SQSP - Squarespace pops as William Blair sees 'low risk high reward' for Google deal

2023-06-16 08:14:14 ET

Squarespace ( NYSE: SQSP ) shares rose nearly 7% in pre-market trading on Friday as investment firm William Blair said it views the company's deal to buy Google's ( NASDAQ: GOOG ) ( NASDAQ: GOOGL ) domain business as "low risk, high reward."

Analyst Matthew Pfau, who has an outperform rating on Squarespace ( SQSP ) shares, said the $180M deal is valued at roughly 1 times revenue, given that the roughly 10M Google domains the company is buying start at $12 per year. There is also the potential for "significant cross-sell opportunities," Pfau added, if some of the domain holders convert to a website subscription.

"If only 2.5% of acquired customers convert to a website subscription, Squarespace would add over $50 million in annual recurring revenue based on Squarespace’s 2022 ARPU ($209)," Pfau wrote in an investor note.

The analyst also noted that Squarespace ( SQSP ) will become the "exclusive domains provider" for customers who buy domains with with a Google Workplace subscription from Google for at least three years, which could further boost subscriptions.

"As a result, with limited downside and significant upside potential, we view the acquisition’s risk/reward as quite favorable," Pfau added.

GoDaddy ( GDDY ) and Wix.com ( WIX ), which both compete with Squarespace ( SQSP ), were little changed in pre-market trading.

More on the web domain industry

• GoDaddy initiated at Sector Perform by RBC Capital
• Squarespace beats top and bottom line estimates
• Squarespace shares surge 7% as Citi lifts rating to buy

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