LegalZoom (NASDAQ:LZ) Surprises With Q1 Sales, Stock Jumps 19.9%

Jabin Bastian /
2023/05/09 4:05 pm EDT

Online legal service provider LegalZoom (NASDAQ:LZ) reported Q1 FY2023 results that beat analyst expectations, with revenue up 7.6% year on year to $165.9 million. Guidance for next quarter's revenue was $167 million at the midpoint, 2.94% above the average of analyst estimates. LegalZoom made a GAAP loss of $2.36 million, improving on its loss of $30.6 million, in the same quarter last year.

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LegalZoom (LZ) Q1 FY2023 Highlights:

  • Revenue: $165.9 million vs analyst estimates of $155.2 million (6.94% beat)
  • EPS: -$0.01 vs analyst estimates of -$0.03 ($0.02 beat)
  • Revenue guidance for Q2 2023 is $167 million at the midpoint, above analyst estimates of $162.2 million
  • The company lifted revenue guidance for the full year, from $630 million to $640 million at the midpoint, a 1.59% increase
  • Free cash flow of $21.8 million, up 34.7% from previous quarter
  • Gross Margin (GAAP): 63.6%, in line with same quarter last year
  • Subscription Units: 1.5 million, up 139 thousand year on year

“I am proud of the team’s execution to start the year. During Q1, we rolled out our new line-up and refreshed our marketing messaging, which helped drive to strong market share gains in the quarter,” said Dan Wernikoff, LegalZoom’s Chief Executive Officer.

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.

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 which feed back into further customer acquisition.

Sales Growth

LegalZoom's revenue growth over the last three years has been mediocre, averaging 14.5% annually. This quarter, LegalZoom beat analyst estimates but reported a mediocre 7.6% year on year revenue growth.

LegalZoom Total Revenue

Guidance for the next quarter indicates LegalZoom is expecting revenue to grow 1.91% year on year to $167 million, slowing down from the 8.93% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 1.45% over the next twelve months.

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Usage Growth

As a online marketplace, LegalZoom generates revenue growth both by growing the number of users on the platform and the average user size in dollars.

Over the last two years the number of LegalZoom's paying users, a key usage metric for the company, grew 11.3% annually to 1.5 million. This is decent growth for a consumer internet company.

LegalZoom Subscription Units

In Q1 the company added 139 thousand paying users, translating to a 10.2% growth year on year.

Key Takeaways from LegalZoom's Q1 Results

With a market capitalization of $1.53 billion LegalZoom is among smaller companies, but its more than $204.1 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We liked to see that LegalZoom beat analysts’ revenue expectations pretty strongly this quarter. Business formations and transaction units, two usage KPIs, also beat. And we were also glad that both revenue and EBITDA guidance for the next quarter and full year exceeded analysts' expectations. While absolute revenue growth was a bit weak, it was overall a positive quarter, and shareholders can feel optimistic. The company is up 18.5% on the results and currently trades at $9.88 per share.

Should you invest in LegalZoom right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.