization of capitalized internal-use software development costs, amortization of acquired developed technologies, and allocated overhead. Depending on the timing of investments in our platform, including those related to our AI initiatives, we expect that our cost of revenue will increase in absolute dollars as our business grows and will fluctuate as a percentage of our revenue from period-to-period depending on the timing of these investments.
Gross Profit and Gross Margin
Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and as a result of the timing and amount of technical infrastructure and hosting costs, AI and related efforts, and other investments to expand our products and geographical coverage.
Operating Expenses
Research and development.Our research and development expenses consist primarily of employee-related costs, including stock-based compensation and related employer payroll taxes, technical infrastructure and hosting costs, professional services fees, software subscription fees, and allocated overhead. We expense our research and development costs as they are incurred, other than capitalized internal-use software development costs. Our research and development expenses as a percentage of revenue of 98% for the year ended December 31, 2025, was primarily driven by the stock-based compensation expense and related employer payroll taxes for RSUs in which the performance-based and service-based vesting conditions had been satisfied in connection with the IPO. Our research and development expenses as a percentage of revenue of 100% for the year ended December 31, 2024, was primarily driven by the stock-based compensation expense related to the May 2024 RSU Release and the 2024 Stock Option Grants. Over time, we expect that our research and development expenses will increase in absolute dollars relative to our research and development expenses prior to 2024 and 2025, which exclude the events referenced in the section titled "Factors Impacting our Operating Results," as we continue to invest in our platform. However, depending on the timing of our investments, including those related to our AI initiatives, we anticipate that research and development expenses may fluctuate as a percentage of our revenue from period-to-period.
Sales and marketing.Our sales and marketing expenses consist primarily of employee-related costs, including stock-based compensation and related employer payroll taxes, expenses associated with our marketing and brand advertising campaigns, events, such as annual user conferences, including Config, amortization of sales commissions, amortization of acquired customer relationships, professional services fees, software subscription fees, and allocated overhead. Additionally, we classify within sales and marketing technical infrastructure and hosting costs, including AI inference, as well as overhead costs for our infrastructure and product support teams related to the users of our free version of Figma. We capitalize and subsequently amortize sales commissions and related expenses, including associated payroll taxes and 401(k) contributions, over the estimated period of benefit, which we have determined to be four years. Our sales and marketing expenses as a percentage of revenue of 55% for the year ended December 31, 2025, was primarily driven by the stock-based compensation expense and related employer payroll taxes for RSUs in which the performance-based and service-based vesting conditions had been satisfied in connection with the IPO. Our sales and marketing expenses as a percentage of revenue of 63% for the year ended December 31, 2024, was primarily driven by the stock-based compensation expense related to the May 2024 RSU Release and the 2024 Stock Option Grants. Over time, we expect that our sales and marketing expenses will increase in absolute dollars relative to our sales and marketing expenses prior to 2024 and 2025, which exclude the events referenced in the section titled "Factors Impacting our Operating Results," as our business grows and we continue to scale our go-to-market organization. However, depending on the timing of our investments, including those related to our AI initiatives, we anticipate that sales and marketing expenses will fluctuate as a percentage of revenue from period-to-period. In addition, historically, we have experienced seasonal fluctuations in our sales and marketing expenses incurred in connection with our annual user conferences, including Config, which we typically host in the second quarter of each year, as well as in connection with other advertising efforts.
