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Figma stock stays locked up. So why is the share price down? A public company goes private. What it means for you and software OGs adopt AI but is integration enough? We look at Salesforce for clues for Thursday, September 4th, it's Brew Markets Daily and I'm Ann Berry. More market details to come. But first, is AI eating software's world? That question hangs over Salesforce as the stock dropped 5% today despite strong earnings results. And we're watching this one because Adobe Workday and other one time innovators seem to face the same existential question. Are the software OGs on the Wayne? Well, just to set the stage, a quick whiz through Salesforce's second quarter numbers. We saw its subscription and support revenue hit just under $10 billion, up 9% year over year. Salesforce on on track for a record year of cash. Cash is queen is what we always say here. Nearly $15 billion in operating cash flow. And it's showing off that it's a cash printing machine by announcing an additional $20 billion for its share buyback program. Then there's operations in which Salesforce is proving the use of its own Agent Force technology in house. Now I spoke to the CEO and founder Mark Benioff for our sister podcast after earnings right as Agent Force launched in December and he was super excited when we chatted agentic AI to help clients and Salesforce itself rethink what its employee base should look like. Let's listen to what he had to say.
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I mean this is an opportunity for CEOs like myself to think about how are we going to balance our workforce? What do we have humans doing? What do we have digital labor doing? What are our digital workers doing? What are what, what function goes where?
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Well, after asking himself these questions, Benioff has acted just revealing that Salesforce has laid off 4,000 custom support employees. That's a 44 reduction in that function and an example of how Salesforce is increasing its profit margins by using its own AI tools. It is literally using what it's selling. But despite all this, the stock is down over 27 year to date and today's reaction showed that despite these data points, the market just thinks Salesforce is not growing fast enough. It's 8 and a half to 9% revenue growth outlook for the year and take up of the Agent Force product is deemed too slow. So why does the market think that? Well, one competitor, Palantir's enterprise division, reported a 93% growth rate for the quarter, completely blowing Salesforce's number out of the water. And then you've got Other traditional peers like HubSpot are stepping up their competitive game also, even though that company has seen its shares down over 30% so far this year, which highlights what's top of my mind, because it feels as though the market right now asks Will a fresh new AI native system get in Salesforce's way? Like Chat, GPT is coming after Search like Mid Journey is going after Adobe like Rippling is taking on workday Public company software valuations are hit by a fear that integrating AI is not enough. Starting with AI, AI Native is where wins seem to be coming from when it comes to growth. And if the software originals aren't the fast growers anymore, they do need to be stable cash printing machines to keep their prestige in the market. Which means they must keep their clients at healthy margins. So can they. Well, despite the sell off today, some think they can. With Goldman Sachs, for example, having a buy rating on Salesforce stock and arguing that the market should have patience as agent force scales. Well, we're going to keep watching and we know somebody else will be watching too. And that's Starboard, the activist investor popping up in Salesforce's shareholder base. And we know they're not afraid to speak up if they think more change should come. Coming up, Figma from hot IPO to dropping like a rock and what just happened to Walgreens shares? But first, if you want to do more Investing, check out Public.com, brew Markets Daily is sponsored by Public. Our producer John was saying this morning that he's diving into sector trends.
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That's right, and researching the markets. I see themes that cross over from one sector to the next. And at Public, not only can you invest in assets across different industries like healthcare and cybersecurity, but in broader themes like energy transformation, you can create your own investment plan or use one of Public's pre made thematic plans and automatically contribute to those on a recurring basis.
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And if you have questions about your investments, Public has Alpha, an AI powered research assistant that can help you find the answers you're looking for. Public combines a wide range of asset classes with the tools you need to build and manage your wealth. Whether it's with stocks, options, bonds and crypto, Public is the investing platform for those who take it seriously. So get started at public.com brewmarkets that's public.com BrewMarkets paid for by Public Investing.
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Full disclosures in Podcast Description all right.
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John, we need to talk about lockups.
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Listen, I don't know what I did, but I'M sure I can explain.
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No, we're not looking you up. We're going to talk about stock lockups and the role that they play after a company goes public. So that's post IPO and something that caught our eye, along with a bunch of other news today on Figma.
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All right, but I still want my.
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One phone call, very demanding. That's going to have to wait. So we're going to start by explaining what happens when companies go public and after they do. So, there's a period right afterwards during which major shareholders, such as company executives and board members, we call them insiders, as well as early investors, are not allowed to sell their shares. Right.
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And so a company is starting out, it's getting off the ground, it takes on venture capital or investor money, maybe it allocates stock options to early employees. These folks all have equity stakes when the company goes public.
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Right. And the point of the lookup is to prevent these insiders and these early investors, who know a lot to start with because they've been around for a while, but also who do actually own a big chunk of the company. The lookup is to stop having a shocking supply of shares in the market by preventing them from selling their chunky holdings all at once. And the reason that that's important, John, is that newly public companies want to stabilize the stock price and they want to avoid volatility out of the gate. That is a real desire to allow new stocks to have a period in which to settle down and to maintain investor confidence. Right.
