Can Squarespace dodge the direct listing value trap?

It’s Squarespace direct listing day, and the SMB web hosting and design shop’s reference price has been set at $50 per share.

According to quick math from the IPO-watching group Renaissance Capital, Squarespace is worth $7.4 billion at that price, calculated using a fully diluted share count. The company’s new valuation is sharply under where Squarespace raised capital in March, when it added $300 million to its accounts at a $10.0 billion post-money valuation, according to Crunchbase data.

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The company’s reference price, however, is just that: a reference. It doesn’t mean that much. As we’ve seen from other notable direct listings, a company’s opening price does not necessarily align with its formal reference price. Until Squarespace opens, whether or not it will be valued at a discount to its final private price is unclear.

While the benefits of a direct listing are understood, the post-listing performance for well-known direct listings is less obvious. Indeed, Coinbase is currently under its reference price after starting its life as a public company at a far-richer figure, and Spotify’s share price is middling at best compared to its 2018-era direct listing reference price.

This morning, we’re going over Squarespace’s recently disclosed Q2 and full-2021 guidance. Then we’ll ask how its expectations compare to its reference price-defined pre-trading valuation. Finally, we’ll set some stakes in the ground regarding historical direct-listing results and what we might expect from the company as it adds a third set of data to our quiver.

This will be lots of fun, so let’s get into the numbers!

Squarespace’s Q2

Per Squarespace’s own reporting, it expects revenues between $186 million and $189 million in Q2 2021, which it calculates as a growth rate of between 24% and 26%. That pace of growth at its scale is perfectly acceptable for a company going public.

For all of 2021, Squarespace expects revenues of $764 million to $776 million, which works out to a very similar 23% to 25% growth rate.

In profit terms, Squarespace only shared its “non-GAAP unlevered free cash flow,” which is a technical thing I have no time to explain. But what matters is that the company expects some non-GAAP unlevered free cash flow in Q2 2021 ($10 million to $13 million), and lots more in all of 2021 ($100 million to $115 million).