Shares of the design-driven platform Squarespace (NYSE: SQSP) surged in morning trading on Friday after the company announced that it will acquire around 10 million domains spread across millions of customers hosted on Google Domains (GOOGL) business, which will be winding down following a transition period.
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According to the terms of the agreement, “Squarespace will honor all existing Google Domains customers’ renewal prices for at least 12 months following the closing of the transaction, as well as provide additional incentives to encourage Google Domains customers to build a website with Squarespace and adopt other Squarespace offerings. Further, Squarespace will be leveraging Google’s infrastructure powering the Google Domains product during the migration period in order to ensure the seamless transfer of domains.”
The transaction is expected to close in the third quarter of this year.
Following the deal, William Blair analyst Matthew Pfau while reiterating a Buy on the stock termed it as a “low risk, high reward.” The analyst added that the deal worth $180 million is approximately around 1x SQSP’s revenues as the 10 million Google domains are priced at $12 per year. Pfau also pointed out the “significant” cross-selling opportunities due to this deal if some of these domain holders convert to website subscriptions.
The analyst stated, “If only 2.5% of acquired customers convert to a website subscription, Squarespace would add over $50 million in annual recurring revenue based on Squarespace’s 2022 ARPU [of $209]…As a result, with limited downside and significant upside potential, we view the acquisition’s risk/reward as quite favorable.”
Besides Pfau, other analysts are, however, sidelined about SQSP stock with a Hold consensus rating based on three Buys and nine Holds.
