Squarespace (NYSE:SQSP) Q1 Sales Beat Estimates But Quarterly Guidance Underwhelms

Adam Hejl /
2022/05/12 6:13 am EDT

Website and ecommerce tools provider Squarespace (NYSE:SQSP) beat analyst expectations in Q1 FY2022 quarter, with revenue up 15.6% year on year to $207.7 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $210.5 million, 0.55% below analyst estimates. Squarespace made a GAAP loss of $92.8 billion, down on its loss of $1.14 million, in the same quarter last year.

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Squarespace (SQSP) Q1 FY2022 Highlights:

  • Revenue: $207.7 million vs analyst estimates of $204.7 million (1.48% beat)
  • EPS (GAAP): -$0.67
  • Revenue guidance for Q2 2022 is $210.5 million at the midpoint, below analyst estimates of $211.6 million
  • The company reconfirmed revenue guidance for the full year, at $873 million at the midpoint
  • Free cash flow of $43.9 million, up from $10.7 million in previous quarter
  • Gross Margin (GAAP): 82.3%, down from 84.7% same quarter last year

"Our Q1 results mark another strong quarter of 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 strong over the last year, growing from quarterly revenue of $179.6 million, to $207.7 million.

Squarespace Total Revenue

This quarter, Squarespace's quarterly revenue was once again up 15.6% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $362 thousand in Q1, compared to $6.43 million in Q4 2021. 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 7.39% year on year to $210.5 million, slowing down from the 30.9% 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 11.3% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Key Takeaways from Squarespace's Q1 Results

With a market capitalization of $2.02 billion, Squarespace is among smaller companies, but its more than $258.3 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 topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Squarespace. The company is flat on the results and currently trades at $14.85 per share.

Squarespace may have had a tough quarter, but does that actually create an opportunity to invest 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.