SQSP - B. Riley starts at Buy rating on GoDaddy Wix; Yext gets Neutral call

2023-06-28 10:28:57 ET

B. Riley Securities started coverage on several tech stocks including GoDaddy ( NYSE: GDDY ), Wix.com ( WIX ), Squarespace ( SQSP ) and Yext ( YEXT ).

GoDaddy :

B. Riley initiated coverage of GoDaddy with a Buy rating and a $102 price target. The analysts think that GDDY's fastgrowing application and commerce ((A&C)) segment, with $1.4B in 2023E revenue and double digit growth with high margins, positions the company as a beneficiary of demand for cloudbased presence and commerce solutions.

The firm expect the business to continue generating increasing and meaningful FCF (~$1B in 2023), helping the GoDaddy to continue buying back stock, steering EPS accretion, and contributing to healthy growth in FCF/share.

With the stock trading at a 7% FCF yield, the analysts see the risk/reward profile as attractive.

The firm expects growth to advance in 2024–2025 as comps ease and macro environment improves.

Wix.com :

B. Riley started coverage on the Israeli company with a Buy rating and a $120 price target.

The analysts' positive view on Wix reflects — 1) an attractive TAM and a fragmented end-user base; 2) Wix's track record of rapid product innovation, which the analysts think should help the business capitalize on AI's development; 3) positive cohort revenue retention and growing revenue per group; 4) Wix's momentum in the partner channel; and 5) FCF margin expansion to date from newly imposed cost actions and fixed-cost leverage, with the potential of impressive gains continuing over the next few years.

The firm noted that AI is likely to be a tailwind. The analysts think that AI's sustained evolution and its growing use by businesses will result in greater demand for embedded AI functionality in Web and commerce tools. This, alongwith the use of AI to help the Web development process itself, is likely to unlock incremental demand for platforms which can give innovative functionality.

The analysts believe Wix’s track record of product innovation under a founder team positions it well to capitalize on the opportunity. Over the near term, the firm could potentially view some benefits to Wix from an increase in referrals aising from AI results.

Squarespace :

The firm initiated coverage on Squarespace with a Buy rating and a $40 price target.

The firm's positive view on Squarespace reflects — an attractive TAM and a fragmented end-user base; The company's leading-edge offering, which has helped steer growth in ARPU and subscribers; Squarespace's track record of successful tuck-in M&A, which has helped steer top-line growth and ARPU.

The firm also sees upside potential from a deal with Alphabet's Google announced earlier in June for domains and referrals, which the analysts think can provide up to $7/share in accretion. The analysts believe that the partnership can steer upside to Squarespace over the medium term in the form of subscriber and revenue growth.

The analysts' positive view also reflects room for margin expansion ahead, likely benefiting from opex leverage.

Yext :

B. Riley started coverage of Yext ( YEXT ) with a Neutral rating and an $11 price target.

The analysts believe Yext has made progress in its turnaround efforts after last year's leadership changes.

While increased cost discipline is steering meaningful margin expansion, a turnaround in other key performance indicators, such as revenue retention, backlog growth and revenue increase, is taking longer, reflecting several factors — including a longer sales cycle and the timing of management's changes in sales/support amid a cloudy macro environment.

At current levels, the analysts think that the stock already reflects progress to date, and they opt to wait on the sidelines to get a better read on potential growth acceleration.

More on GoDaddy, Squarespace, WiX and Yext

• Top 10 Tech Stocks For 2H2023
• Squarespace: Unveiling The Path To Success, 22x FCF
• Wix.com: Margin Growth And AI Point To Potential
• GoDaddy's Revenue Growth Rate Likely To Drop In 2023
• Yext: Turning The Corner

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