On Friday, Mizuho upgraded shares of Squarespace (NYSE:SQSP), moving the stock from a Neutral to a Buy rating and increasing the price target to $50 from the previous $34. The firm's analysis suggests that Squarespace could significantly outperform market expectations, with projections indicating a 22% year-over-year growth in 2024 and a 20% growth in 2025. These figures compare favorably against the consensus estimates of 19% and 14% for the same periods, respectively.
Mizuho's positive outlook is based on several key growth drivers for Squarespace that they believe are currently undervalued by the market. The recent acquisition of Google (NASDAQ:GOOGL) Domains is expected to have a "halo effect," boosting the number of new domains registered. Additionally, a potential pricing tailwind is anticipated in 2025, along with a modest contribution from Squarespace Payments, the company's proprietary payment processing solution.
The analyst firm expects these factors to position Squarespace for sustainable growth exceeding 20%, coupled with impressive free cash flow (uFCF) margins of 30% over the medium term. Mizuho also points to the upcoming investor day next week as a potential catalyst that could lead to a reevaluation of the company's stock value by the market.
The upgrade comes at a time when Squarespace is actively expanding its product offerings and seeking to strengthen its position in the highly competitive website building and e-commerce platform market. The company's strategic moves, including the acquisition and integration of new assets and services, are aimed at expanding its customer base and revenue streams.
InvestingPro Insights
As Mizuho upgrades Squarespace (NYSE:SQSP) with an optimistic growth forecast, the latest data from InvestingPro aligns with a potential upside for the company. Squarespace's gross profit margin impresses at 76.78% for the last twelve months as of Q1 2024, indicating a strong ability to translate sales into profit. Additionally, the company has experienced a revenue growth of 17.88% during the same period, showcasing its expanding market presence. With an EBITDA growth of 54.48%, Squarespace demonstrates its operational efficiency and potential for scalability.
InvestingPro Tips highlight that while Squarespace is not profitable over the last twelve months, analysts predict the company will turn a profit this year, aligning with Mizuho's positive outlook. However, it's important to note that 5 analysts have revised their earnings downwards for the upcoming period, suggesting some caution is warranted. For investors looking for a deeper dive into Squarespace's financial health, InvestingPro offers additional tips, including insights on the company's debt levels and liquidity concerns. There are 6 more InvestingPro Tips available for Squarespace, which can be accessed with a subscription. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
With Squarespace trading near its 52-week high and a large price uptick over the last six months (26.53%), the market appears to be responding to the company's strategic initiatives and growth potential. As investors prepare for Squarespace's investor day, these InvestingPro insights may offer valuable context for evaluating the company's trajectory and investment appeal.
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