Squarespace Goes Public with Direct Listing: What You Need to Know
Website creation platform Squarespace (NYSE: SQSP) went public this week with a direct listing, one of a handful of alternative routes to the public markets beyond a traditional IPO that has gained popularity in recent years.
Instead of an offering price for a structured deal, companies that go public with a direct listing will disclose “reference price” that is typically related to recent pricing in private markets. In Squarespace’s case, the company set a reference price of $50.
However, investor interest was tepid, with the stock immediately trading below that threshold on the first day.
Here’s what investors need to know about the business.
Setting up digital shop
Squarespace has been around for nearly two decades, helping people and businesses create websites using a suite of creative tools that help integrate e-commerce functionalities and marketing features. Prominent rivals include WordPress, Wix (NASDAQ: WIX), Shopify (NYSE: SHOP), and Square’s (NYSE: SQ) Weebly, among many others.
In terms of the business, Squarespace generated $621.1 million in revenue in 2020, up 28% from the $484.8 million in 2019 sales. Approximately 94% of 2020 revenue was subscription-based, with the company finishing the year with 3.7 million unique subscriptions. Squarespace helps organizations set up e-commerce operations, and gross merchandise value (GMV) on the platform soared by 91% last year to roughly $4 billion.
That resulted in $143 million of e-commerce revenue for Squarespace in 2020. Total bookings were $664.7 million in 2020, and Squarespace reported average revenue per unique subscription of $186.
Squarespace primarily targets small- and medium-sized businesses (SMBs), and the company estimates that there are 800 million such organizations worldwide. The total addressable market (TAM) is over $150 billion, according to Squarespace. The COVID-19 pandemic also accelerated adoption among SMBs that needed to transition to online sales and establish digital presences, which could help drive future demand growth.
Expanding into new markets
More recently, Squarespace acquired Tock, a unified platform that the hospitality industry uses to facilitate online reservations and manage other events. The total price tag was $415 million, and Squarespace says that the deal will help broaden the product suite and better address new markets like the restaurant industry.
Like many modern tech companies, Squarespace uses a multi-class share structure to secure outsized voting power for its founder and other insiders. The company’s capital structure includes Class A shares that receive one vote per share and Class B shares that are entitled to ten votes per share. (There were Class C shares that received no votes whatsoever but this class has been eliminated and there are no remaining Class C shares outstanding).
CEO Anthony Casalena holds over 49 million Class B shares, the majority of Class B shares outstanding, giving him a total of 68% voting power. Accordingly, the Squarespace founder can single-handedly control all matters of corporate governance, including stockholder proposals, board composition, and his own compensation. Public investors will have no say in how Squarespace is managed.
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