Squarespace IPO Analysis
Today we look at an upcoming promising SaaS IPO, which is a profitable business, with long runway for growth, and awesome SaaS metrics
Disclaimer: The information provided is not financial, investment, tax or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement or offer to buy or sell any securities or any other financial instruments. For more information read the disclaimer.
Industry Overview
The online business industry is an ever-increasing industry as more people come online and more people get comfortable using online shopping and commerce. Also, businesses nowadays want to own their relationship with their customers, their data which brings more businesses online. It’s estimated that nearly 50% of the small businesses in the US don’t have a website yet. This shows that there is ample opportunity for growth in this industry. Small businesses prefer to have a DIY solution rather than hiring an agency for making their online business(agencies can be really expensive and tools like Squarespace make it really affordable.)
Business Overview
Squarespace provides an online platform that offers websites, domains, e-commerce, tools for managing a social media presence, marketing tools, and scheduling capabilities. So they help you build an online brand. They claim that their platform can run big websites(it’s scalable, reliable, flexible, basically cloud-native). Their platform/business has 3 areas:
Presence: This a web design tool used to build a professional, mobile-friendly website, buy domains and other website building basic stuff and social media marketing
Websites: Squarespace offers website templates created by designers along with a simple and intuitive drag-and-drop tool. They provide hundreds of customizable settings, including fonts, custom color palettes, and built-in photo editing capabilities.
Domains: Squarespace offers domains and domain management tools that allow customers to do everything from editing their DNS records to forwarding their URL.
Social (Unfold): Unfold offers intuitive photo and video editing and helps users create expert-looking stories for social media. Unfold also enables businesses to create and manage brand assets on social platforms from a single place and enables stories to be shared on the web.
Enterprise: For enterprise customers, Squarespace offers dedicated and prioritized support, bulk purchase packaging, custom contracting and payment methods, premium support tailored to each customer’s needs, and the ability for these customers to secure their accounts using customized Single Sign-On (SSO) providers.
Google Workspace (Professional Email): Squarespace enables their customers to activate Google Workspace on their domains that are hosted by Squarespace giving them Gmail and also access to Google Calendar, Google Drive, Google Hangouts, and other Google stuff.
Commerce: This area focuses on providing an easy way to sell physical products, subscriptions, content, or services online and integrates with the presence tools
Commerce: Squarespace supports the sale of physical products, subscriptions, content, and services without the need for third-party tools or integrations. They provide functionality for inventory management, product merchandising, customer relationship management, customized purchase confirmation emails, product promotions, gift cards, selling on Instagram, and more. They offer a secure checkout and enable payment through credit or debit cards via our partnerships with payment processors. Squarespace customers can also sell offline via our Point-of-Sale integration with card reader hardware.
Scheduling: Squarespace Scheduling enables businesses to share availability and take bookings for appointments and classes. Scheduling integrates with the most popular calendars and video conference tools and includes customizable communications for appointment confirmations, reminders, follow-ups, and intake forms. Consumers can pay online or reschedule appointments with a click, all in one place.
Member Areas: Squarespace customers can create exclusive members-only content and have full control over how to charge for access. It also enables many additional commerce use cases including virtual classes, private podcasts, and paid newsletters.
Marketing: This area facilitates Email Campaigns, customer relationship management functionality, SEO, and analytics tools to help customers better understand and target their audiences
Email Campaigns: Squarespace customers can seamlessly use and manage contact lists and drop content and products from their sites into Email Campaigns, giving them quick access to content and keeping their brand consistent between the web and email. It also makes it easy to manage a growing audience, with features like smart client lists and easy access to customer profiles, which include things like customer order information.
SEO: Squarespace websites and online stores are optimized to be indexed and found online, with a suite of integrated features and guides that help maximize prominence among search results as they integrate directly with Google Search Console, giving analytics into how they are being seen and found on Google.
