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Website development and social media presence are equally imperative to business growth nowadays. Moreover, due to the manifold increase in online activity during the pandemic, more websites are springing up than usual. Amid such a dynamic digital environment, Wix (WIX) and Squarespace (SQSP), two prominent web development and content management players, have been thrust into the spotlight, primarily for their cost-effective and secure platforms.
Following a virtual meeting with the CEO and Founder of an agency that operates as a Wix Legend Partner as well as a Squarespace Circle partner, Guggenheim analysts, led by Kenneth Wong, compiled a few key aspects of the interaction.
During the pandemic, the agency reported to have scaled up from making more than 180 websites to more than 250 websites. Wong expects the trend of website creation to be higher than pre-COVID levels, but lower than 2020-levels by 5-10%. Moreover, between e-Commerce and content type of websites, the former continues to constitute 80% of the mix.
Interestingly, if Squarespace is pitted against Wix, the agency partner seems more inclined towards the latter. Let us compare and understand why.
Squarespace is riding on the surge in demand for e-commerce, and hence commerce websites. About 20%-25% of the agency’s websites are built on Squarespace. However, a relatively slacking partner program is a major area of concern for its partners. The Squarespace marketplace does not generate as many referral leads as it should, which is a big hindrance for the business of web professionals.
Consequently, the limited nature of the marketplace, which is powered by 99designs (CMPR), compels its agency partners to also draw leads from third-party marketplaces like Fiverr (FVRR) or Upwork (UPWK), Wong explained. Moreover, the absence of a revenue-sharing program for Circle members is another matter of concern, which prevents new takers of the partner program. Circle is the top tier of Squarespace's membership.
Importantly, Wong indicated that some investors are worried about a difficult year-on-year comparison due to the pandemic-induced surge in demand last year. Moreover, they are wary of the expensive acquisition of Tock by Squarespace earlier this year. This is because the end markets in which Tock operates are entirely new to Squarespace.
Furthermore, evident preference for commerce customers could potentially discourage present customers. Also, long-term investors are cautious about consistent investments in growth, which are denting margins.
However, the analyst also points out that generous discounts on the premium plans and extended free trial periods are the strong points of the platform. Wong believes that “a more structured program is in the work with an improved marketplace and possibly rev share on the horizon." He says that some adjustments in the partner program are expected to add value to the platform and drive more partner buy-ins.
Following this discussion, Wong reiterated a Buy rating on Squarespace with a price target of $70, implying a 30.7% upside potential to current levels.
Consensus among analysts for Squarespace is a Moderate Buy based on 11 Buys and 4 Holds. The average Squarespace price target of $71.93 implies 35.7% upside potential to current levels over the next 12 months.
Wix dominates about 70% of the agency’s website-building projects. Wix’s in-house marketplace makes it a one-stop-shop for web professionals. Moreover, the creation and expansion of a direct sales team in early 2020 was a big differentiator.
Notably, Wix fills its partner dashboard daily with competitive and genuine leads, which is very important for a web professional. The company’s revenue sharing program was enhanced after the release of Editor X. Additionally, select partners earn a 20% commission on premium plans, and that drives more web projects to the platform.
However, Wong points out that Wix’s focus on the development of website building tools Wix Velo and Editor X may not gain the interest of professional website developers, thus limiting the company’s growth trajectory. Also, payment revenues add an aspect of volatility to the revenue structure, increasing the risk factors for growth. Growing competition is also a persisting concern.
Following this virtual conference, Wong reiterated a Buy rating on Wix with a price target of $350, implying a 20.3% upside potential to current levels.
Consensus among analysts for Wix is a Strong Buy based on 14 Buys and 3 Holds. The average Wix price target of $322.44 implies 10.6% upside potential to current levels over the next 12 months.
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.