SQSP - D.A. Davidson positive on Squarespace and Wix starts coverage with Buy

2023-07-27 13:38:04 ET

D.A. Davidson initiated coverage on Squarespace ( NYSE: SQSP )  and Wix.com ( NASDAQ: WIX ) with a Buy rating for both.

Squarespace : The analysts started Squarespace with a Buy rating and $40 price target and said that they believe the company has positioned itself as one of the beneficiaries of the expanding digital economy.

The bullish stance is based on Squarespace's market leadership, strong brand awareness across young audiences, the recent Google Domains acquisition, payments opportunity, steady shift up-market, and solid financial model with a 90%+ recurring revenues and margin expansion potential, according to the firm.

The analysts added that even though Squarespace has lost ground to Wix and Shopify ( SHOP ), which also has a Buy rating, in recent years due to their meteoric rise, its share in the pie continues to grow, with the their checks showing competitive wins versus GoDaddy ( GDDY ), Weebly and other smaller players.

Based on analysts' checks, Squarespace has gained strong brand awareness across young audiences because of innovative influencer marketing. As this demographic matures and the digital economy evolves, the firm anticipates this to translate into an acceleration in share gains.

Squarespace's payments solution, similar to those of Shopify and Wix, is to release in H2'23, and the analysts think it could bring $535M in annual revenues by 2033, based on an analysis.

The firm thinks generative AI is a tailwind and not a headwind for the company. Even though Squarespace made a late entry in the generative AI arena, as it only recently announced its own integration of gen. AI software (gen. AI text creator), the analysts have not seen a business slowdown in response to new AI tools in the market. The firm expects the company to introduce its own version of AI website builder in the coming year.

In addition, the Google domains acquisition is also incremental, according to the analysts, and thus they have started coverage with a Buy rating on underappreciated growth drivers.

Wix : D.A. Davidson analysts started coverage with a Buy rating, and a price target of $100, as they believe the company is in a commanding position to capitalize on the emerging AI era; agency business is at an inflection point, margins have significant upside risk, and valuation is attractive.

The firm noted that Wix is a top-3 Content Management Systems (CMS) player, dominating the simple website building category with a dominant 45% share. The analysts checks suggest that the company has continued to gain share this year, achieving wins versus Squarespace, Weebly and other smaller players, however it has lost some customers to Shopify.

The analysts think Wix is well positioned to grow its piece of the pie courtesy its technology prowess, freemium model with a premium-feel website building and ecommerce platform, strong brand, and broader adoption by agencies.

The firm also likes Wix’s position in the generative AI era and the analysts believe that the company is in a strong position to gain share in the market.

The analysts added that not only has Wix been a long-time supplier of AI-based tools (since 2016), but they think the recent AI website builder announcement is by far the best implementation they have seen of this tech so far.

Based on the view that Wix is the technology leader amongst its peers, the analysts' have faith on the company's ability to adapt to trends. The firm thinks it could take several years for a rival product with similar competencies to hit the market and expect Wix to capitalize on its large scale to continue to gain share.

The analysts also expect the Partners business, consisting of agencies using Wix for clients, to be the main source of growth over the next three years. In addition, the firm expects sustainable profitability is within grasp for Wix.

More on Squarespace and Wix

• Squarespace: Unveiling The Path To Success, 22x FCF
• Wix.com: Freemium Model And AI Tools Driving Growth

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