Squarespace (SQSP) Rounds Into Shape With An Earnings Beat, But Soft Outlook Boxes Out Gains
3:05 pm Monday, July 25th, 2022
Squarespace (SQSP), a website design and e-commerce platform provider, easily surpassed Q2 EPS expectations after badly missing earnings estimates in each of the past two quarters. That good news, though, is being overshadowed by SQSP’s slowing growth and soft guidance for Q3 and FY22.
When the company went public in May 2021, the digital transformation that emerged during the pandemic was still a powerful force that fueled robust top-line growth for many internet-related companies — including SQSP. In 2Q21, which was the company’s first earnings report as a public company, total revenue and total annual run rate revenue (ARRR) increased by 31% and 28%, respectively. Similar to e-commerce powerhouse Shopify (SHOP), SQSP benefited from a flood of entrepreneurs and small businesses looking to bolster their online and digital capabilities.
This downturn in business conditions is evident in a few key metrics.
Revenue growth decelerated to just 8.5% in Q2, continuing its recent downward slide. After reaching 31% in 2Q21, revenue growth trailed off to 24% in 3Q21, 20% in 4Q21, and 16% last quarter. Similarly, ARRR slowed to 8% this quarter from 15% last quarter and 18% in Q4.
With macroeconomic concerns on the rise, SQSP is having difficulty on-boarding new users. Unique subscriptions were up by a modest 6% in Q2 to 4.2 mln, representing a slowdown from last quarter’s 10% growth.
SQSP’s revenue guidance for Q3 missed expectations and the company also cut its FY22 revenue guidance below analysts’ estimates. The weak outlook is partly due to FX headwinds, but a more sluggish demand picture is mostly to blame. On that note, the midpoint of its Q3 revenue guidance equates to growth of only 7.5%.
On the positive side, SQSP is still generating plenty of cash. In fact, cash flow from operations increased significantly to $36.4 mln from $8.7 mln in the year-earlier period. The main takeaway, though, is that growth is still slowing, and it seems unlikely that a meaningful re-acceleration is in the cards any time soon. A very competitive landscape that includes WIX, Global-E Online (GLBE), and Similarweb (SMWB), only adds to SQSP’s challenges.
