April 16, 2021
Photo: Annie Spratt/Unsplash
If you've listened to a podcast in the last decade, then you've probably heard of Squarespace. In January 2021, the website-building platform confidentially submitted paperwork to the SEC to initiate its public offering. The S-1 became publicly available on April 16, confirming that Squarespace would go public via direct listing on the New York Stock Exchange.
Squarespace will join Roblox, Palantir and Coinbase in opting for a direct listing, which has become an increasingly popular IPO method over the last year. A date has yet to be set for the trading debut.
Squarespace helps small and medium-sized businesses and individuals make, host and manage websites. The platform is intended to simplify the process of getting a website up and running: Users choose from a menu of general templates and customize their site using drag-and-drop design functionality. Once subscribers publish their website, Squarespace will help them with operational tasks such as managing ecommerce sales and expanding a target audience through SEO.
Squarespace has grown its customer base steadily over the years, ending 2020 with 3.7 million unique subscribers. This represented a 22.5% increase relative to the subscriber count at the end of 2019. The pandemic has also helped bolster demand for Squarespace's platform, particularly as many restaurants have had to accommodate a rise in online orders. To expand the range of services for restaurants, Squarespace acquired restaurant CRM platform Tock at the end of March in a deal worth over $400 million.
Squarespace generated $621 million in revenue for 2020, representing a 28% increase from the $485 million in revenue it generated in 2019. Revenue growth tracks closely with subscription growth, though Squarespace has focused on growing ARPU by expanding its range of services. Still, subscription revenue accounts for the vast majority of total revenue: 96% in 2019 and 94% in 2020. The remaining revenue primarily came from fees generated from ecommerce partnerships with payment processors.
Squarespace first became profitable in 2016. It generated $30.6 million in net income for 2020, a steep decline from the $58.2 million generated in 2019.
The decline in profit between 2019 and 2020 coincides with an increase in expenses. For instance, Squarespace increased its marketing and sales spend more than 40% between 2019 and 2020, which the company says came in response to "accelerating trends in the amount of time and money consumers are spending online during the COVID-19 pandemic." Likewise, research and product development costs increased 56% between 2019 and 2020. Overall in 2020, marketing and sales accounted for the largest share of operating expenses (54%), followed by research and product development (35%) and general and administrative expenses (11%).
Founded in 2003, Squarespace has been around a long time by internet standards, and has demonstrated consistent user and revenue growth over the years. Still, as the saying goes: Past performance does not guarantee future success.
Three themes stand out from the Squarespace S-1: steep competition, the potential for rising costs associated with this competition and the emergence of new product categories.
There is significant competition in the website-hosting and -building space, as evidenced by Squarespace's considerable sales and marketing spend.
Due to this intense competition, Squarespace emphasizes the need to continually innovate and spend more to attract and retain customers.
Finally, competition isn't just limited to other general website-building platforms. Some of the fastest-growing competitors specialize in catering to only one customer segment within Squarespace's existing subscriber base.
Squarespace has divided its shares into Class A and Class B. Class B shareholders are given the right to convert their Class B common stock into one share of Class A stock at any time, though Class B receives 10 votes per share for every one vote entitled to Class A stock.
This setup makes it difficult to say precisely which entities will own Squarespace when it makes its trading debut. As of March 31, 2021, the largest institutional shareholders included Accel, General Atlantic and Index Ventures. Squarespace CEO and founder Anthony Casalena was the largest individual shareholder and controlled 68% of the total voting rights.