Squarespace (NYSE:SQSP) Reports Q2 In Line With Expectations But Full Year Guidance Underwhelms

Radek Strnad /
2022/07/25 6:09 am EDT

Website and ecommerce tools provider Squarespace (NYSE:SQSP) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 8.51% year on year to $212.7 million. However, guidance for the next quarter was less impressive, coming in at $215.5 million at the midpoint, being 2.74% below analyst estimates. Squarespace made a GAAP profit of $64.4 million, improving on its loss of $234.5 million, in the same quarter last year.

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Squarespace (SQSP) Q2 FY2022 Highlights:

  • Revenue: $212.7 million vs analyst estimates of $212 million (small beat)
  • EPS (GAAP): $0.45
  • Revenue guidance for Q3 2022 is $215.5 million at the midpoint, below analyst estimates of $221.5 million
  • The company dropped revenue guidance for the full year, from $873 million to $862 million at the midpoint, a 1.26% decrease
  • Free cash flow of $34 million, down 22.4% from previous quarter
  • Gross Margin (GAAP): 82.6%, in line with same quarter last year

"Squarespace achieved $213 million in revenue, growing 12% year over year in constant currency," 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 year, growing from quarterly revenue of $196 million, to $212.7 million.

Squarespace Total Revenue

Squarespace's quarterly revenue was only up 8.51% year on year, which would likely disappoint many shareholders. We can see that the company increased revenue by $4.94 million quarter on quarter accelerating up on $362 thousand in Q1 2022.

Guidance for the next quarter indicates Squarespace is expecting revenue to grow 7.23% year on year to $215.5 million, slowing down from the 23.7% 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 12.4% 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 Q2 Results

With a market capitalization of $2.78 billion Squarespace is among smaller companies, but its more than $247.2 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.

We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that Squarespace's revenue guidance for the full year missed analyst's expectations and the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Squarespace. The company currently trades at $19.5 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.