General and administrative.Our general and administrative expenses consist primarily of employee-related costs, including stock-based compensation and related employer payroll taxes, for our legal, finance, human resources, and other administrative teams, as well as certain executives. In addition, general and administrative expenses include general business expenses, professional services fees, software subscription fees, and allocated overhead. We expect to incur additional expenses as a result of operating as a newly public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. Our general and administrative expenses as a percentage of revenue of 53% for the year ended December 31, 2025, was primarily driven by the stock-based compensation expense and related employer payroll taxes for RSUs in which the performance-based and service-based vesting conditions had been satisfied in connection with the IPO. Our general and administrative expenses as a percentage of revenue of 42% for the year ended December 31, 2024, was primarily driven by the stock-based compensation expense related to the May 2024 RSU Release and the 2024 Stock Option Grants. Over time, we expect that our general and administrative expenses will increase in absolute dollars relative to our general and administrative expenses prior to 2024 and 2025, which exclude the events referenced in the section titled "Factors Impacting our Operating Results," as our business grows. However, we anticipate that general and administrative expenses will decrease as a percentage of revenue over time, although these expenses may fluctuate as a percentage of our revenue from period-to-period depending on the timing of these expenses.
Other Income, Net
Other income, net consists primarily of interest income earned on our cash, cash equivalents, and marketable securities, income earned from certain digital assets, unrealized and realized gains, losses, or impairments related to equity securities, which includes our investments in a Bitcoin exchange traded fund and strategic investments, remeasurement gains or losses on our investment in Bitcoin, which is included within digital assets, non-current on the consolidated balance sheets, gains or losses on foreign currency exchange, amortization of deferred financing costs, interest, and commitments expense on our Revolving Credit Facility, and miscellaneous other expenses.
Provision for (Benefit From) Income Taxes
Provision for (benefit from) income taxes consists of U.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal, state and foreign deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.
On July 4, 2025, the United States enacted the H.R.1 Reconciliation Act, commonly referred to as the One Big Beautiful Bill Act (the "OBBBA"). The OBBBA reformed the Code, including by permanently extending certain expiring provisions of the Tax Cuts and Jobs Act of 2017, modifying the international tax framework, and restoring the deductibility of domestic research and development expenditures. The OBBBA has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The enactment of the OBBBA did not result in a material impact to our provision for (benefit from) income taxes for the year ended December 31, 2025 given we maintain a full valuation allowance on our federal deferred tax assets. The provisions effective in 2025 did not have a significant impact on our consolidated financial statements
Results of Operations
The following tables set forth our consolidated statements of operations data for the periods indicated:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
|
(In thousands)
|
|||||||||||||||||
| Revenue | $ | 1,055,788 | $ | 749,011 | $ | 504,874 | |||||||||||
|
Cost of revenue(1)
|
185,527 | 87,514 | 44,500 | ||||||||||||||
| Gross profit | 870,261 | 661,497 | 460,374 | ||||||||||||||
|
Operating expenses(1):
|
|||||||||||||||||
| Research and development | 1,029,700 | 751,120 | 164,774 | ||||||||||||||
| Sales and marketing | 575,508 | 472,076 | 201,377 | ||||||||||||||
| General and administrative | 555,510 | 315,734 | 167,679 | ||||||||||||||
| Total operating expenses | 2,160,718 | 1,538,930 | 533,830 | ||||||||||||||
|
Loss from operations
|
(1,290,457) | (877,433) | (73,456) | ||||||||||||||
| Other income, net | 64,815 | 84,362 | 1,019,375 | ||||||||||||||
| Income (loss) before income taxes | (1,225,642) | (793,071) | 945,919 | ||||||||||||||
| Provision for (benefit from) income taxes | 24,821 | (60,951) | 208,078 | ||||||||||||||
| Net income (loss) | $ | (1,250,463) | $ | (732,120) | $ | 737,841 | |||||||||||
__________________
(1)Includes stock-based compensation, net of amounts capitalized, as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Cost of revenue | $ | 50,979 | $ | 27,893 | $ | 37 | |||||||||||
| Research and development | 697,676 | 511,259 | 1,890 | ||||||||||||||
| Sales and marketing | 218,823 | 206,830 | 253 | ||||||||||||||
| General and administrative | 396,655 | 201,571 | 523 | ||||||||||||||
The following tables set forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
|
(As a % of revenue(1))
|
|||||||||||||||||
| Revenue | 100 | % | 100 | % | 100% | ||||||||||||
| Cost of revenue | 18 | 12 | 9 | ||||||||||||||
| Gross profit | 82 | 88 | 91 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | 98 | 100 | 33 | ||||||||||||||
| Sales and marketing | 55 | 63 | 40 | ||||||||||||||
| General and administrative | 53 | 42 | 33 | ||||||||||||||
| Total operating expenses | 205 | 205 | 106 | ||||||||||||||
|
Loss from operations
|
(122) | (117) | (15) | ||||||||||||||
| Other income, net | 6 | 11 | 202 | ||||||||||||||
|
Income (loss) before income taxes
|
(116) | (106) | 187 | ||||||||||||||
| Provision for (benefit from) income taxes | 2 | (8) | 41 | ||||||||||||||
|
Net income (loss)
|
(118) | % | (98) | % | 146% | ||||||||||||
__________________
(1)Percentages may not foot due to rounding.
