Proactive Investors - Analysts at UBS are bullish on the web builder space as firms take advantage of the generative artificial intelligence (GenAI) opportunity, initiating coverage with a positive outlook on four sector leaders.
“GenAI is the next leg of the evolution of the web builder space, and near-term it should serve as a subscriber monetization tailwind as more/better tools are integrated into website editors and are reflected in higher subscription prices,” the analysts wrote in a note to clients.
“Longer-term, GenAI could serve as a subscriber growth driver as more digital-native businesses mix higher into overall new business formation, which should push out online penetration rate concerns that have been top of mind after digesting the COVID pull-forward.”
Here are the UBS analysts’ top web builder stock picks:
Squarespace
The analysts initiated coverage on Squarespace with a ‘Buy’ rating and US$40 price target, representing a 36% upside to its share price at the time of writing.
They believe Squarespace is positioned to deliver mid-teens revenue growth through fiscal 2025 by expanding deeper into international markets and selling additional higher-priced subscriptions.
They also see a path for margin expansion as fixed costs lever and international marketing efforts drive awareness higher, which in turn should support the company to pull back on brand marketing, similar to its approach in the United States.
“SQSP has underperformed Wix since announcing its acquisition of Google (NASDAQ:GOOGL) Domains on June 15, 2023, as we suspect concerns around why SQSP would choose to allocate capital away from existing customer acquisition channels,” they wrote.
“While we think there is some low-hanging fruit around the Google Domains portfolio such as price increases, if SQSP can prove the acquisition delivers an incremental, cost-efficient on-ramp for customer acquisition, we believe this could bring more investors off the sidelines.”
Squarespace shares added 4.6% at US$28.77 at noon on Friday.
Also winning a ‘Buy’ rating from the analysts was Wix.
They noted that over the last 12 months, the company has rightsized its cost structure by cutting US$215 million in annual expenses.
They expect that, if the company can deliver low-teens revenue growth and maintain cost discipline, its shares should move higher as confidence grows around its ability to deliver its US$500 million fiscal 2025 free cash flow target.
“Wix has been steadfast in its commitment to the US$500M free cash flow target and indicated it has levers to further tighten cost controls if revenue growth comes in softer than current levels,” they wrote.
The UBS analysts gave Wix a US$125 price target, representing an upside of 33% at the time of writing. Wix shares gained 1.3% at US$91.11 on Friday.
GoDaddy
The analysts are ‘Neutral’ on GoDaddy Inc (NYSE:GDDY), which they expect will lose market share through 2025.
“Our base case is for GDDY to sustain high single-digit revenue growth driven through average revenue per user expansion, new customer growth, payments revenue scaling and Aftermarket Domains returning to growth,” they wrote.
“That said, the payments revenue opportunity and Worldpay (LSE:WPG) partnership is a 'show me' story as we have seen competitors struggle to convert existing customers into payments customers, and our initial estimates indicate that it will struggle to be a total revenue needle mover near-term.”
They see a 7% upside to the stock awarding it a US$80 price target. GoDaddy shares traded up 0.4% at US$73.46 at midday Friday.
“We see limited upside to yields/multiples until GDDY shows it is willing to make more material changes to its revenue growth strategy/cost structure/capital allocation plan,” the analysts wrote.
BigCommerce
The analysts are also ‘Neutral’ on BigCommerce, awarding it a $12 price target which represents a 24% upside at the time of writing. BigCommerce shares traded flat at US$9.80 on Friday.
The UBS analysts wrote that to potentially get more positive on the stock they would need to see a path to a material acceleration in the enterprise business and/or start hearing that multi-location, inventory and other business-to-business and enterprise functionality are driving new customer wins as they currently forecast the company could lose market share within the Public Cloud Services total addressable market.
“With regards to profitability, BIGC should be able to deliver the low-end of its fiscal 2026 non-GAAP operating margin guidance (10% to 15%), but to deliver the high-end we believe BIGC will need to deliver 20%-plus revenue growth, which could be difficult considering the non-enterprise is likely to be plus/negative flat year-over-year growth through this period as investment focus is shifted to the enterprise business,” they wrote.