Canva's investors reduced its valuation by $7.1 billion, while its own appraiser made an even larger cut.

      Emma Rapaport and Paul Smith detailed the markdown for the Australian Financial Review on 14 August. The dollar amount is represented in two ways, both of which are accurate: $7.1 billion in US dollars and A$10 billion, the figure featured in most headlines. This adjustment reduces Blackbird and Airtree’s valuation from $42 billion to $34.9 billion, a decline of 17%. Both firms are among Canva's longest-term investors.

      The more significant decrease originated from within Canva itself. The independent valuation of the company has shifted more drastically than that of its investors, as noted by the AFR, with this internal downgrade exceeding the external ones.

      This figure is significant because it reflects not just an opinion; it represents the price at which employees can sell shares, having dropped from $38.9 billion to $31 billion over the past year. Consequently, the write-down amounts to $7.1 billion by one measure and $7.9 billion by another, indicating that two different valuers arrived at similar conclusions. However, neither of these figures represents an actual transaction; no one bought or sold Canva at these valuations, which is important for the implications that follow.

      The markdown was triggered a week after the announcement regarding revenue. The AFR reported on 3 August that Canva had reduced its anticipated growth rate by a third, adjusting it to 20%. The headline for that article pointed directly to the cause: Canva experienced an AI bill shock. The company struggled to deploy AI tools due to the rising costs associated with using high-end models. Despite second-quarter revenue reaching $921.9 million—up 25.2%—it fell short of internal expectations.

      Melanie Perkins stated that the issue was with demand rather than a lack of it, noting that the interest in new AI features “significantly exceeded” predictions.

      Perkins elaborated in an email to Fortune, providing a clear overview of the situation and its timeline. She mentioned that the launch confirmed demand but also indicated a need to lower the cost associated with AI tasks to facilitate a wider rollout. Consequently, the decision was made to delay the broader launch of the product until the economic conditions were favorable. Since the rollout of Canva AI 2.0 in April, the cost per task has decreased by nearly 90%, although the increase in design activity means the savings may not be as straightforward as the percentage suggests.

      Derek Hernandez, a senior research analyst at Pitchbook focused on SaaS and AI, shared insights with Fortune regarding the underlying structural changes. He remarked that AI has changed the economics of SaaS, which previously benefited from a zero marginal cost structure. He likened the process of building an F-150 to training, with the fuel and mechanic needed for maintenance representing inference, as they are essential for product utilization. Whereas serving an additional user of a design tool used to incur nearly no cost, each AI-generated image now carries a computing expense.

      Hernandez also drew a connection to the broader market, indicating that both Canva and Figma encountered similar challenges within five days of each other, although they reported them in different manners. Figma experienced a 48% growth rate and raised its outlook, yet its stock fell by 16% due to margin concerns. Its free cash flow margin decreased to 14% in Q2 from 27% in Q1, and third-quarter growth guidance was adjusted to 36% from 48%.

      One company, being public, saw immediate repricing, while another, being private, was repriced by its shareholders, despite both facing the same issue.

      Major buyers are also impacted. Amazon attempted a Claude job that exceeded its budget by 860% before failing. Responses to this trend are converging; for instance, Microsoft has instituted spending limits on its internal AI initiatives, while EY developed an AI router to allocate tasks to cheaper models instead of defaulting to the most advanced ones. This aligns with what Perkins described regarding rebuilding infrastructure.

      Rory O’Driscoll of Scale Venture Partners remarked during the 20VC podcast that many will be confronting these costs in 2026 and 2027 due to hesitancy observed in 2023 and 2024.

      Why Canva couldn’t bypass this challenge lies in the fact that AI is integral to its growth strategy. Canva is expanding beyond design into enterprise workflows, incorporating tools like Canva Code. In 2023, Perkins explained to Fortune that the AI market was overly fragmented, and the strategy has since evolved to unify these components within a single platform.

      Fortune outlines the dilemma facing the entire sector: companies cannot afford to miss out on the AI boom, yet embracing it may jeopardize the economic stability they seek to maintain.

      A European competitor operates under a similar premise without a comparable margin history: Lovable reached $500 million in revenue with 146 employees.

      Canva’s valuation, initially set at $42 billion during an