Analytics: Squarespace has an analytics solution that incorporates data from their websites, commerce, and email solutions into a single view for their customers. Without an integrated platform, customers would be forced to use multiple third-party tools, resulting in a fragmented view of their data across multiple systems.
Following is a simple graphic that helps grasp their business visually:
Squarespace TAM
According to the World Trade Organization, SMBs represent over 90% of all global companies and contribute 55% of GDP in developed economies. Based on data from Intuit, as of 2019, there are an estimated 800 million SMBs and self-employed ventures worldwide. Squarespace believes that their near and medium-term addressable market is in excess of $150 billion.
Squarespace Growth Strategies
Squarespace is pursuing the following growth strategies:
Expand New Customer Base, Especially Internationally: Squarespace will deploy its products across the globe, both in English and non-English speaking regions, while growing organically in the US.
Expand and Deepen Commerce Offerings: Squarespace will continue to expand its commerce capabilities through the development of solutions that enable new ways for our customers to transact online. They also believe that their ongoing investment in the partner ecosystem and integrations will allow them to deliver more value to our customers. They also want to integrate partners in extensible commerce functions such as international payments and tax solutions.
Continued Investment in our Design Platform: Squarespace expects to continue to invest in its design platform and technology to ensure that they maintain their leadership position for design on the web.
Promote and Develop our Enterprise Capabilities: Enterprise customers account for less than 1% of Squarespace’s bookings for the year ended December 31, 2020. Moving upmarket will bring in large revenues for Squarespace as these customers can spend a lot more with them.
Expand our Experts Community: Squarespace has a large community of experts that build sites for others on our platform. This community provides Squarespace with a unique marketing channel to address the steadily growing DIFM website development industry.
Opportunistically Pursue Strategic Acquisitions: Squarespace will pursue future strategic acquisitions that will enable them to accelerate their key platform, product, and marketing initiatives, and augment their organic growth strategy.
Squarespace History
Squarespace has been primarily growing through acquisitions. They have been as follows:
Tock - $445M, is a restaurant services provider, in March 2021
Acuity - $50M, is an end-to-end scheduling service provider, in April 2019
Videolicious - $12M, is a provider of video creation solutions, in August 2019
Unfold Creative - $50M, is a social toolkit for storytellers, in October 2019
Competition
Squarespace has competition across various parts of its business from the following:
Online presence solutions such as Automattic, Wix, and Weebly
E-commerce solutions such as Shopify and BigCommerce
Domain registration and website hosting services such as GoDaddy
Email marketing solutions such as MailChimp
Scheduling solutions such as MindBody
Competitive Advantage
Awesome platform for building online businesses for blogs, websites, selling products and services with social media, email marketing tools, and easy payments/commerce abilities. Applications can be managed via phone apps for Android and iOS. 24/7 customer support, would be awesome if it is prompt and has really small support cycles(the time it takes to address issues/concerns). Advanced analytics across the entire platform. The platform has deep integrations and can also be extended.
Business Risks
Key SaaS/Financial Metrics
ARR - $583M
Total Revenues - $621M
ARR Growth - 28%
Subscription Revenue as part of Total revenues - 94%
Gross Margin - 84%
Free Cash Flow - $152M
Free Cash Flow as part of Total revenues - 24.5%
Net Expansion Rate - 120%+
Rule of 40 - 50%+ (28% growth + 24.5% FCF)
Commerce Business Revenue - $143M
Commerce Business Revenue Growth - 78%
Commerce Business GMV - $4B
Commerce Business GMV Growth - 91%
Commerce Business as part of Total Revenues - 23%
US vs. International Revenues - 70%/30%
Final Thoughts
Squarespace looks like a profitable, medium growth business with high customer retention, with many products that give its revenues, diversity, and stickiness as customers are less likely to leave an easy-to-use “ecosystem”. Their move to the upmarket would be interesting and would lead to faster growth with even more retention. Their current organic and acquisitive growth strategy looks promising, and they have a large runway to enjoy growth for a long time.