Comparison of the Years Ended December 31, 2025 and 2024
Revenue and Cost of Revenue
| Year Ended December 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Revenue | $ | 1,055,788 | $ | 749,011 | $ | 306,777 | 41 | % | |||||||||||||||
| Cost of revenue | 185,527 | 87,514 | 98,013 | 112 | % | ||||||||||||||||||
| Gross profit | $ | 870,261 | $ | 661,497 | $ | 208,764 | 32 | % | |||||||||||||||
Revenue increased by $306.8 million, or 41%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase in revenue was primarily due to the addition of new Paid Customers, as our number of Paid Customers with more than $10,000 in ARR and Paid Customers with more than $100,000 in ARR increased by 32% and 46%, respectively, as of December 31, 2025 compared to the prior year.
Cost of revenue increased by $98.0 million, or 112%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily due to $49.1 million of higher technical infrastructure and hosting costs relating to AI and increased usage of our platform for paid users, a $31.9 million increase in employee-related costs, primarily driven by a $24.5 million increase in stock-based compensation expense and related employer payroll taxes, $9.7 million of higher amortization of capitalized internal-use software development costs and acquired intangibles from acquisitions, and $5.9 million of higher payment processing fees.
Research and Development
| Year Ended December 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Research and development | $ | 1,029,700 | $ | 751,120 | $ | 278,580 | 37 | % | |||||||||||||||
Research and development expenses increased by $278.6 million, or 37%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily due to a $256.0 million increase in employee-related costs, primarily driven by a $207.1 million increase in stock-based compensation expense and related employer payroll taxes, a $7.2 million increase in technical infrastructure and hosting costs, primarily driven by AI-related costs as we improved and extended our product offerings and developed new technologies, a $6.2 million increase in allocated overhead costs to support the growth of our business, and a $5.8 million increase in software subscription fees.
Sales and Marketing
| Year Ended December 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Sales and marketing | $ | 575,508 | $ | 472,076 | $ | 103,432 | 22 | % | |||||||||||||||
Sales and marketing expenses increased by $103.4 million, or 22%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was due to a $51.2 million increase in employee-related costs, primarily driven by a $24.1 million increase in stock-based compensation expense and related employer payroll taxes, $19.3 million of higher technical infrastructure and hosting costs for users of our free version of Figma due to continuing growth in our user base and AI-related costs as we rolled out our AI offerings to free users during the period, $17.7 million of higher spend related to marketing and advertising expenses, and $7.4 million of higher sales commission expense due to the year-over-year sales growth.
General and Administrative
| Year Ended December 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| General and administrative | $ | 555,510 | $ | 315,734 | $ | 239,776 | 76 | % | |||||||||||||||
General and administrative expenses increased by $239.8 million, or 76%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily due to a $220.1 million increase in employee-related costs, primarily driven by a $207.5 million increase in stock-based compensation expense and related employer payroll taxes, including the accumulated stock-based compensation expense related to the 2021 CEO Market Award and the 2021 CEO Service Award recognized in connection with the IPO, and $13.7 million of higher professional services fees, primarily driven by external legal services.
