Squarespace non-IPO: 4 things to know before direct listing from web design company

The pandemic prompted many small businesses to win online storefronts for the first time, creating a wave of e-commerce that has helped website builder platform Squarespace Inc. accelerate revenue growth.

Squarespace will now test the resilience of this e-commerce dynamic as a public enterprise. Its shares are expected to begin trading on Wednesday in a direct listing on the New York Stock Exchange under the symbol SQSP.

The company offers various tools for website building, including domains, e-commerce functions, and marketing capabilities. Squarespace aims to work with small businesses that have limited web expertise as well as with “big brands” that need more flexibility to customize according to their needs.

Squarespace is seen playing in a number of trends, including a growing need for businesses to maintain direct relationships with their customers and an increased focus on do-it-yourself solutions that “quickly move expensive agencies and make design quality match. out of the box, accessible and easy to use for everyone, ”the company said in its filing with the Securities and Exchange Commission.

The company raised $ 300 million in a fundraising round in March that gave the company a corporate valuation of $ 10 billion, and is not raising any new funding as it lists. Here’s what else you need to know about the business.

Income growth, profit decline

Squarespace reported revenue of $ 621 million in 2020, up from $ 485 million a year earlier. Revenue increased 28% in the last fiscal year, ahead of the 24% growth rate seen in the previous period.

The company classifies 94% of its revenue as subscription-based. Squarespace added around 700,000 new unique subscriptions in 2020 and the company revealed that more than two-thirds of total subscriptions are annual.

About 70% of Squarespace’s revenue last year came from the United States, while the rest was international.

Squarespace was profitable last year, posting a net profit of around $ 30.6 million, although profits declined from $ 58.2 million in 2019. “Company fundamentals highlight a rare combination of profitability and large-scale growth, ”wrote Rohit Kulkarni, analyst at MKM Partners.

Despite a chain of profitability on an annual basis, Squarespace generated a net loss of $ 10.1 million in the first quarter of 2021 compared to a loss of $ 1.1 million a year earlier. The company has posted profits in each of the last three quarters of 2020.

Competition galore

The company competes with a variety of different players in the e-commerce industry, according to its file. Squarespace has web authoring platforms like Wix.com Ltd. WIX,
+ 1.15%
and Square Inc.’s SQ,
+1.94%
Weebly among its competitors, as well as the e-commerce powerhouse Shopify Inc. SHOP,
-0.33%,
which allows companies to set up online stores.

Squarespace also calls out competitors like GoDaddy Inc. GDDY,
+ 0.24%
that offer domain name tools, as well as those that provide email marketing and scheduling functions, while claiming that its own “all-in-one full platforms, multi-channel commerce capabilities” are a plus.

Jefferies analyst Brent Thill notes that Wix is ​​bigger than Squarespace, with $ 989 million in revenue last year compared to Squarespace’s $ 621 million. Additionally, Squarespace’s revenue last year was similar to Wix’s in 2018, but Wix was growing faster at this scale, and without the benefit of the pandemic-induced ecommerce acceleration, he said. -he writes.

On the menu

SquareSpace recently completed its $ 415 million acquisition of Tock, a company specializing in the restaurant and hospitality industries. Tock’s services allow businesses to manage reservations, take out, event ticketing and more.

This part of the business may position SquareSpace against more tech giants, MKM’s Kulkarni suggested.

“SquareSpace’s offer with Tock faces competition from delivery services such as Uber Eats UBER,
+ 0.51%,
DoorDash DASH,
+ 2.62%
and Grubhub GRUB,
with other restaurants [customer-relationship management] services such as TouchBistro and Toast, ”he wrote.

At the same time, the acquisition is an example of how Squarespace has “smartly diversified into selling not only physical goods online, but also adding calendar / scheduling capabilities (restaurant or restaurant reservations). gym), content sales and subscriptions, ”he continued.

Marketing dollars

Squarespace’s marketing and sales costs are growing much faster than its revenue. The company incurred $ 3.1 million in such expenses last year, up from $ 1.7 million in 2019, an increase of 45%, while revenues increased by 28% in the same period. .

The company’s podcast ads may be familiar to frequent listeners, although Squarespace notes in its flyer that it advertises its services generally, using “online keyword research, referrals and celebrity recommendations, television, podcasts, print and online advertising, email and social media marketing. “

Among its risk factors, Squarespace highlights the possibility that Alphabet Inc.’s GOOG,
-0.38%

GOOGL,
-0.78%
Google could change its algorithm or increase the costs of its search engine marketing tools.


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