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Squarespace float brings tech deals full circle

3 minute read

A participant whirls cans filled with burning wood chips during a celebration ahead of "Jeongwol Daeboreum" (Great Full Moon), which is a traditional Korean holiday that celebrates the first full moon of the lunar calendar, at a park in Seoul, South Korea, February 21, 2016.

NEW YORK, May 7 (Reuters Breakingviews) - Squarespace is almost middle-aged, at least as far as technology companies go. The website-building firm was founded in 2003, just five years after Google, by Chief Executive Anthony Casalena. It’s finally planning to float shares via a direct listing later this month. There are wrinkles, but overall it’s pretty on-brand, just like the online presence it helps others create.

The New York City-based firm is in a niche that avoided competition from technology mammoths like Microsoft (MSFT.O) and Google, now known as Alphabet (GOOGL.O), and it is still receiving the benefits of being an early mover. Revenue increased almost 30% in 2020 to $621 million, and the company even booked a net profit in 2018, 2019 and 2020.

Competitors overlap but aren't quite the same, leaving a pretty wide range for valuation. In some ways Squarespace is like domain-registration firm GoDaddy (GDDY.N). On that company's enterprise value-to-revenue multiple of 5 times, Squarespace would be worth some $3 billion. It also partly resembles e-commerce giant Shopify (SHOP.TO) which trades at 38 times sales, implying a value of $24 billion for Casalena's company. On the same 16 times multiple as Israeli cloud-based website software firm Wix.com (WIX.O), it clocks in at $10 billion.

That’s around where investments from Tiger Global, D1 Capital Partners and others pegged the valuation in March, according to Reuters. A direct listing, though, requires investors to make up their own mind, without the underwriting roadshow of a traditional initial public offering. Orders that come into the New York Stock Exchange will define Squarespace's opening price, and the first day of trading usually involves more shares changing hands than an IPO. As with the direct listing of games platform Roblox (RBLX.N) in March, for example, the goal is a more open price-discovery process.

There are some wrinkles. Casalena not only runs the company but also sets product strategy and remains actively involved in departments he previously managed. He will retain control through supervoting shares, too: Outside investors are stuck with him, through good and bad times. The company also has a few earnings gray areas partly because the recently acquired Tock, a hospitality-booking firm, turned out to have accounting weaknesses.

Still, it is rare of late to have a technology firm going public with a history of profitability. Twitter (TWTR.N) didn’t. Neither did Pinterest (PINS.N), Palantir Technologies (PLTR.N), or Airbnb (ABNB.O). In a way, Squarespace is bringing technology deals full circle.

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CONTEXT NEWS

- Squarespace plans to become a publicly traded company via a direct listing on or about May 19, according to a draft prospectus filed with the Securities and Exchange Commission on May 3. The company founded by Chief Executive Anthony Casalena in 2003 was valued at nearly $10 billion in March, according to Reuters.

- Job portal Ziprecruiter and delivery app Instacart also both plan to go public via direct listing, according to Reuters.

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