Apps & Software

Why BofA Sees About 40% Upside in Squarespace

Squarespace Inc. (NYSE: SQSP) has become an increasingly popular name as the digital space has become more attractive to consumers. While big names like Amazon and Google have staked their claim to a lot of the digital landscape, Squarespace provides an avenue for the little guy to stake a claim as well. Companies like Shopify have benefitted greatly from similar models fighting against these giants, and one more firm is adding itself to the ranks of Squarespace bulls.

BofA Securities has initiated coverage on Squarespace with a Buy rating and a $73 price target, implying upside of about 40% from the most recent closing price of $52.27. Overall, the analyst sees strong top-line growth, a highly predictable revenue base, international expansion, upmarket initiatives, margin expansion and more driving upside in this stock.

For those late to the party, Squarespace is a website building and hosting company. The firm sees Squarespace as well positioned to gain market share with tailwinds from the rapid growth of worldwide internet user penetration and the acceleration of e-commerce penetration.

The analyst listed investment positives and key downside risks in the report:

Investment highlights for Squarespace include: 1) predictable business model with high visibility, 2) expansion in international markets, 3) tailwinds from growth in eCommerce, 4) upmarket initiatives to serve larger businesses, and 5) higher gross margins than peers with potential margin expansion. Key risks include: 1) low R&D spending levels compared to peers, 2) highly competitive industry with low barriers to entry, 3) slower revenue growth despite being one of the smaller publicly-listed names, and 4) limited pricing power in the near term.

Again, BofA Securities estimates a 22% average annual revenue growth over the next three years, as Squarespace expands internationally and executes upmarket initiatives. BofA also expects the tailwinds mentioned above to boost revenues.

Squarespace stock was last seen down about 2% to $51.14 on Monday, in a 52-week range of $42.82 to $64.71. The consensus price target is $72.00.