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I can imagine that if a company IPO'd and then these early investors dump their shares, it would look like a run on the bank, like suddenly everyone wants their money.
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Now, that's a really interesting analogy, actually, and it's actually quite a long period of time. The lookup typically lasts 90 to 180 days after the IPO happens. And then when that lockup period ends, every shareholder at that point has a choice to make. If you're an employee who held shares before the company went public, imagine you'd been really putting your heart and soul into a startup, and this is your moment to go and finally get your payday, get your cash. Or imagine you're a venture capital firm that's been an investor for a long time. The fund invested in the company, the low valuation way back when. You have literally been waiting for the moment of that ipo, excited to sell your shares, take chunky profits, take a victory lap, tell the world what a great investor you are. If the stock has done well so this moment in which a lockup expires is a really pivotal one. And if you're an ordinary shareholder, though, like you and me, we're not an insider, we were not an employee, we're not part of one of these long time investors when the company was private. But we bought after the IPO or at the time of ipo. It may be the case that we've done pretty well since our purchase. But we do sort of live in fear of the end of this lockup period because you know that if those insiders sell, there is going to be downward pressure on the stock, at least for that moment in time.
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All right, so let's talk about FIGMA in that context. They had a splashy IPO at $33 back in July and the stock went as high as $122 a share. So IPO to 33 up to 122. But recently it's been trading at half of that.
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Okay, so let's, let's take a little bit of a look at why it's being ticked down because it sets the stage for what actually happened to day. John, if we look at the valuation, Figma has been trading at over 200 times price to earnings. That's an important ratio that the market looks at to try to figure out whether a company's share price is reflective of the earnings it generates and the growth opportunity ahead of it. And it's just been incredibly high. With that kind of valuation, the market has been expecting astronomical growth from this company. And you've seen it tick down a little bit or a lot down over half since its big, big ipo. Because the market's been trying to figure out, oh my goodness, have I, have I been ahead of my skis. It's been trying to adjust, but until today it didn't really have a lot of information to go on. Right.
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Because last night Figma had its first ever earnings report since it IPO'd. And so it was a chance, like you said, for new investors to see what the opportunity was. So sales were pretty good, up 41% from a year ago. But overall it was, not, to use your word, astronomical. So Figma met expectations, it didn't blow past them. And one figure that caught everyone's eye, Figment's net retention rate, critical metric. It fell 3% from the, from the prior quarter.
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Right. So we finally got some more information. We know how FIGMA performed now through the end of June through June 30, 2025. And so we took a look at the numbers. But then, as we are wading through, as we know, I'm a nerd. I can't help myself. I have right in front of me. Those of you who are listening can hear the rustle of paper. Those of you watching can see me waving around. These financial results. I ran to read the whole. Here's what captured my attention. To go full circle and talk about why this matters when it comes to the lockup. These results, as John just said, were totally fine, but they weren't astronomical enough to support valuations. So it feels as though it was inevitable that the share price was going to come down when these results came out. But here's what was also disclosed. The five largest venture capital shareholders in Figma last week signed a new agreement to extend this lockup period. So originally, they had the ability to sell out their position in early October, only four weeks away. Right. But they have chosen to do something that most investors don't want to do. Most investors want to get out of their lookup as quickly as humanly possible. Not these five, who, by the way, account for 54% of shareholdings. This is a big group, a big block, talking about they've agreed to extend the lockup period to August 2026. There are going to be windows where they can sell along the way. But this absolutely begs the question why? Which is why it caught my eye. And here is one person's view. I can't help but think that knowing that this was going to be a disappointing set of results, these shareholders took a look at themselves, said, oh, we know the share price is going to drop. The market's going to know that we can sell out a month from now, which is going to put even more downward pressure on the stock before we even get a chance to get, to get, to monetize. How can we send a signal to investors and the market that they should hold on in there and stick it out for the long run? And that, to me, is why they decided to sign up for an extended lockup period. Again, something people typically don't want to do. Right?
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They're saying, we're confident, so don't bail on the shares yet.
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That's. I think that's exactly right. So here's what's going to happen. We are going to be watching this one, not just because we're completely intrigued by Figma and what it's doing to players like Adobe in the design world, but we do want to understand what this means for these tech companies that have had really hot IPOs and then seen these stocks trade down. And so we're going to look out for this. Now, the next set of earnings aren't probably going to be out till late October, sometime in November. So you better believe you're going to be watching to see who's been selling their stock when and asking the question why? Let's take a quick break because when we come back, Walgreens just went private and we want to know what did that mean for shareholders? John, we have a question from the audience.
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Yes, that's right. We heard from Bella in Colorado who wrote hello, Ann, you mentioned that the number of companies listed on the NYSE has decreased over time because some companies were taken private, among other reasons. If I own a share of a publicly traded company through a commercial brokerage service, what happens if that company gets private? Do I still get to keep the shares? Is it liquidated? Thank you.
