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Website and ecommerce tools provider Squarespace (NYSE:SQSP) reported Q2 CY2024 results topping analysts' expectations, with revenue up 19.9% year on year to $296.8 million. It made a GAAP profit of $0.04 per share, improving from its profit of $0.03 per share in the same quarter last year.
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Squarespace (SQSP) Q2 CY2024 Highlights:
- Being taken private: On May 13, 2024, the company announced that it has entered into a definitive agreement to go private by Permira, the global private equity firm, in an all-cash transaction valued at approximately $6.9 billion ($44 per share)
- Revenue: $296.8 million vs analyst estimates of $293.1 million (1.2% beat)
- EPS: $0.04 vs analyst estimates of $0.09 (-$0.05 miss)
- Gross Margin (GAAP): 72.1%, down from 82.6% in the same quarter last year
- Free Cash Flow of $57.94 million, down 29.2% from the previous quarter
- Annual Recurring Revenue: $1.18 billion at quarter end, up 20.3% year on year
- Market Capitalization: $6.05 billion
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 sluggish over the last three years, growing from $196 million in Q2 2021 to $296.8 million this quarter.
This quarter, Squarespace's quarterly revenue was once again up 19.9% year on year. We can see that Squarespace's revenue increased by $15.62 million quarter on quarter, which is a solid improvement from the $10.43 million increase in Q1 CY2024. This acceleration of growth was a great sign.
Looking ahead, analysts covering the company were expecting sales to grow 16.8% over the next 12 months before the earnings results announcement.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Squarespace has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company's free cash flow margin averaged 22.1% over the last year, quite impressive for a software business.
Squarespace's free cash flow clocked in at $57.94 million in Q2, equivalent to a 19.5% margin. This quarter's cash profitability was in line with the comparable period last year but below its one-year average. We wouldn't put too much weight on it because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.
Over the next year, analysts predict Squarespace's cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 22.1% for the last 12 months will increase to 24.1%, giving it more optionality.
Key Takeaways from Squarespace's Q2 Results On May 13, 2024, the company announced that it has entered into a definitive agreement to go private by Permira, the global private equity firm, in an all-cash transaction valued at approximately $6.9 billion ($44 per share). As for the quarter, it was good to see Squarespace beat analysts' ARR (annual recurring revenue) expectations this quarter. We were also happy its revenue narrowly outperformed expectations. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock remained flat at $44.05 immediately after reporting.
