Squarespace (SQSP) Stock Surges on Upgrade to Overweight at Piper Sandler, Sees Over 30% Upside
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Piper Sandler analyst Brent Bracelin upgraded shares of Squarespace (NYSE: SQSP) to Overweight from Neutral as he sees an attractive risk-reward setup.
The upgrade call is almost solely made on valuation as shares are down over 40% from the all-time high above the $64.00 mark.
“We recommend GARP investors start building a core position in SQSP over the next two quarters ahead of several upside drivers in 2022 including international, new products, commerce, and enterprise. The risk-reward in particular is attractive considering the CY22E EV/S multiple has contracted to 6.2x from 10.7x in late June. We see limited downside risk for a marquee website builder platform that could scale revenue to $1B+ within two years alongside a 20%+ FCF margin,” Bracelin said in a client note.
Squarespace is modernizing the web and investors should utilize the presented opportunity. The company has an overall penetration of about 4% with an opportunity there modernize 30 million basic websites powered by an open-source CMS.
“Every 10% share gain from the open-source pool could add an incremental $600M without the consideration for broader upsell of transactional commerce, social, and scheduling add-ons,” the analyst added.
The price target of $50.00 per share represents a premium of 37% compared to yesterday’s closing price. SQSP upgraded its platform in September, which prompted Bracelin to raise estimates.
“Platform upgrades at the end of September including integration of features offered under Tock (recent acquisition), Etsy integration and social commerce tools could help amplify reopening tailwinds, particularly within the transactional commerce segment (8% of sales). Considering the company has consistently added $8M-$10M of sequential revenue in each of the last ten consecutive quarters, the expectation of $4M sequential quarterly increases during the 2H appears conservative. Robust organic traffic growth at Tock is also encouraging. We see ample product and international opportunity for SQSP to sustain high-teens to low 20% growth alongside a 20%+ FCF margin over the next 3-5 years,” Bracelin concluded.
Shares of SQSP are up still down over 10% YTD.
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