![]() Squarespace has a strong domain rating of 94 and an even stronger “dofollow” of +99%. Another lever to reduce paid marketing would be organic traffic generation, which Squarespace has a solid foundation for. With Shopify spending just between 20% - 25% of its revenue for sales and marketing in recent times, there is significant room for improvements for Squarespace in that area. It is also possible that Squarespace may reduce marketing spend further and stay at a more sustainable level of 38% - 40% of revenue. Given the success in maintaining revenue growth while reducing marketing spend from 54% to ~43% of revenue, Squarespace demonstrates that it may have a formula that it can replicate into the next quarters. While the management credited this performance to the well-run attribution strategy, it is relatively challenging to rely on that process alone to generate predictable growth for a business at Squarespace’s scale. In addition, I must admit that I was impressed by Squarespace's 2.5% subscriber growth despite the reduced marketing spend. Given that Squarespace is launching the payment platform sometime in Q4, I expect that the business will only begin seeing the impact of the higher revenue growth from payment processing activities sometime in Q3 2024. During that period, Shopify also saw an almost 4x growth in payment processing revenue. It is noteworthy that Shopify doubled its revenue in only a year after launching its payment platform. Having launched its own payment services in 2013, it makes up ~70% of its revenue today, surpassing the revenue generated from the e-commerce platform subscription fees alone. The leading player in the space, Shopify ( SHOP), also achieved success with its payment services business. With integrated payment services across its plans, I expect Squarespace to start adding competitive payment processing fees on top of the existing fees, effectively not only taking some shares from the existing payment services in its platform, such as PayPal ( PYPL), but also unlocking significant growth potential. ![]() Squarespace currently charges a 3% transaction fee, but only in its basic plan. This allows Squarespace to realize a potential upside from the customers’ success, and capture more value from the growing e-commerce market. As an e-commerce platform, it is ideal for companies like Squarespace to have a business model that generates revenue as a function of GMV or GPV / Gross Payment Volume of its customers to balance out the more steady - yet predictable - fixed-fee subscription revenues. I believe that launching Squarespace Payment is a step in the right direction. In this first coverage, I assign a buy rating for the stock and wish to discuss further the two key catalysts, as well as the risk factors affecting Squarespace, before arriving at the price target for the stock. ![]() In Q1, I observed a surprisingly strong execution ability from Squarespace in implementing an onboarding strategy to convert users cost-efficiently. Operating margins can increase further as Squarespace leverages more effective and efficient marketing strategies.The introduction of Squarespace Payment will enable the company to unlock higher revenue growth and expand its GMV / Gross Merchandise Volume transaction fee, which currently stands at just 3% for customers on the basic commerce plan.In the near term, I identify two catalysts on the stock: As such, I think that Squarespace merits further exploration as a buying opportunity. Given the recent selloff that has resulted in the 12% decline in shares price since April, I believe the stock is now trading at an attractive price level. Yet, operating and free cash flow / OCF and FCF generations have been consistent and on a slight upward trend in recent times. Since its IPO in 2021, growth has declined from ~28% to just over +10% today. Overall, Squarespace is a good business with a decent balance between growth and profitability that will continue to benefit from the growing global e-commerce trend. Squarespace ( NYSE: SQSP) is a popular all-in-one website building and hosting platform with a user-friendly interface and a wide range of customizable templates that allow individuals, businesses, and creatives to create professional-looking websites.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |