Squarespace is set to go public by a direct listing that could cause a volatile start to life as a publicly-traded company. We explain everything you need to know about the listing and the business.
When is the Squarespace IPO?
Squarespace is going public via a direct listing on the New York Stock Exchange on or around Wednesday May 19. It will list under the ticker ‘SQSP’.
A direct listing means only existing shareholders will sell shares and that Squarespace won’t issue any new shares or raise any cash for the business.
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Squarespace share price: How much is Squarespace worth?
Squarespace announced it had raised $300 million in March 2021 in a funding round that valued the business at $10 billion, which is likely to be used as a rough benchmark ahead of the listing.
However, the initial valuation could be wildly different once shares start trading. There is no bookbuild process like there would be under a traditional IPO, which usually discovers what kind of price the market is willing to pay. There will be no targeted price range and there are no underwriters guaranteeing to buy any shares not taken up by the public.
This, Squarespace admits, could mean its shares ‘may be volatile, and could, upon listing on the NYSE, decline significantly and rapidly’.
Ultimately, it will come down to supply, which will depend on how many shares existing investors are willing to part with, and the level of demand for the latest tech stock to go public.
It is important to note that Squarespace will have a multi-class share structure that ultimately means its founder Anthony Casalena will retain control over key decisions for the business. The Class A shares being floated carry one vote per share, but the Class B shares in the hands of Casalena carry 10 votes each. This means investors will have minimal say on key matters like the company’s strategy or board appointments. There are also Class C shares in issue that don’t carry any voting rights.
What is Squarespace?
Squarespace was founded in 2003 to ‘enable anyone to easily publish to the web and enable anyone to access the power of great design’. It was originally a blogging service but has expanded over the last two decades into an all-in-one integrated platform that allows individuals or businesses to launch a holistic online presence and manage their digital brand and operations.
In a nutshell, it allows users to build a mobile and web-friendly website that facilitates online commerce, from taking bookings and taking payments to selling subscription content or physical goods. It also integrates social media to ensure the online brand is maintained across the web and provides marketing support in the form of email campaigns, analysing customer data and providing tools to help manage relationships with customers.
This is broken down into Squarespace’s three divisions. The first is Presence, handling the website and social media activity. The second is Commerce, handling all the transaction activity with payments largely handled by partner Stripe. And the third is Marketing.
Squarespace puts design at the centre of its product and aims to be simple to use but powerful, making it suitable for everyone from one-man bands, musicians, artists and other creatives to businesses spanning small independents to large iconic brands.
Notably, Squarespace proudly ensures it does not act as an intermediary between its users and their customers and encourages them to directly interact with them by providing them with ‘the piece of the web they own on their own terms’.
How does Squarespace make money?
Squarespace generates virtually all its revenue from customers paying a subscription in order to maintain their online presence, providing transparent and recurring income for the business. Most of its customers, around 70%, pay an annual subscription with the rest paying on a monthly basis.
This means growth relies on Squarespace securing new subscribers. It has delivered 20 consecutive quarters of subscriber growth and had over 3.6 million of them at the end of 2020, over 22% higher than a year earlier. It will also have to maintain existing subscribers, which will largely depend on the success of their businesses. Users should be sticky so long as their business performs well, and this is supported by the high rate of annual rather than monthly subscriptions.
Squarespace does make a small amount of revenue from non-subscription services, such as revenue-sharing fees with partners and fixed transaction fees its customers have to pay for doing business on the platform.
Is Squarespace profitable?
Squarespace is fast-growing, with revenue up 28% in 2020, and has turned a profit every year since 2016. However, net income almost halved last year to $30.6 million as it raised investment. For example, it raised its marketing budget by 40% during the pandemic to capitalise on the growing demand for digital solutions as business shifted online.
Squarespace has said expenditure and investment will continue to rise alongside revenue over the coming years, which means the company is not guaranteed to translate topline growth to the bottom over the coming years. Plus, don’t expect dividends anytime soon as it plans to reinvest any profits back into the business going forward.
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What is Squarespace’s strategy?
Squarespace has grown with the internet over the past two decades and the company believes it has only just started to scratch the surface. It has over 3.6 million subscribers but estimates there are around 800 million small businesses and self-employed people globally. The fact over 540,000 new ventures are launched in the US alone every month means there is plenty of new business to win and just under half of the country’s SMEs still don’t have an online presence.
In short, Squarespace’s market has huge potential and that is only set to grow further as commerce moves further online, accelerated by the global pandemic. It also feeds in to the growing movement by brands to cut out the middle man and set up their own direct-to-consumer model.
Squarespace intends to continue investing in its product by adding new and improved design, commerce and marketing tools. Commerce tools will be particularly important for future growth as it looks to become a core platform for transactions worldwide. Gross Merchandise Value, which measures the gross value of the goods and services bought over its platform, will be an important metric to watch.
It will achieve this partly through acquisitions. For example, in March it bought a company named Tock that allows restaurants to handle reservations, table management, takeout orders and other key digital services in a $415 million cash-and-share deal.
Key to its offering is ensuring the platform can scale as its user’s business grows. However, it is also increasing its focus on larger businesses through its Enterprise offering, which should deliver larger income and higher margins.
Squarespace board of directors
Squarespace is led by its founder, Anthony Casalena, who retains control over the company’s key decisions. The business admitted in its prospectus that its future performance ‘depends on the continued services and contributions’ of Casalena, ‘who is critical to the development of our business and growth strategy’.
The full board of directors is comprised of:
- Founder, CEO and Chair – Anthony Casalena
- Chief Product Officer – Paul Gubbay
- Chief Financial Officer – Marcela Martin
- General Counsel & Secretary – Courtenay O’Connor
- Directors – Andrew Braccia, Michael Fleisher, Jonathan Klein, Liza Landsman, Anton Levy