On Tuesday, B.Riley adjusted its stance on Squarespace, Inc. (NYSE: SQSP), downgrading the stock from Buy to Neutral. The firm set a price target of $43.00, citing the limited potential for stock price growth following a recent acquisition offer.
Squarespace's board had approved an all-cash acquisition proposal from Permira, a private equity group, on May 13, 2023, which valued the company at $6.9 billion, or $44.00 per share.
The downgrade reflects B.Riley's assessment that the offered price per share closely aligns with their discounted cash flow (DCF) derived fair value estimate for Squarespace. With the stock currently trading at a slight premium to this valuation, the firm sees constrained room for further appreciation, prompting the change in rating.
The accepted offer from Permira represents a significant financial event for Squarespace shareholders, providing them with a cash payout at the agreed upon price.
The transaction highlights the interest of private equity in the technology sector, particularly in companies like Squarespace that offer website building and hosting services.
Investors have seen Squarespace's stock respond to the acquisition news, with its price adjusting to levels that hover around the offer and fair value estimates. This market reaction is typical when a buyout price becomes public, often leading to a convergence of the stock price to the proposed transaction value.
B.Riley's new rating and price target for Squarespace are now aligned with the current market dynamics and the impending acquisition by Permira. The firm's analysis indicates that the stock's current trading price adequately reflects the company's fair value, providing the basis for the rating downgrade.
In other recent news, Squarespace has been making strategic moves that have caught the attention of analysts and investors alike. The company's acquisition of Google (NASDAQ:GOOGL) Domains has been a game-changer, leading to a significant boost in subscriber additions.
This move, along with a successful partnership with Google, has driven subscription growth for the fourth consecutive quarter. Squarespace's first quarter financial results for 2024 surpassed expectations, with revenue and unlevered free cash flow exceeding the high end of guidance.
The company's entrance into international markets and the upcoming introduction of its AI platform have also been met with success. Squarespace's financial health remains robust, with a significant free cash flow and the initiation of a $500 million share repurchase program.
Analysts from various firms including Barclays (LON:BARC), RBC Capital Markets, and JMP Securities have offered mixed ratings, ranging from "Equal Weight" to "Market Outperform."
Recently, Squarespace was downgraded by JMP Securities from Market Outperform to Market Perform following the announcement of its acquisition by private equity funds managed by Permira. However, Mizuho upgraded Squarespace from Neutral to Buy, citing key growth drivers that are currently undervalued by the market.
Piper Sandler also increased Squarespace's stock price target due to the company's strong growth trajectory. These are recent developments that investors should keep an eye on.
InvestingPro Insights
The recent performance of Squarespace, Inc. (NYSE: SQSP) has been a subject of interest for investors, especially in light of the acquisition offer. According to InvestingPro data, Squarespace boasts a robust gross profit margin of 76.78% for the last twelve months as of Q1 2024, indicating strong operational efficiency. Additionally, the company has experienced a significant revenue growth of 17.88% during this period. Despite concerns over its negative P/E ratios and high valuation multiples, the company's stock has shown impressive returns, with a 15.21% increase over the last month and a 38.8% increase over the last three months.
InvestingPro Tips highlight that Squarespace's net income is expected to grow this year, and analysts predict the company will be profitable this year, which may provide some optimism for future financial performance. However, it's also noted that seven analysts have revised their earnings downwards for the upcoming period, which could be a cause for investor caution. For those interested in further analysis, InvestingPro offers additional insights, including 14 more tips for Squarespace at https://www.investing.com/pro/SQSP. To access these insights, use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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