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Well, Bella, I've got to say thank you very much for the question, which came very quickly after we talked about the New York Stock Exchange and some of its history only yesterday. So this question is literally hot off the inbox. We have seen a couple of public companies go through this process so far this year. And most recently, we saw Walgreens, the pharmacy business, get taken private by the private equity firm Sycamore. So here's what happens. When a company goes private, it means its stock will no longer be publicly traded. And for existing shareholders, there's almost always a buyout involved. This is where the buyer offers to purchase all the outstanding shares at a set price, typically at a premium above the stock's recent trading levels. Now, if you own stock, your brokerage will automatically cash you out at that buyout price once the deal closes. And that's exactly what happened to Walgreens shareholders just last week. Now, from their perspective, the transition was pretty seamless. Literally one day they had shares listed in their brokerage account, then the deal closed and those shares disappeared and the cash at the buyout price showed up instead. So what happens if you'd rather hang on to your shares? Well, in most cases, you don't get that choice because once the deal is complete, the shares are literally cancelled and you're paid out whether you want to sell or not. There are very rare exceptions if you're a special kind of shareholder, which is a large, strategically important one. And in certain cases, that big shareholder gets to negotiate directly with the buyer to become one of the new private owners. Now, this is what happened when Elon Musk took Twitter private in 2022. Jack, Dorse Twitter's co founder rolled his 18 million shares into the private company. And Prince Alwaleed bin Talal rolled his nearly 35 million shares in Twitter, worth a whopping $1.9 billion at the deal price, and stayed as an owner in the private version of the company, as a result making the prince, by the way, the second biggest owner after Elon Musk himself. But Dorsey and Prince Alwaleed had really big holdings. It costs a lot of time and money in terms of legal and reporting and transaction fees to have public shareholders stick around when a company goes private. It's only really worthwhile for the company to let them do that if they're big strategic investors. Everyday investors don't have the option to stick around after a company goes private. And frankly, most want to be cashed out anyway. They usually don't want to be stuck holding private shares that they can no longer sell whenever they want, which is liquidity and is one of the beauties of public equities. Great.
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And if you have a question for Ann, send an email or voice memo to brewmarketshoworningbrew.com.
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Well, it's 4:00pm on the east Coast. That's the closing bell for the markets here. We don't have a ticker tape, so we're going to throw it over to our human ticker, our producer, John.
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All right. The major indices were all up today. The S&P 500 and Dow both finished up 8/10 of a percent and the Nasdaq was up nearly 1%. Some market headlines, and I might as well be reporting this from the mall. Shares in the Gap were up over 4% after the apparel company announced they're going to roll out beauty products in their Old Navy stores and add fragrances next year to its Gap locations. Be on the lookout for Old Navy nail polish. The NFL football season kicks off tonight, and the league has announced a partnership with Abercrombie and Fitch, naming the retailer as its first official NFL fashion partner. Abercrombie will launch a new branded apparel collection, and it saw its stock up almost about a percent today. And finally, shares of American eagle soared over 30% after the clothing retailer released earnings that beat estimates with the company's chairman citing the success of recent marketing campaigns with Sydney Sweeney and Travis Kelce, resulting in an uptick in consumer awareness, engagement and comparable sales.
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I really do think that in that case they wanted to push home the point about, you know, sticking, sticking to that marketing campaign even though there was some controversy. Well, as a final thought, speaking of controversy. I just wanted to bring to everyone's attention a topic that's bubbling up. It's not moving the markets per se, but it's certainly getting a lot of sort of curiosity from folks, both retail investors and institutional investors and also politicians. A bipartisan bill to ban lawmakers from trading stocks is unveiled in the House. This is a group of House members, again, both Republican and Democrat, unveiling new legislation that would ban lawmakers from trading individual shares. Now this is something that has been debated, waited for for over a decade. It's been a will they, won't they? Will there be a push to get this done? And it comes off the back of controversy around some lawmakers who it seems have made a lot of money trading stocks over time. And there is a fear that when in Congress you do get access to information that not everybody else who invests gets to have, you know, laws that are coming, tax breaks that would be coming, subsidies that are coming for certain sectors. And this has created a sense of distrust. Now what happens when lawmakers do actually trade stocks? They do have to disclose what they do. I think it's within a 30 day period, which means it has been possible for folks, market watchers to actually track when this has been happening and there's been some ill will towards it. So we're going to keep watching this. We don't at the moment see an awful lot of bipartisan support for policies or for legislation. And this seems to be one of the rare moments where both sides of the aisle are coming together to tackle something that has been top of people's mind for quite some time. So we're going to keep watching. That's it, folks, for today's Brew Markets Daily.
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Brew Markets Daily is hosted by Anne Barry and produced by John Crateau, Tarek Abdelatif and Emily Milian. Our technical director is Uchena Waugh and the president of Morning Brew Inc. Is Devin Emery.
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Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. See you back here, folks. Same time, same place tomorrow. Sam.