Please ensure Javascript is enabled for purposes of website accessibility

Website Builder Squarespace Just Filed to Go Public: Here's What Investors Need to Know

By Brett Schafer - May 3, 2021 at 8:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company was profitable and grew its revenue in 2020.

Squarespace is a platform that allows anyone to easily build a website through custom domains. The company just released its S-1 filing ahead of its direct listing (similar to an initial public offering but without raising money) on the New York Stock Exchange and will trade under the ticker "SQSP."

Here's what potential investors should understand about Squarespace before it goes public.

Hands typing on a laptop with other icons floating in the foreground.

Image source: Getty Images

The business

Squarespace's mission is to "enable millions to build a brand and transact with their customers in an impactful and beautiful online presence," which essentially means it wants to help anyone build a good-looking website. The majority of the company's revenue comes from selling annual and monthly subscriptions to its website-building solutions, accounting for almost 95% of sales in 2020. At the end of that year, there were 3.7 million subscribers on Squarespace, up from 3.0 million in 2019. 

Historically, Squarespace has focused on website design and layout, but it has since tried to grow its e-commerce product, which is similar to what Shopify (SHOP -90.61%), Wix.com (WIX -3.69%), and BigCommerce (BIGC -5.15%) offer. In 2020, Squarespace processed $3.9 billion in gross merchandise volume (GMV), which was up 91% from the prior year. While Squarespace is growing GMV quickly, it still lags competitors by a wide margin. For instance, Shopify processed $37.3 billion in GMV in just its most recent quarter. Outside of e-commerce, Squarespace has tools for marketing, SEO optimization, blogging, and appointment scheduling that its subscribers can utilize.

Lastly, Squarespace just acquired Tock -- a reservation, hospitality, and order management platform for individual restaurant owners -- for $400 million. According to the S-1, Tock only had $23 million in sales last year, so a $400 million price tag looks expensive. However, if Squarespace can upsell the product to existing subscribers who are restaurant owners, it could meaningfully grow that revenue number over the next few years.

Financials

Squarespace, like other website builders, has a relatively simple business model. Last year, it generated $621 million in revenue, up 28% from 2019. The main inputs into Squarespace's revenue are total subscribers and the average money each subscriber spends in a given year, which it calls average revenue per unique subscriber (ARPUS). In 2020, ARPUS increased from $182 to $187, a good sign for customer retention and spending on the platform.

Moving down the income statement, Squarespace generated $523 million in gross profit, giving it a strong gross margin of 84%. And unlike many tech stocks going public today, Squarespace is actually profitable with $31 million in net income and $150 million in operating cash flow generated last year. With this high gross margin and the fact it can generate cash while still investing in growth, Squarespace showcases how it could have very attractive profit margins once it reaches maturity.

Large public competitors

Squarespace has a few public competitors that I mentioned above, but its closest peer is Wix.com, which also has a comprehensive design and e-commerce solution for its customers. But Shopify is the dominant e-commerce site builder globally, though it doesn't necessarily compete with all of Squarespace's other products. Assuming investors assign a similar price-to-sales multiple (P/S) for Squarespace as they do for Wix, Squarespace would trade at a market cap north of $10 billion following its direct listing.

This is far from guaranteed, however, and if investors have learned anything about public market debuts in the last year, it's that stocks can come out at much higher or lower valuations than initially expected.

Overall, if you're an investor who is bullish on website-building platforms and owns one or more of Shopify, Wix.com, and BigCommerce, Squarespace looks like it could be a complementary addition to your portfolio once it starts trading.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wix.com Stock Quote
Wix.com
WIX
$65.80 (-3.69%) $-2.52
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$35.03 (-90.61%) $-338.18
BigCommerce Holdings, Inc. Stock Quote
BigCommerce Holdings, Inc.
BIGC
$17.88 (-5.15%) $0.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.