Other Income, Net
| Year Ended December 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Other income, net | $ | 64,815 | $ | 84,362 | $ | (19,547) | (23) | % | |||||||||||||||
Other income, net decreased by $19.5 million, or 23%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The decrease was primarily due to a $25.0 million change in the fair value of equity securities, which was primarily driven by an unrealized gain on our investment in a Bitcoin exchange traded fund in the year ended December 31, 2024, partially offset by a $5.9 million increase in other income, which was primarily driven by a legal settlement received.
Provision for (Benefit from) Income Taxes
| Year Ended December 31, | $ Change | % Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Provision for (benefit from) income taxes | $ | 24,821 | $ | (60,951) | $ | 85,772 | (141) | % | |||||||||||||||
Benefit from income taxes decreased by $85.8 million, or 141%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. Provision for income taxes recorded in the year ended December 31, 2025 was primarily due to income tax expense related to the transfer of IP rights to the United States in connection with our acquisition of Weavy of approximately $24.5 million. Benefit from income taxes recorded for the year ended December 31, 2024 was primarily due to the anticipated carry back of our research and development tax credit resulting from the May 2024 RSU Release and 2024 Stock Option Grants.
Liquidity and Capital Resources
As of December 31, 2025, our principal sources of liquidity were cash and cash equivalents of $403.5 million, digital assets, current of $15.6 million, which is comprised of holdings in USDC, and marketable securities of $1.3 billion. Our Revolving Credit Facility also serves as a source of liquidity. Cash and cash equivalents are comprised of bank deposits, money market funds, corporate bonds, and commercial paper. Digital assets, current on the consolidated balance sheets is comprised of USDC, a stablecoin redeemable on a one-to-one basis for U.S. dollars. Marketable securities are comprised of commercial paper, U.S. agency securities, U.S. treasury securities, corporate bonds, and a Bitcoin exchange traded fund. Substantially all of our cash and cash equivalents are held in the United States. Since our inception, we have financed our operations primarily through proceeds from the issuance of our convertible preferred stock and common stock and cash generated from the sale of our products. On August 1, 2025, we completed our IPO, in which we issued and sold an aggregate of 12.5 million shares of Class A common stock at a public offering price of $33.00 per share, resulting in net proceeds to us of approximately $393.1 million after deducting underwriting discounts and commissions, but before deducting offering expenses payable by us.
As of December 31, 2025, we held approximately 173 Bitcoins for investment purposes with a fair value of $15.1 million based on observable market prices, which is included within digital assets, non-current on the consolidated balance sheets. We expect to hold these Bitcoins for the long term but will continue to reassess our Bitcoin investment relative to our balance sheet.
We believe that our current cash, cash equivalents, digital assets, current, and marketable securities, in addition to amounts available for borrowing under our Revolving Credit Facility, will be sufficient to fund our operations for at least the next twelve months. Our future capital requirements, however, will depend on many factors, including our subscription growth rate, the timing and extent of spending to support our research and development efforts, our investments in and usage of AI, the expansion of sales and marketing activities, the introduction of new and enhanced products and features, particularly for large organizations, and the continuing market adoption of Figma. We have historically, and may in the future, enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. In the event that additional financing is required from outside sources, we may seek to raise additional funds at any time through equity, equity-linked arrangements, and debt. If we are unable to raise additional capital when desired and at reasonable rates, our business, results of operations, and financial condition would be adversely affected. See the section titled "Risk Factors-Risks Related to Financial and Accounting Matters-We may
require additional capital to fund our business and support our growth, and any inability to generate or obtain such capital may adversely affect our business, operating results, and financial condition."
