Today we have a very speculative idea: take stock of Squarespace website builder (NYSE: SQSP), in order to capitalize on the rebound of these stocks after a strong fall.
Growth potential and validity: 21% behind 14 Months; 66% behind 4 of the year; 121% behind 8 years.
Why stocks can go up: they fell a lot and the company may well be bought.
How do we act: we take shares now by 28,87 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
This is a website builder. How does he work, can be viewed in the tutorial video.
SQSP goes public 19 May of this year during the direct placement of shares (DPO). So the main source of information about her will be her registration prospectus..
According to him, SQSP's revenue is divided into two segments:
- Presence - 76,9%. Everything, what is connected with the creation of sites and their optimization.
- Commerce — 23,1%. Content Commercialization Solutions: making payments and more.
By type of service, the company's revenue is divided into two unequal parts:
- Subscription - 94,37%. This is the use of company software based on fixed recurring payments.. 70% subscriptions are issued for a year, 30% - by months.
- Not a subscription 5,63%. This is SQSP's revenue from making third party payments on its platform, as well as from the sale of third-party solutions.
Revenue by country is divided as follows: USA - 69,2%; other, unnamed countries - 30,8%, none of them give more 10% company revenue.
It serves mainly small and medium-sized businesses.. The company is unprofitable, even though she has occasional profits.
Arguments in favor of the company
Fell down. Stocks have been down since June.: from 64.1 to 28,87 $. Now the shares are even cheaper than the DPO price, when they cost 48 $. Think, that thanks to such a strong fall in quotes, we can hope for a rebound in shares.
Almost like Wix ... As in the case of a similar idea, SQSP will benefit from endless quarantine and the transition of consumers and businesses online, which will cause an increase in demand for its business solutions.
... only better! SQSP is very cheap by the standards of a fast-growing startup: P / S she has 5,35, and capitalization - about 4.01 billion dollars. This will make its shares more attractive in the eyes of the investor crowd..
Can buy. Estimates of the company's target market range from $180 billion to $350 billion a year.. These are traditional web tools, such as hosting, site building, marketing, plus inventory management, logistics, tax reporting, device integration. Considering this, the recent fall in shares and the not very high value of the company, it may well be bought by someone bigger with an eye to the development of online services for business.
What can get in the way
Second graders. The company has 2 class of shares - A and B. Class A shares traded on the stock exchange, and class B belong to the founders of the company. B shares give more votes. From company founder Anthony Casalena 68,2% votes in the company, and he, in fact, controls her. This is bad, because Casalena may take actions not in the interests of minority shareholders like you and me, for example, refuse to sell the company at a bargain price.
Mafia only kills in summer. The company entered the stock exchange during the DPO, what, may be, and led to the fall of its shares. During a regular IPO, underwriting banks make money, but in case of DPO they earn nothing.
I think, what stories, when the stocks of companies after the DPO fall sharply, which happens much more often, than in the case of stocks, past IPO, largely related to the, that banks subsequently ignore these shares as "retaliation" for, that the companies did not conduct an IPO and the underwriters did not get any money.
Also, banks can then, in private conversations with large investors - fund managers and just individual wealthy people - spread negative rumors about such companies.. well, about how Harvey Weinstein spoiled the careers of actresses, who refused to provide him with sexual services. This, certainly, just my theory - but it explains, why SQSP's shares fell so much as its revenue grew. If I'm right, then the idea may not take off, because SQSP is "in disgrace".
Break to normal life. Quarantines will be eased periodically, and this will negatively affect both the growth rate of the company's revenue, and the perception of it by investors, who will consider, that "the pandemic is over". So you gotta be ready for it, what quotes will shake.
All the bad cards. The company is unprofitable, and this in itself guarantees its volatility. Rising rates and more expensive loans will make its shares even more volatile. And SQSP has a very large amount of debt: 921,624 million dollars, of which 371.269 million must be repaid during the year.
At the same time, she does not have much money at her disposal.: 230,3 million on accounts plus 8.071 million debts of counterparties. Considering the unprofitableness of the company, to her, probably, will have to increase the amount of debt, which will scare away some investors. Also very likely, that she will be engaged in additional issue of shares, - from what quotes can fall even more in case, if there is not enough demand for new shares.
What's the bottom line?
Shares can be taken now by 28,87 $. And then there are a number of options.:
- wait for the price 35 $. This is a very humble goal., and I think, that we will reach it in the next 14 Months;
- wait 48 $ — its DPO prices. Probably, here you should be prepared to wait for about 4 of the year;
- wait 64 $, who asked for shares back in June. Think, here it is necessary to focus on the time 8 years.
However, must be remembered, that the idea is very volatile and the probability of bankruptcy of this company is very high.
