LegalZoom's (NASDAQ:LZ) Q4 Sales Beat Estimates, Stock Soars

Adam Hejl /
2024/02/22 4:13 pm EST

Online legal service provider LegalZoom (NASDAQ:LZ) reported Q4 FY2023 results topping analysts' expectations, with revenue up 8.2% year on year to $158.7 million. On the other hand, next quarter's revenue guidance of $174 million was less impressive, coming in 1.2% below analysts' estimates. It made a GAAP profit of $0.04 per share, down from its profit of $0.10 per share in the same quarter last year.

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LegalZoom (LZ) Q4 FY2023 Highlights:

  • Revenue: $158.7 million vs analyst estimates of $156.6 million (1.3% beat)
  • EPS: $0.04 vs analyst estimates of $0.02 ($0.02 beat)
  • Revenue Guidance for Q1 2024 is $174 million at the midpoint, below analyst estimates of $176.1 million
  • Management's revenue guidance for the upcoming financial year 2024 is $710 million at the midpoint, missing analyst estimates by 0.6% and implying 7.5% growth (vs 6.6% in FY2023)
  • Free Cash Flow of $14.12 million, down 27.4% from the previous quarter
  • Gross Margin (GAAP): 64.8%, down from 67.5% in the same quarter last year
  • Subscription Units: 1.55 million, up 104,000 year on year
  • Market Capitalization: $1.83 billion

“I’m excited with the progress we made this quarter, including the rollout of our new Business License and Beneficial Ownership Information Report services. We are entering 2024 with a strong foundation to drive growth. Our investments in technology, a much broader ecosystem of services and an expanding base of more engaged subscribers put us in a strong position as we enter the year,” 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.

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 12.5% annually. This quarter, LegalZoom beat analysts' estimates but reported mediocre 8.2% year-on-year revenue growth.

LegalZoom Total Revenue

Guidance for the next quarter indicates LegalZoom is expecting revenue to grow 4.9% year on year to $174 million, slowing down from the 6.8% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to reach $710 million at the midpoint, representing 7.5% growth compared to the 6.6% increase in FY2023.

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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 10.7% annually to 1.55 million. This is decent growth for a consumer internet company.

LegalZoom Subscription Units

In Q4, LegalZoom added 104,000 users, translating into 7.2% 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 ARPU

LegalZoom's ARPU has declined over the last two years, averaging 4.1%. Although the company's users have continued to grow, it's lost its pricing power and will have to make improvements soon. This quarter, ARPU grew 0.9% year on year to $102.69 per user.

Key Takeaways from LegalZoom's Q4 Results

It was good to see LegalZoom narrowly top analysts' revenue expectations this quarter. That stood out as a positive in these results. And while its full year revenue guidance missed analysts' expectations, it still indicates a slight acceleration of growth. The stock is up 7.4% after reporting and currently trades at $10.55 per share.

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.