By Emily Bary
The pandemic prompted many small businesses to gain online storefronts for the first time, creating an e-commerce wave that helped website-creation platform Squarespace Inc. accelerate its revenue growth.
Now Squarespace will test the resilience of that e-commerce momentum as a public company. Its shares are scheduled to begin trading Wednesday in a direct listing on the New York Stock Exchange under the ticker SQSP.
The company offers various tools for website creation, including domains, e-commerce functions and marketing capabilities. Squarespace aims to work with small businesses that have limited web expertise as well as “large brands” that need greater flexibility to customize based on their needs.
Squarespace sees itself playing into a number of trends, including a growing need for businesses to maintain direct relationships with their customers and an increased emphasis on do-it-yourself solutions that are “rapidly displacing expensive agencies and making equivalent design quality out-of-the-box, accessible and easy-to-use for all,” the company said in its filing with the Securities and Exchange Commission .
The company raised $300 million in a March funding round that gave the company an enterprise valuation of $10 billion, and is not raising any new funding as it lists. Here is what else you need to know about the company.
Growing revenue, shrinking profits
Squarespace posted $621 million in revenue during 2020, up from $485 million a year earlier. Revenue was up 28% in the latest fiscal year, ahead of the 24% growth rate seen in the prior period.
The company classifies 94% of its revenue as subscription-based. Squarespace added about 700,000 new unique subscriptions in 2020 and the company disclosed that more than two thirds of total subscriptions are annual.
About 70% of Squarespace’s revenue last year came from the U.S., while the rest was international.
Squarespace was profitable last year, recording about $30.6 million in net income, though profits were down from $58.2 million in 2019. The company’s “fundamentals highlight a rare combo of profitability and growth at scale,” wrote MKM Partners analyst Rohit Kulkarni.
Despite a string of profitability on an annual basis, Squarespace generated a net loss of $10.1 million in the first quarter of 2021 compared with a loss of $1.1 million a year earlier. The company posted profits in each of the last three quarters of 2020.
The company competes with a variety of different players across the e-commerce industry, according to its filing. Squarespace counts web-creation platforms like Wix.com Ltd. /zigman2/quotes/209382272/composite WIX -1.87% and Square Inc.’s /zigman2/quotes/205989440/composite SQ -4.53% Weebly among its competition, along with e-commerce powerhouse Shopify Inc. /zigman2/quotes/209033712/composite SHOP -4.73% , which lets businesses set up online shops.
Squarespace also calls out competitors like GoDaddy Inc. /zigman2/quotes/204380479/composite GDDY -0.19% that offer domain-name tools, as well as those providing email-marketing and scheduling functions, while arguing that its own “comprehensive, all-in-one platform, multichannel commerce capabilities” are an asset.
Jefferies analyst Brent Thill notes that Wix is larger than Squarespace, with revenue of $989 million last year versus $621 million for Squarespace. In addition, Squarespace’s revenue last year was similar to what Wix posted in 2018, but Wix was posting faster growth at that scale, and without the benefit of the pandemic-driven acceleration in e-commerce more broadly, he wrote.
On the menu
SquareSpace recently closed its $415 million acquisition of Tock, a company focused on the restaurant and hospitality industries. Tock’s services allow businesses to manage reservations, takeout, event ticketing and more.
This part of the business may position SquareSpace against more tech giants, suggested MKM’s Kulkarni.
“SquareSpace’s offering with Tock faces competition from delivery services such as Uber Eats /zigman2/quotes/211348248/composite UBER -2.07% , DoorDash /zigman2/quotes/222973991/composite DASH -2.28% and Grubhub /zigman2/quotes/214569449/composite GRUB -3.14% , along with other restaurant [customer-relationship management] services such as TouchBistro and Toast,” he wrote.
At the same time, the acquisition is an example of one way Squarespace has “smartly diversified into selling not just physical goods online but also adding calendar/scheduling capabilities (restaurant or gym reservations), content sales, and subscriptions,” he continued.
Squarespace’s marketing and sales costs are growing far faster than its revenue. The company incurred $3.1 million in such expenses last year, up from $1.7 million in 2019, making for a 45% increase, whereas revenue was up 28% in the same span.
The company’s podcast advertisements may be familiar to frequent listeners, though Squarespace notes in its prospectus that it advertises its services broadly, using “online keyword search, sponsorships and celebrity endorsements, television, podcasts, print and online advertising, email and social media marketing.”
Among its risk factors, Squarespace points to the possibility that Alphabet Inc.’s /zigman2/quotes/205453964/composite GOOG -2.91% /zigman2/quotes/202490156/composite GOOGL -3.04% Google could change its algorithm or raise the costs of its search-engine-marketing tools.