Commitments and Contingencies
Our principal commitments consist of our operating lease commitments, future purchase commitments for cloud hosting services, and other commitments consisting of future minimum payments under non-cancelable purchase commitments. Our non-cancelable commitments are disclosed in Note 11 "Commitments and Contingencies" to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We did not have during the periods presented, nor do we currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships. This includes entities sometimes referred to as structured finance or special purpose entities, that may be established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Revolving Credit Facility
On June 27, 2025, we entered into the Revolving Credit Agreement with Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, Bank of America, N.A., JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, Wells Fargo Securities, LLC, and RBC Capital Markets, LLC, as joint lead arrangers and bookrunners, the letter of credit issuers from time to time party thereto, and the lenders from time to time party thereto. The Revolving Credit Agreement provides for the Revolving Credit Facility of up to $500.0 million and a subfacility of up to $150.0 million for letters of credit. The Revolving Credit Agreement provides us with the right to increase the Revolving Credit Facility and/or to add one or more tranches of term loans or to increase the amount of any existing term loans in an aggregate principal amount not to exceed (a) $2.0 billion, plus (b) the amount of any voluntary prepayments of term loans and/or the Revolving Credit Facility (to the extent accompanied by a permanent reduction of commitments under the Revolving Credit Facility), plus (c) an additional amount, if after giving effect to the incurrence of such additional amount, we do not exceed a maximum debt to EBITDA ratio in accordance with the Revolving Credit Agreement.
Loans under the Revolving Credit Facility will incur interest, at our option at a rate per annum equal to either (i) a base rate determined by reference to the highest of (x) the prime rate, (y) the federal funds effective rate plus 0.5% and (z) the one month term Secured Overnight Financing Rate ("SOFR") plus 1.0% or (ii) term SOFR plus 1.0%. Additionally, we will be required to pay commitment fees of 0.15% per annum on the undrawn portion of the commitments under the Revolving Credit Facility, which decreases to 0.1% per annum upon achievement of an enhanced debt to EBITDA ratio.
The Revolving Credit Agreement contains a financial covenant requiring that Liquidity (defined as unrestricted cash and cash equivalents, plus the undrawn revolver commitments) is not less than $100.0 million as of the last day of each fiscal quarter. Additionally, the Revolving Credit Agreement contains customary affirmative and negative covenants (including restrictions on indebtedness, liens, investments, asset dispositions and affiliate transactions, each subject to customary exceptions and baskets) and customary events of default (including, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross-default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain material ERISA events). The obligations under the Revolving Credit Agreement are secured by liens on substantially all of our assets. The Revolving Credit Facility matures on June 27, 2030.
On July 30, 2025, we drew $330.5 million under the Revolving Credit Facility in order to pay a portion of the anticipated withholding and remittance obligations related to the vesting and settlement of RSUs for which the performance-based vesting condition had been satisfied in connection with our IPO and used a portion of the net proceeds from our IPO to repay such indebtedness in full on August 1, 2025. As of December 31, 2025, we had no outstanding balance under the Revolving Credit Facility and our total available borrowing capacity under
the Revolving Credit Facility was $500.0 million. We were in compliance with all applicable covenants as of December 31, 2025.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
|
Net cash provided by (used in) operating activities
|
$ | 250,681 | $ | (61,717) | $ | 1,047,334 | |||||||||||
| Net cash used in investing activities | (371,413) | (784,257) | (57,336) | ||||||||||||||
|
Net cash provided by financing activities
|
43,338 | 62,450 | - | ||||||||||||||
|
Net decrease in cash, cash equivalents, and restricted cash
|
$ | (77,394) | $ | (783,524) | $ | 989,998 | |||||||||||
Cash Provided by (Used in) Operating Activities
Our largest source of operating cash is cash collections from organizations on a paid subscription plan. Our primary uses of cash from operating activities are for employee-related expenditures, sales and marketing expenses, and technical infrastructure and hosting costs.
