IPO News: Should you invest in Squarespace stock after next week’s IPO?

The market has seen a number of technology firms going public this year, at a time when COVID-driven digitization is transforming the business world. Website hosting company Squarespace, the latest to jump on the IPO bandwagon, will be taking the direct-listing route that has become very common these days. The widespread adoption of e-commerce, amid the shelter-in-place orders, has helped the company broaden its customer base in recent months.

IPO on May 19

As per the company’s regulatory filing, the stock will start trading in the New York Stock Exchange on May 19 under the ticker symbol SQSP. Its shareholders have registered to sell around 40 million common shares, with CEO Anthony Casalena holding a 68.2% stake. The team of financial advisers for the listing includes Goldman Sachs, JPMorgan, and Barclays Capital. In March, the company had raised about $300 million in a round of funding, lifting its valuation to a whopping $10 billion.

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Read mnagement/analysts’ comments on quarterly reports

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The New York-based firm’s software-as-a-service model, supported by features like drag-and-drop and pre-installed templates, offers a unique user experience. Founded by Casalena in 2004 as a blog hosting platform, Squarespace has evolved consistently since then and currently competes with leading website building agencies like GoDaddy, Inc. (NYSE: GDDY) and WordPress.com.

Over the years, Squarespace incorporated new tools like grid-based user interface to become a one-stop shop for all website building solutions and payments services. Considering the growing demand, especially from the restaurant industry, it acquired online reservation system Tock for about $400 million a few weeks ago.

Winning Model

The feature-rich platform makes the creation and management of websites very easy, saving money and time for users. The easy-to-use menu-driven procedures, together with complementary services like support for managing e-commerce sales and search engine optimization, give the company an advantage over most of its competitors.

After generating profit for the first time about five years ago, the tech firm’s performance has been quite impressive. It had around 3.7 million subscribers at the end of 2020, which is up 23% from the previous year. Last year, revenues advanced 28% year-over-year to $621 million, reflecting stable growth in subscriptions that account for about 95% of the top-line. But net profit fell 47% to $30.6 million, hurt mainly by elevated sales & marketing costs.

Growth Strategy

Currently, the management’s growth strategy includes expansion of the customer base internationally, continued investments in commerce offerings and design platforms, expansion of the experts’ community, and strategic acquisitions to augment its organic growth plan.

Going forward, rising costs and the resultant drag on profitability could be the main challenge facing the company, besides growing competition that would demand constant innovation and portfolio ramp-up. Meanwhile, the ongoing growth initiatives might push up costs further, adding to the pricing pressure the business is already facing.

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After defying pandemic, IPO market is bracing for another busy year

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Earlier this year, online gaming platform Roblox Corp. (NYSE: RBLX) and cryptocurrency exchange platform Coinbase, Inc. (NASDAQ: COIN) became public entities through direct listing, which is gaining popularity as the process does not involve underwriters and is considered a better way to price shares compared to regular IPO.