Squarespace Vs Wix: Which Website Builder Stock Is Best?

Squarespace (NYSE:SQSP) and Wix (NASDAQ:WIX) are two of the largest website-building platforms in the world. For both individuals and companies, these platforms are default choices for building sites, managing online sales and creating a professional online presence.

Which one of these companies, though, is the better investment in today’s market?

Is Squarespace Stock Stuck at $46.50 After Buyout Offer?

Squarespace is a go-to choice for business websites, hosting nearly 3 million live sites. The company has leveraged demand for its easy-to-use website builder to consistently ramp up its revenues.

Total sales have grown in every quarter since 2021, and year-over-year revenues have risen by more than 10% in each of the last seven quarters. For Q2, revenue totaled $297 million.

While Squarespace has achieved intermittent profitability, investors can’t look at a reliable and predictable record of positive net earnings.

Indeed, despite short periods of positive earnings here and there, Squarespace has yet to produce a single 12-month period in which net income was positive overall. That may well change this year because analysts expect moderately positive EPS through the rest of the year.

Squarespace also trades at very high valuation multiples. The stock is priced at astronomical multiples of 172 and 166 to cash flow and expected full-year earnings, respectively. The price-to-sales ratio of 5.8x is obviously much more palatable but still very high.

Crucially, the stock’s price-to-earnings-growth ratio is 8.3x, where ratios over 2.0 are generally assumed to imply overvaluation. This suggests that Squarespace is both overvalued at the moment and will likely remain so for the foreseeable future unless earnings growth substantially beats out current expectations.

However interesting all of this may be from the standpoint of analyzing the business, the reality is that the value of Squarespace shares for investors is almost certainly fixed at $46.50 per share.

In May, Squarespace received an offer to be taken private by private equity firm Permira. The initial offer was an all-cash tender at $44 per share.

In September, that was increased to $46.50 as Squarespace negotiated the offer up on behalf of its shareholders. With shares currently trading at $46.48, there’s essentially no meat left on the bone for investors who buy today.

Is Wix a Better Value Than Squarespace with Profitability and Growth Potential?

The most immediately apparent different between Squarespace and Wix is the fact that Wix is reliably profitable at this point in its history.

The company briefly reported positive net incomes for two quarters in 2021 before slipping back into the red. Now, however, Wix is riding a streak of five consecutive profitable quarters. In the 12 months ending in Q2, Wix had generated about $74 million in net income.

Lacking a tender offer, Wix naturally trades at a lower valuation than Squarespace. To be clear, Wix’s valuation is still quite high at 74.6x forward earnings, 129x cash flow and 5.4x sales. The stock’s PEG ratio, however, is 3.6, less than half on Squarespace’s.

Given that Wix is reliably profitable where Squarespace moves in and out of positive earnings territory, this seems to make Wix a clearly better value.

Furthermore, Wix may have an extremely attractive growth runway ahead of it because it is increasingly focused on its Partners program, which allows developers and freelance web designers to build out sites for clients using Wix’s suite of tools.

In Q2, Partners revenue grew 29% year-over-year, driving overall revenue growth of 12% to $435.7 million. Given the increasing need for high-quality websites and the demand for freelancers and agencies to build them, the Partners business is likely to continue being a major growth driver for Wix for the foreseeable future.

One concern around Wix, though, is the fact that the company is buying back its own shares at a fairly aggressive pace.

For a more mature company, of course, share buybacks would be a beneficial way to return cash to investors. Wix, however, is still young and growing. T

his, coupled with the fact that the stock trades at a significant premium, may mean that management could find better uses for the company’s capital than repurchasing shares. In Q2 alone, Wix bought back about $225 million worth of its own stock.

Squarespace Vs Wix Stock, Which Is Better?

Given that Squarespace is in the process of being taken private and there’s virtually no spread left between the trading price and what investors will receive from Permira, Wix stands out as the better stock between the two.

This isn’t the only advantage Wix has over Squarespace. With a more solid history of profitability and a more reasonable valuation, Wix appears to be the superior choice by multiple standards.

This view is also supported by the general consensus on Wall Street. Analysts foresee a median price of $190 per share for Wix, up about 21% from its current price.

Considering the fact that SQSP has just pennies of upside left in it if the Permira purchase goes through, Wix appears by far the stock with the better upside proposition.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.