Street Largely Bullish on Squarespace (SQSP) on Attractive E-Commerce Services Opportunity and Strong Profitability Growth
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Wall Street analysts have started coverage of Squarespace (NYSE: SQSP) with largely positive views. Only two out of ten analysts started the coverage with a “Neutral” or equivalent ratings while eight - including Citi, JPMorgan, and Goldman Sachs - initiated at “Buy” or equivalent.
The company made its public debut last month after opening at $48 per share. Prior to that, the company set a reference price of $50.00 per share. Shares plunged on the debut before racing higher to now trade at $60.00 apiece.
Citi analyst Drew Foster started at “Buy” with a price target of $75.00 per share.
“We’re positive on the company’s leadership in Presence and emerging eCommerce opportunity, supported by our view that it has outsized exposure to the services economy’s trailing transition to online-led business models. The company’s disciplined investment approach has produced a differentiated financial profile vs the peer group, and we see little risk of deterioration given the company’s more focused approach to the eCommerce ecosystem portends less ‘aspirational’ levels of investment taken by peers,” the analyst said in a note.
“The retail sector has moved online faster than other portions of the economy, partly triggered by heightened competition from AMZN - accelerated by challenges posed by the global pandemic. We see a ‘slower drip’ of services-focused businesses from both traditional and emerging industries/business models durably making this transition over the next several years, where SQSP has a better product/market fit and is well-positioned to capitalize.”
He says the company has some of the “best-in-class gross margins” that help to lower the risk from egregious multiple contraction scenarios.
Similarly, JMP analyst Ronald Josey started at “Outperform” and $75.00 per share price target.
“With 800 million SMBs globally, we believe Squarespace has substantial room to grow as its focus on design is differentiated, commerce investments are taking hold, and international expansion remains a significant opportunity. With 94% of revenue subscription-based and cash retention rates after the first year rising—reaching 85.6% in 2020, +240bps from 2018—we believe Squarespace’s cohorts are increasingly sticky, predictable, and profitable, and we believe Squarespace has significant upsell and cross-sell opportunities going forward,” Josey write in a note.
The analyst believes the website-building market is sufficiently large to sustain multiple players.
“We view SQSP’s focus on design and, increasingly, commerce as differentiated, while Wix’s freemium approach and continuous focus on innovation (e.g., Payments, Velo, Editor X, & ADI, among others) set it apart. With growing domestic business formation rates due in part to the pandemic and given 40%+ of SMBs are still not online (less so globally), we believe the web-building market can see sustained levels of growth.”
Shares of SQSP are up 0.2% today.
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