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Website and ecommerce tools provider Squarespace (NYSE:SQSP) announced better-than-expected results in Q1 CY2024, with revenue up 18.6% year on year to $281.1 million. Guidance for next quarter's revenue was also better than expected at $292.5 million at the midpoint, 1% above analysts' estimates. It made a GAAP loss of $0 per share, down from its profit of $0 per share in the same quarter last year.
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Squarespace (SQSP) Q1 CY2024 Highlights:
- Revenue: $281.1 million vs analyst estimates of $276.3 million (1.7% beat)
- EPS: $0 vs analyst estimates of -$0.07 ($0.07 beat)
- Revenue Guidance for Q2 CY2024 is $292.5 million at the midpoint, above analyst estimates of $289.5 million
- The company lifted its revenue guidance for the full year from $1.18 billion to $1.20 billion at the midpoint, a 1.7% increase (also lifted free cash flow guidance for the same period)
- Gross Margin (GAAP): 71.3%, down from 81.9% in the same quarter last year
- Free Cash Flow of $81.83 million, up 43% from the previous quarter
- Annual Recurring Revenue: $1.12 billion at quarter end, up 12.8% year on year
- Market Capitalization: $4.87 billion
Founded in New York City in 2003, Squarespace (NYSE:SQSP) is a platform for small businesses and creators to build their digital presences online.
E-commerce SoftwareWhile 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 GrowthAs you can see below, Squarespace's revenue growth has been mediocre over the last three years, growing from $179.6 million in Q1 2021 to $281.1 million this quarter.
This quarter, Squarespace's quarterly revenue was once again up 18.6% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $10.43 million in Q1 compared to $13.66 million in Q4 CY2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Squarespace is expecting revenue to grow 18.2% year on year to $292.5 million, improving on the 16.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 16.2% over the next 12 months before the earnings results announcement.
Cash Is KingIf you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Squarespace's free cash flow came in at $81.83 million in Q1, up 34% year on year.
Squarespace has generated $234.9 million in free cash flow over the last 12 months, an impressive 22.2% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.
Key Takeaways from Squarespace's Q1 Results It was good to see Squarespace provide full-year revenue guidance topping analysts' expectations, even if just slightly. We were also happy its revenue narrowly outperformed Wall Street's estimates. On the other hand, its gross margin declined and its ARR (annual recurring revenue) missed Wall Street's estimates. Overall, this was a solid quarter for Squarespace with a few blemishes. The stock is flat after reporting and currently trades at $35.44 per share.
