Canva's supporters have reduced its valuation by $7.1 billion, while its internal valuator made an even larger cut.

      Emma Rapaport and Paul Smith covered the markdown for the Australian Financial Review on 14 August. The figure is presented in two formats, both of which are correct: it is $7.1 billion in US dollars and A$10 billion, which is the amount most headlines reported. The adjustment reduces Blackbird and Airtree’s valuation from $42 billion to $34.9 billion, a 17% decrease. Both firms are among Canva’s longest-time supporters.

      A more significant drop originated from within Canva itself. The company's valuation has declined more than that of its investors. The AFR observes that this internal downgrade exceeds those made by external parties. This figure is crucial because it is not merely an opinion; it represents the price at which employees can sell their shares, which has dropped from $38.9 billion to $31 billion over the past year. Therefore, the write-down is $7.1 billion by one measure and $7.9 billion by another, reflecting two independent appraisers arriving at similar conclusions. However, neither amount reflects an actual transaction, as there were no purchases or sales of Canva at these valuations, and this distinction is important moving forward.

      The markdown was triggered following revenue news. The AFR reported on 3 August that Canva had reduced its anticipated growth rate by a third, bringing it down to 20%. The headline for that article pointed directly to the cause: Canva faced a shock from AI expenses.

      The company encountered challenges in deploying AI tools due to the increasing costs associated with utilizing advanced models. In the second quarter, revenue reached $921.9 million, a 25.2% increase, but it fell short of internal forecasts. Melanie Perkins stated that the issue was not a lack of demand; rather, the interest in new AI capabilities “significantly exceeded” expectations.

      Regarding the decision to decelerate growth, Perkins provided Fortune with a clear explanation via email, candidly detailing the sequence of events. She mentioned that while the launch validated demand, it also highlighted the necessity to reduce costs related to AI tasks for a wider rollout. They opted to slow down the product launch until they could reinforce the architecture, lower unit costs, and improve the business model. Since the launch of Canva AI 2.0 in April, the cost per task has nearly dropped by 90%, she noted. Users are now creating three times as many designs, meaning the savings do not align with the percentage decline.

      Derek Hernandez, a senior research analyst at Pitchbook focusing on SaaS and AI, provided Fortune with a structural explanation, indicating that the economics of software are suffering. He pointed out that AI is transforming SaaS from what was traditionally a zero marginal cost solution, which had been a fundamental aspect of software's success until now.

      Hernandez further drew a connection to the public markets, noting that both Canva and Figma faced similar challenges within just five days of each other, though they reported them differently. Figma saw a 48% growth and raised its outlook, yet its stock dropped 16% due to margin concerns. Its free cash flow margin fell from 27% in the first quarter to 14% in the second, and it projected third-quarter growth at 36%, down from 48%. One company is publicly traded and experienced an immediate repricing, while the other is private and faced a reevaluation by its shareholders. Both are dealing with the same issue.

      Major purchasers are also feeling the impact. Amazon encountered significant budget overruns on an AI project before it ultimately failed. Responses are beginning to align; Microsoft has placed spending caps on internal AI usage, while EY developed an AI router to direct tasks to less expensive models instead of automatically defaulting to costly options, similar to what Perkins described as rebuilding.

      Rory O'Driscoll of Scale Venture Partners mentioned this timing issue on the 20VC podcast, suggesting that many will be facing costs in 2026 and 2027 due to hesitancy in 2023 and 2024.

      Canva cannot afford to wait on this matter. AI is central to its expansion strategy, which extends beyond design into enterprise workflows, incorporating tools such as Canva Code. Perkins stated in 2023 that the AI market was highly fragmented, and the subsequent strategy has been to integrate these components into a single platform. This poses a challenge that Fortune outlines for the entire sector: companies cannot afford to miss out on the AI boom, yet diving into it may compromise the very economics they are trying to safeguard.

      In Europe, a similar company has emerged with the same premise but lacks a comparable margin history. Lovable reached $500 million in revenue with only 146 employees.

      The prospect of an IPO is the reason for the brakes being applied. Canva was valued at $42 billion in an employee share sale and had anticipated listing in 2026, though Hernandez now predicts it might happen next year. He notes that the slowdown appears to be aimed at appealing to investors