Squarespace Inc Benefiting From the Move to Digital
When the Internet was first available to the everyday person roughly 30 years ago, building a web site was a cumbersome process that required programming knowledge. Since then, things have steadily transformed. Now the layperson can build a good Web presence with easy-to-use platforms.
The web site building space is competitive and includes numerous players. Squarespace Inc (NYSE:SQSP), with a market cap of $4.4 billion, is smaller than the more major players GoDaddy Inc (NASDAQ:GDDY) and Wix.com Ltd (NASDAQ:WIX).
Squarespace stock’s price action has been extremely volatile since the stock debuted on the market at $48.00 in May 2021. After surging to $64.71 in June of that year, SQSP stock subsequently fell to a low of $25.68 on January 6, 2022 before rallying. It remains 50% off its high.
For the contrarian investor, Squarespace stock is worth a look. I like the risk/reward opportunity in SQSP stock, as Squarespace Inc has been ramping up its revenues and moving to profitability.
Chart courtesy of StockCharts.com
Revenue Growth Is Bullish for Squarespace Stock
Although Squarespace Inc has a limited public financial history, the company’s results and outlook support a bullish move by SQSP stock.
The company’s revenues jumped by 28.1% from $484.8 million in 2019 to $621.1 million in 2020. The company’s 12-month rolling revenues have edged up to $748.9 million as the economy continues to reopen.
Looking ahead to Squarespace Inc’s full-year 2021 results, analysts estimate that the company will report revenues of $782.4 million. They estimate that Squarespace will follow that with 19.4% growth to $934.6 million in full-year 2022. (Source: “Squarespace, Inc. (SQSP),” Yahoo! Finance, last accessed February 14, 2022.)
And while the company continues to lose money on a generally accepted accounting principles (GAAP) basis, Squarespace is en route to report adjusted profitability for 2021.
Squarespace reported earnings before interest, taxes, depreciation, and amortization (EBITDA) of $79.7 million and $61.9 million in 2019 and 2020, respectively. (Source: “Squarespace Inc. ” MarketWatch, last accessed February 14, 2022.)
On the bottom line, the company lost $1.90 and 1.86 per diluted share in 2019 and 2020, respectively, based on GAAP.
After adjusting for non-recurring expenses, Squarespace Inc is expected to report an adjusted $0.70 per diluted share for 2021, followed by $0.68 per diluted share for 2022. (Source: Yahoo! Finance, op. cit.)
Moreover, the company reported free cash flow of $94.1 million and $145.3 million for 2019 and 2020, respectively. (Source: MarketWatch, op. cit.)
Institutional ownership of Squarespace Inc is relatively strong, with 89 institutions holding a 77.2% stake in Squarespace stock. (Source: Yahoo! Finance, op. cit.)
At its current share price, I like the risk/reward contrarian opportunity in SQSP stock. I believe long-term investors will be rewarded.