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Why is Squarespace’s direct listing good news for investors?

Squarespace is going public this month, registering over 40,000 shares for a direct listing on the New York Stock Exchange. Not only could this be a bumper tech listing, but it's also a win for proponents of direct listings over traditional IPOs.

Squarespace helps people set up websites quickly and easily. Lots of small businesses use the platform to not only launch a site, but also to use its social media and email marketing tools to reach and engage their audience. In March, the company was valued at $10bn, after it secured $300m from investors, including new backers Tiger Global and Fidelity Management & Research. 

The stock will start trading on 19 May under the ticker SQSP. CEO Anthony Casalena will have 78% ownership of Squarespace’s Class B shares. These carry 10 votes each, compared to the one vote Class A shares carry — effectively meaning the CEO retains control of the company.


Valuation of Squarespace in March


Squarespace said it has 14 banks acting as advisors on the listing, including Goldman Sachs, JP Morgan and Barclays.


Why is Squarespace using a direct listing?

Squarespace joins an increasingly popular trend for direct listing, eschewing the traditional IPO process. No shares for Squarespace will be sold in advance, with the stock price determined by orders on the day.  Coinbase [COIN] is a notable recent direct listing, as is Roblox [RBLX].

Proponents of direct listings argue that it's a fairer way for a company to go public. Big name IPOs like Airbnb’s [ABNB] have seen institutional investors pick up shares at one price pre-listing, with retail investors losing out post-listing when a stock suddenly surges. As well as retail investors being stung by an opening day price jump, the company going public has potentially left money on the table, i.e. from selling its stock cheaply to institutional investors.

Another feature of a direct listing is that no new capital is typically raised in the run up and existing investors can sell their shares without lockup restrictions.


Why should investors care?

Squarespace’s SEC filing reveals first-quarter revenue of $180m, a 31% year-on-year jump. Net loss for the quarter came in at $1.1m, down from the $10.1m seen in the same quarter the previous year, while adjusted EBITDA was $11.1m, up from $1.2m year-over-year.

Squarespace had 3.7 million unique subscribers at the end of 2020, according to the filing. Net income came in at $31m on $621m revenue, a drop from the $58m in income on $485m in revenue in 2019. Cash flow from operations came in at $150m last year, up from the previous year’s $102.3m.

Ecommerce revenue came in at $143m, a 78% increase on the previous year. This growing area is strategically important for Squarespace, as it seeks to expand its customer base internationally.


Squarespace's 2020 e-commerce revenue - a 78% YoY rise


“Squarespace has flourished by providing anyone a way to participate in the immense opportunity that comes from publishing and transacting on the internet,” Casalena said in a letter included in the filing.

Casalena also referenced Squarespace’s focus on design and usability as reasons for the product’s success, adding “Squarespace has helped millions to pursue their dreams, get online, attract an audience, and sell services and products without having the technical or design expertise that we manage for them”.

“Squarespace has helped millions to pursue their dreams, get online, attract an audience, and sell services and products without having the technical or design expertise that we manage for them” - CEO Anthony Casalena


In the filing, Squarespace said the need for an online presence, rise in e-commerce and preference for DIY solutions as industry trends it could benefit from. Citing stats from Intuit, Squarespace said it had a medium-term addressable market of $150bn.

Should those figures hold up, Squarespace’s share price could be one to watch in the second half of 2021.

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