During the year ended December 31, 2025, operating activities provided $250.7 million in cash. The primary factors affecting our cash flows during this period were our net loss of $1.3 billion, adjusted for $1.4 billion from non-cash charges, and net cash inflows of $98.2 million from changes in our operating assets and liabilities. The non-cash charges primarily consisted of $1.4 billion of stock-based compensation expense, net of amounts capitalized, $20.9 million of amortization of deferred commissions, $18.0 million of non-cash operating lease costs, and $15.6 million of depreciation and amortization expense, partially offset by $15.9 million in net accretion of discounts on marketable securities. The cash provided from changes in our operating assets and liabilities was primarily due to a $214.0 million increase in deferred revenue related to increased billings and a $77.0 million increase in accrued compensation and benefits as a result of our increased headcount associated with the growth of our business and the implementation of a company-wide annual bonus program. These amounts were partially offset by a $117.7 million increase in accounts receivable related to the timing of billings and collections, a $36.2 million increase in other assets related to an increase in capitalized commissions, and a $35.9 million increase in prepaid expenses and other current assets.
During the year ended December 31, 2024, operating activities used $61.7 million in cash. The primary factors affecting our operating cash flows during this period were our net loss of $732.1 million and net cash outflows of $270.0 million from changes in our operating assets and liabilities, adjusted for $940.4 million in non-cash charges. The non-cash charges primarily consisted of $947.6 million in stock-based compensation, $14.8 million of amortization of deferred commissions, and $14.1 million of non-cash operating lease costs, partially offset by a $24.2 million unrealized gain from the remeasurement of equity securities and $17.1 million in net accretion of discounts on marketable securities. The cash provided from changes in our operating assets and liabilities was primarily due to a $252.5 million decrease in accrued and other current liabilities and an $86.6 million increase in other assets largely driven by income taxes paid related to the termination fee received related to the Abandoned Merger with Adobe in December 2023. These amounts were partially offset by a $127.7 million increase in deferred revenue due to increased billings and a $11.4 million increase in accrued compensation and benefits as a result of our increased headcount associated with the growth of our business.
Cash Used in Investing Activities
Net cash used in investing activities during the year ended December 31, 2025 was $371.4 million, which was primarily due to the purchase of marketable securities of $1.2 billion, $58.3 million of cash paid for business combinations, net of cash acquired, the purchase of digital assets of $45.0 million, and other cash flows from investing activities of $6.5 million, which is primarily attributed to purchases of strategic investments, the
purchase of intangible assets of $5.2 million, and capital expenditures of $4.4 million, partially offset by proceeds from sales and maturities of marketable securities of $984.7 million and proceeds from sales of digital assets of $15.0 million.
Net cash used in investing activities during the year ended December 31, 2024 was $784.3 million, which was primarily due to the purchase of marketable securities of $1.3 billion from the inflow of cash from the termination fee from the Abandoned Merger with Adobe received during the year ended December 31, 2023, the capitalization of internal-use software development costs of $4.5 million, capital expenditures of $2.0 million, and the purchase of intangible assets of $0.9 million, partially offset by proceeds from sales and maturities of marketable securities of $547.5 million.
Cash Provided by Financing Activities
Net cash provided by financing activities during the year ended December 31, 2025 was $43.3 million, which was primarily due to proceeds from our IPO, net of underwriting discounts and commissions, of $393.1 million, proceeds from borrowings under the Revolving Credit Facility of $330.5 million, proceeds from option exercises of $131.7 million, and proceeds from the issuance of shares of Class A common stock under our 2025 Employee Stock Purchase Plan (the "2025 ESPP") of $26.4 million, partially offset by $499.8 million used to pay the employee portion of taxes related to the net share settlement of equity awards, $330.5 million used to repay borrowings under the Revolving Credit Facility, $7.4 million used to pay deferred offering costs in connection with our IPO, and $1.4 million used to pay for issuance costs on the Revolving Credit Facility.
Net cash provided by financing activities during the year ended December 31, 2024 was $62.5 million, which was primarily due to the proceeds from the sale of common stock in connection with the May 2024 RSU Release of $419.0 million, proceeds from the issuance of common stock of $60.0 million, and proceeds from option exercises of $2.4 million, partially offset by $418.1 million used to pay taxes related to the net share settlement of RSUs and $0.9 million used to repurchase common stock.
