The rapid increase in smartphone adoption and internet usage has been a major driver of market growth in recent years. Additionally, the growing popularity of the e-commerce industry significantly impacts market expansion. The number of start-up companies is rising significantly, and many small businesses opt to create websites on a low budget, contributing to the market's accelerated growth.
The global website builders market is projected to touch $3.46 billion by 2032, exhibiting a CAGR of 6.4%.
Moreover, customers are increasingly seeking software solutions to streamline business processes, lower costs, and enhance efficiency. Cloud-based software solutions have gained popularity for their flexibility, scalability, and cost-effectiveness. Revenue in the software market is expected to grow at a CAGR of 5.3% by 2028.
Against this backdrop, let’s compare two website builder stocks, Squarespace, Inc. (SQSP) and Wix.com Ltd. (WIX), to analyze which is a better buy.
The Case for Squarespace, Inc. Stock
With a $6.01 billion market cap, Squarespace, Inc. (SQSP) offers domains, websites, marketing, and social media management tools. The company provides commerce solutions, which include tools for selling digital content, classes, appointments, reservations, physical goods, and more.
On June 21, 2024, SQSP announced an agreement to sell Tock, the reservation, table, and event management technology provider, to American Express (AXP) for $400 million.
SQSP’s stock has gained 40% over the past six months and 53.8% over the past nine months to close the last trading session at $43.78.
SQSP’s trailing-12-month gross profit margin and EBIT margin of 76.78% and 6.38% are 56.33% and 29.5% higher than the industry averages of 49.11% and 4.93%, respectively. However, the stock’s trailing-12-month CAPEX/Sales of 1.64% is 29.1% lower than the industry average of 2.31%.
In the fiscal first quarter that ended March 31, 2024, SQSP’s revenue and gross profit increased 18.3% and 3.2% year-over-year to $281.15 million and $200.37 million, respectively. For the same quarter, adjusted EBITDA and unlevered free cash flow stood at $32.01 million and $89.32 million, up 3.7% and 33.1% from the prior-year quarter, respectively.
However, its net income declined 28.7% year-over-year to $144 million.
Analysts expect SQSP’s revenue for the second quarter (ended June 2024) to increase 18.4% year-over-year to $293.14 million. Likewise, its EPS for the same quarter is projected to grow 24.4% year-over-year to $0.30. Moreover, the company has surpassed revenue estimates in each of the trailing four quarters.
SQSP’s POWR Ratings reflect a mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a C grade for Growth, Value, Momentum, and Stability. SQSP is ranked #49 out of 136 stocks in the Software - Application industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SQSP’s ratings for Sentiment and Quality here.
The Case for Wix.com Ltd. Stock
Valued at $8.66 billion by market cap, Wix.com Ltd. (WIX) develops and markets a cloud-based platform for creating a website or web application in North America, Europe, Latin America, Asia, and internationally.
On July 1, 2024, WIX announced new features that will allow developers to build applications more efficiently, enriching the WIXA ecosystem and providing more monetization opportunities.
WIX’s stock has gained 33% over the past six months to close the last trading session at $156.10.
WIX’s trailing-12-month gross profit margin of 67.63% is 37.7% higher than the industry average of 49.11%. Likewise, its trailing-12-month net income margin of 4.20% is 35.2% higher than the industry average of 3.11%.
For the fiscal first quarter that ended March 31, 2024, WIX’s revenues and non-GAAP gross profit stood at $419.78 million and $286.74 million, up 12.2% and 14.9% year-over-year, respectively.
For the same quarter, its non-GAAP net income and non-GAAP net income per share stood at $77.29 million and $1.29, up 51.2% and 41.8% from the year-ago quarter, respectively.
Street expects WIX’s revenue for the second quarter (ended June 2024) to increase 11.2% year-over-year to $433.80 million. The company’s EPS is estimated to grow 8.3% year-over-year to $1.36 for the same quarter. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is excellent.
WIX’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
WIX has an A grade for Growth and a B for Quality. It is ranked #4 among 27 stocks in the Internet - Services industry.
Click here for the additional POWR Ratings for WIX (Value, Stability, Sentiment, and Momentum).
SquareSpace or Wix.com: Which Website Builder Stock Is a Better Buy?
As the volume of online business transactions rises exponentially, the demand for website builders is gaining major traction. An increase in the adoption of cloud-based services by large enterprises and SMEs also boosts the sales of website builders.
Leading website builder stocks SQSP and WIX stand to capitalize on the optimistic industry outlook. However, WIX’s strong financial performance, higher profitability, and promising near-term outlook favor it as the better stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software - Application industry here and the Internet - Services industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
WIX shares were trading at $154.42 per share on Friday afternoon, down $1.68 (-1.08%). Year-to-date, WIX has gained 25.52%, versus a 17.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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