Investors looking for some kind of respite in the broader technology sphere didn’t get it from Squarespace (NYSE:SQSP), a popular website building and hosting firm. Although the company delivered strong results for its second quarter of 2022, management disappointed Wall Street with reduced full-year revenue guidance. Subsequently, SQSP stock started Monday in the red, trading down 3% in late-morning hours.
On surface level, Squarespace gave a positive update. According to the company’s press release, it brought in total revenue of $212.7 million, up 9% year over year on a GAAP basis (up 12% when adjusted for currency fluctuations). Analysts expected sales of $212 million. Further, commerce revenue grew 13% YOY to $66.2 million.
In terms of profitability, Squarespace generated earnings per share of 45 cents, whereas consensus targets called for an EPS of 12 cents. As well, the company posted net income of $64.5 million, a starkly positive contrast to the net loss of $234.5 million in the year-ago quarter.
One of the most important figures for the underlying business of SQSP stock is the average revenue per unique subscription (or ARPUS), which increased 6% to $204. Moreover, unique subscriptions increased 6% to 4.2 million.
While this all paints an encouraging picture, investors grew suddenly hesitant following management’s decision to reduce its revenue guidance for the year.
SQSP Stock and the Dark Cloud Over Tech
In its Q2 disclosure, Squarespace revealed that it expects revenue in fiscal 2022 to come in between $857 million to $867 million, or YOY growth of 9%-11%. While an improvement in and of itself, in the company’s first-quarter earnings report, it broadcast full-year revenue expectations to be between $867 million to $879 million. Thus, the high end of the adjusted outlook matches that of the prior outlook’s low estimate.
Since investors put their money to work on expected narratives rather than on past results, the guidance downgrade sent jitters on the Street. For context, following a banner year in the tech space, the sector is now engaging in layoffs. According to data from Crunchbase, as of late July, companies in the tech industry have laid off more than 30,000 workers.
Further, this unfavorable statistic has been accelerating as the year goes on. Though most of the names are privately held enterprises that may be lesser known to everyday households, some prominent firms have engaged in the pink-slip distribution. These include PayPal (NASDAQ:PYPL), Coinbase (NASDAQ:COIN) and Redfin (NASDAQ:RDFN).
Therefore, the concern for SQSP stock is that economic pressures, such as the widening impact of inflation, are starting to impede growth.
Why It Matters
Late last week, Snap (NYSE:SNAP) disappointed analysts with a poor performance for Q2. After missing on the top and bottom lines, the company added to its misery by failing to disclose guidance for Q3. Its reasoning? The “forward-looking visibility remains incredibly challenging.”
Essentially, diminished advertising revenue is pressuring Snap and other related businesses, which in turn has significant implications for SQSP stock. Without a robust marketing presence, it’s difficult for entrepreneurs to start or expand into web-based ventures, souring the fundamental thesis of Squarespace.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
