Online legal service provider LegalZoom (NASDAQ:LZ) announced better-than-expected results in Q2 CY2024, with revenue up 5% year on year to $177.4 million. On the other hand, next quarter's revenue guidance of $167 million was less impressive, coming in 1.1% below analysts' estimates. It made a GAAP profit of $0.01 per share, improving from its profit of $0.01 per share in the same quarter last year.
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LegalZoom (LZ) Q2 CY2024 Highlights:
- Revenue: $177.4 million vs analyst estimates of $172.9 million (2.6% beat)
- Adj EBITDA: $28.9 million vs analyst estimates of $26.1 million (10.7% beat)
- Revenue Guidance for Q3 CY2024 is $167 million at the midpoint, below analyst estimates of $168.8 million
- The company dropped its revenue guidance for the full year from $710 million to $680 million at the midpoint, a 4.2% decrease
- Gross Margin (GAAP): 64.1%, up from 62.2% in the same quarter last year
- EBITDA Margin: 16.3%, down from 17.6% in the same quarter last year
- Free Cash Flow of $17.37 million, down 29.7% from the previous quarter
- Subscription Units: 1.61 million, up 56,000 year on year
- Market Capitalization: $1.10 billion
“I am excited to be taking an active and direct role in executing LegalZoom’s growth strategy,” said Jeff Stibel, Chairman and Chief Executive Officer of LegalZoom.
LegalZoom (NASDAQ:LZ) is an online platform that provides online legal services to individuals and small businesses. The company’s co-founders found it difficult and expensive to find lawyers and file paperwork when trying to start a business so they started LegalZoom instead to address this pain point.
Online Marketplace
Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.
Sales Growth
LegalZoom's revenue growth over the last three years has been unremarkable, averaging 8.1% annually. This quarter, LegalZoom beat analysts' estimates but reported mediocre 5% year-on-year revenue growth.
LegalZoom is expecting next quarter's revenue to decline 0.2% year on year to $167 million, a reversal from the 7.7% year-on-year increase it recorded in the comparable quarter last year. Ahead of the earnings results, analysts were projecting sales to grow 3% over the next 12 months.
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Usage Growth
As an online marketplace, LegalZoom generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, LegalZoom's users, a key performance metric for the company, grew 8.8% annually to 1.61 million. This is decent growth for a consumer internet company.
In Q2, LegalZoom added 56,000 users, translating into 3.6% year-on-year growth.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like LegalZoom because it measures how much the company earns in transaction fees from each user. Furthermore, ARPU gives us unique insights as it's a function of a user's average order size and LegalZoom's take rate, or "cut", on each order.
LegalZoom's ARPU growth has been decent over the last two years, averaging 6.1%. The company's ability to increase prices while growing its users demonstrates the value of its platform. This quarter, ARPU grew 3.8% year on year to $271 per user.
Key Takeaways from LegalZoom's Q2 Results
It was great to see LegalZoom beat analysts' revenue expectations this quarter. It also beat adjusted EBITDA by a convincing amount. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its revenue growth was quite weak. Overall, this was a weaker quarter for LegalZoom. Despite this, the stock traded up 4.5% to $6.21 immediately following the results.
So should you invest in LegalZoom right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.