Squarespace (NYSE:SQSP) Exceeds Q1 Expectations, Provides Encouraging Quarterly Guidance

Anthony Lee /
2023/05/09 6:14 am EDT
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Website and ecommerce tools provider Squarespace (NYSE:SQSP) reported Q1 FY2023 results that beat analyst expectations, with revenue up 14.1% year on year to $237 million. Guidance for next quarter's revenue was $243 million at the midpoint, 2.28% above the average of analyst estimates. Squarespace made a GAAP profit of $502 thousand, improving on its loss of $92.9 million, in the same quarter last year.

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Squarespace (SQSP) Q1 FY2023 Highlights:

  • Revenue: $237 million vs analyst estimates of $232.8 million (1.83% beat)
  • EPS: $0 vs analyst estimates of -$0.11 ($0.11 beat)
  • Revenue guidance for Q2 2023 is $243 million at the midpoint, above analyst estimates of $237.6 million
  • The company lifted revenue guidance for the full year, from $962.5 million to $975 million at the midpoint, a 1.3% increase
  • Free cash flow of $61.1 million, up 67.8% from previous quarter
  • Gross Margin (GAAP): 81.9%, in line with same quarter last year

"Squarespace had an outstanding first quarter, delivering double-digit revenue and bookings growth," said Anthony Casalena, Founder & CEO of Squarespace.

Founded in New York City in 2003, Squarespace (NYSE:SQSP) is a platform for small businesses and creators to build their digital presences online.

While e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.

Sales Growth

As you can see below, Squarespace's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $179.6 million in Q1 FY2021, to $237 million.

Squarespace Total Revenue

This quarter, Squarespace's quarterly revenue was once again up 14.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $8.22 million in Q1, compared to $11.1 million in Q4 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Squarespace is expecting revenue to grow 14.2% year on year to $243 million, improving on the 8.52% 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 10.3% over the next twelve months.

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Key Takeaways from Squarespace's Q1 Results

With a market capitalization of $3.74 billion Squarespace is among smaller companies, but its more than $239.3 million in cash and positive free cash flow over the last twelve months give us confidence that Squarespace has the resources it needs to pursue a high growth business strategy.

Squarespace' revenue guidance for the next quarter looks quite a bit better than what the analysts were expecting. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $27.13 per share.

Should you invest in Squarespace 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.