Squarespace is an all-in-one website building and hosting platform with customizable templates for individuals, businesses, and creatives to create professional websites. The company has achieved a balance of growth and profitability, with consistent operating cash flow and free cash flow/OCF and FCF generation. Despite having a recent growth slowdown from 28% to 10%, Squarespace’s stock is an attractive buying opportunity given the recent sell-off of 12% since April.
Squarespace Payment is expected to drive higher revenue growth and expand the company’s GMV/Total Merchandise Transaction Fee, which is currently at 3% for customers on base rates. Squarespace should also improve its operating margins through more effective and efficient marketing strategies. Squarespace is poised to benefit from the launch of its payment platform, which currently charges a transaction fee of 3% on the basic plan and will potentially remove existing fees from platforms like PayPal. The company has strong organic traffic due to its high-quality dofollow links and can continue to cut down on paid marketing while improving its marketing efficiency.
Investors should be cautious as Squarespace has not yet been significantly affected by price increases, which may cause some paying customers to opt for cheaper alternatives. Additionally, Squarespace’s debt level is relatively high, with $583 million in debt, mostly from term loans. The company is exposed to interest rate risk, which could pose challenges to its overall profitability outlook.
The bullish scenario for Squarespace predicts a revenue growth rate of 15% in FY2024, with increased adoption of Squarespace Payment and integration of payment services into its POS/POS devices in-house. The company is expected to maintain a steady 20% growth through FY2027, with improved profitability and cash flow prospects due to the efficiency of its marketing strategy and operating margins. The bearish scenario predicts a growth rate of 10%, with modest margin expansion.
The company could become a major growth driver with a successful payments business and become the dominant business over e-commerce platform subscriptions, potentially trading closer to the midpoint of the bullish scenario of 4.6x to 13x. The weighted target price for fiscal year 2027 is +$78 per share, with a present value/PV weighted target of +$31 per share, representing the highest price point an investor could buy the stock to realize an expected annual return of 20%.