Squarespace produces wonderful web sites for SMBs — we’re an enormous buyer at SaaStr. And that’s powered all of it the best way to a $1B run-rate with 28% EBITDA. Self-serve merchandise can and ought to be fairly worthwhile at scale.
But it surely’s additionally a narrative of hitting some limits on TAM, and progress has slowed to 10% at $1B ARR. And subscriber progress of solely 3%.
5 Fascinating Learnings:
#1. Solely 32% of Income From Web sites. 68% From Ecommerce. It’s possible you’ll consider Squarespace as an internet site builder, and it’s. However actually it’s turn into a low-end Shopify and Woocommerce competitor. The vast majority of its income comes from ecommerce. Their pure web site income, which they name “Presence”, is simply 32% of their income.
#2. Many of the web site / presence progress got here from worth will increase, which noticed restricted churn in consequence. Churn was modest from their worth improve, resulting in materials progress. An ordinary playbook when progress slows. I’ve seen related issues play out in my very own portfolio. Comparatively cheap merchandise promoting to SMBs which might be really beneficial don’t see a lot elevated churn from average worth will increase.
#3. 28% of their income from outdoors the U.S. A reminder to go world!
#4. Subscribers solely grew 3% in 2022. A troublesome metric. Virtually all of the income progress got here from worth will increase and transaction charge will increase on commerce. New prospects solely grew 3%. That’s very mature. Having stated that, many SMB gamers have been hit arduous in 2022. Zoom’s SMB prospects shrunk for the primary time ever, for instance. And to some extent, the worth improve affect could also be muted going ahead as a result of their newer merchandise have a decrease ARPU, for now at the least.
#5. Constant EBITDA, going up. EBITDA hit a excessive of 28% final quarter and 17% final yr. Squarespace isn’t hitting massive GAAP profitability numbers but, however it’s producing vital money and trending previous a sustained 20% EBITDA. Put otherwise, it has a reasonably environment friendly self-serve mannequin that’s getting much more environment friendly.
And some different attention-grabbing learnings:
#6. Giant mark-down for its $400m acquisition of Tock in 2021. Squarespace purchased a web based restaurant reservations participant in 2021 for $400m, and that enterprise continued. But it surely overpayed by the requirements of 2023, and took a $200m markdown to replicate that. Diversifying into the restaurant area is sensible — it’s one of many largest segments for SMB commerce. But it surely’s a brutally aggressive and complicated area.
#7. 1,800 staff, so over $500,000 income per worker. That’s fairly darn environment friendly. That’s doing self-serve proper.
Squarespace is such an attention-grabbing story. At nearly a $4B market cap, it trades at solely 4x ARR attributable to its mature progress at scale (10%), regardless of being pretty environment friendly. However the Founder CEO owns ~35% of the corporate. 35% of $4B is … quite a bit. 😉
Revealed on April 26, 2023