Critical Accounting Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements and the related notes thereto, which have been prepared in accordance with GAAP. In preparing the consolidated financial statements, we apply accounting policies and estimates that affect the reported amounts and related disclosures. Inherent in such policies are certain key assumptions and estimates made by management, which we believe best reflect our underlying business and economic conditions. Our estimates are based on historical experience and various other factors and assumptions that we believe are reasonable under the circumstances. We regularly re-evaluate our estimates used in the preparation of the consolidated financial statements based on our latest assessment of the current and projected business and economic environment. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates.
The significant accounting policies and methods used in the preparation of our consolidated financial statements are discussed in Note 1 "Description of the Business and Summary of Significant Accounting Policies," to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. We believe that the accounting policies and estimates described below involve a substantial degree of judgment and complexity and therefore are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Stock-Based Compensation
We measure and recognize stock-based compensation expense related to equity awards, including stock options, RSUs, restricted stock awards ("RSAs"), and stock purchase rights granted under the 2025 ESPP, based on their estimated fair value on the date of grant. The fair value of these equity awards is estimated using
valuation methods and assumptions, the most significant of which is the estimated fair value of our common stock on the date of grant.
We have granted certain equity awards to our employees and directors with a service-based and a performance-based vesting condition. Upon the effectiveness of the registration statement related to our IPO, the liquidity-event performance-based vesting condition for such RSUs was satisfied and we recorded cumulative stock-based compensation expense using the accelerated attribution method. The remaining unrecognized stock-based compensation expense related to these RSUs will be recorded over their remaining requisite service periods. For awards granted with only service-based vesting conditions, stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards.
We have also granted certain equity awards with market-based vesting conditions in addition to service-based vesting conditions. The market-based vesting conditions resulted in implied performance-based vesting conditions that were satisfied upon our IPO. We estimated the grant date fair value of the market-based award using a Monte Carlo simulation, which incorporates into the valuation multiple stock price paths as well as the possibility that the stock price targets may not be satisfied. Stock-based compensation expense associated with market-based awards is recognized over the requisite service period of each tranche, which is equal to the longer of the explicit, implicit, or derived service period for each tranche, using the accelerated attribution method, regardless of whether the market conditions are achieved.
We account for forfeitures in the period in which they occur.
Common Stock Valuations
Prior to the IPO, the estimated fair value of the common stock underlying our equity awards was determined by our Board of Directors. We believe that our Board of Directors has the relevant experience and expertise to determine the fair value of our common stock. Because there was no public market for our common stock prior to the IPO, our Board of Directors determined the fair value of our common stock at the time of the grant of an option, RSU, or RSA by considering a number of objective and subjective factors, including important developments in our operations, valuations performed by an independent third party, the prices paid for common stock and convertible preferred stock sold to third-party investors by us, actual operating results and financial performance, the conditions in the industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of our common stock, among other factors.
Prior to our IPO, in estimating the fair value of our common stock, we considered several methodologies, including the market approach. The market approach estimates value based on a comparison of our company to a group of comparable public companies. From the comparable companies, a representative market value multiple is determined and then applied to our financial results to estimate the fair value of our business.
In addition, prior to our IPO we also considered secondary market transactions involving our capital stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange. Factors considered include transaction volume, the number of participants, timing, whether the transactions occurred between willing and unrelated parties, and whether the transactions involved parties with access to our financial information.
Application of these approaches involved the use of estimates, judgment, and assumptions that are complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impacted our valuations as of each valuation date and may have had a material impact on the valuation of our common stock.
After the completion of our IPO, our Board of Directors has determined the fair value of each share of underlying common stock based on the closing price of our Class A common stock as reported on the NYSE on the date of grant.
Recent Accounting Pronouncements
See Note 1 "Description of the Business and Summary of Significant Accounting Policies" to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for recently adopted accounting pronouncements as of the date of this Annual Report on Form 10-K.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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