Investing in Squarespace: Is SQSP a Good Stock?

By Duncan Ferris

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We examine whether Squarespace (NYSE: SQSP), which went public just 10 months ago, is a stock worth taking a look at.

Website creation specialist Squarespace (NYSE: SQSP) has seen its share price sliced almost in two in the 10 months since its IPO. Does this mean the stock is not worth looking at, or does it make the stock a bargain?

Read on to find out more.

What is Squarespace?

The company was founded in 2003 and is based in New York. It operates a platform for businesses and independent creators to build their online presence, grow their brands, and manage their businesses across the internet.

The company’s suite of integrated products enables users to manage their projects and businesses through websites, domains, e-commerce, marketing tools, and scheduling, as well as tools for managing a social media presence.

It serves small and medium-sized businesses, and independent creators, such as restaurants, photographers, wedding planners, artists, musicians, and bloggers. 

Squarespace Metrics

  • P/S: 3.99

  • Forward P/E: 45.4

  • Market Cap: $3.66bn

  • Cash and Cash Equivalents: $203.25m

  • Total Current Liabilities: $367.21m

  • Total Liabilities: $913.02m

Squarespace Q4 Earnings Highlights

  • Earnings per share at $2.60, beating expectations for the period.

  • Total revenue of $784.0m, up by 26% year-over-year.

  • Commerce revenue of $229.5m, an increase of 60%.

  • Full year 2022 guidance of total revenue at between $862m and $878m, significantly below analysts’ expectations. 

Squarespace CFO, Marcela Martin, commented: 

"In 2021, we processed nearly $5.8bn of gross merchandise value on our platform, a result of the selling of services, physical goods, and digital content by our diverse customer base. These commercial dynamics give us confidence that our highly profitable business model supports future expansion while still generating very attractive levels of free cash flow. Further, we believe demand from our 4.1 million unique subscription base will fuel future growth."  

Squarespace Competitors

Squarespace is far from alone in the website creation space. The company’s competitors include the likes of:

  • Wix.Com (NASDAQ: WIX)

  • Shopify (NYSE: SHOP)

  • Godaddy Inc (NYSE: GDDY)

  • Bigcommerce Holdings (NASDAQ: BIGC)

This is a strong group of competitors and it raises a very real concern for potential investors in Squarespace stock. Competitors like Shopify and Bigcommerce Holdings are particularly geared towards customers looking to set up online stores.

This is emerging as a key area for Squarespace too, with the revenue stream comprising almost a third of its takings in the last quarter, having grown by 60% compared to the same period last year.

Of course, the pandemic led to a bit of a boom for online retail and these businesses are all enjoying their slice of the pie. But COVID restrictions are largely a thing of the past, giving online retailers more competition.

Additionally, consumer confidence is way down in the US and the cost of living is increasing across a great deal of the western world. If this state of affairs continues over the medium or long term, it could prove problematic for businesses with a reliance on online retail. 

As such, Squarespace may have to rely on its ability to innovate and create more accessible services than its competitors in order to succeed.

Is Squarespace a Good Investment?

With the company having only gone ahead with its IPO in May of 2021, there isn’t as much data as we’d like to fully analyze the stock. What is clear enough is that this is a growth stock.

In other words, if you’re investing in Squarespace it should be because you believe that the company’s potential for future growth makes the high price worth it, rather than its present-day metrics.

The stock is certainly cheaper than it was at IPO, having dropped in price by almost 50% since May 2021 and by more than 10% across the year to date. That isn’t necessarily bad news however, as this could have created a chance to pick up the stock at a bargain basement price.

Even so, Squarespace seems to constitute something of a risk right now. The company exists in quite a crowded space, and we seem to be at the wrong end of an online retail boom for the company to achieve stunning growth in the near future.

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In this article:

Topics:
IT Services
Industries:
Information Technology
Companies:
Squarespace
Shopify

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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