LegalZoom trades at $10.24 per share and has stayed right on track with the overall market, gaining 24.4% over the last six months. At the same time, the S&P 500 has returned 24.7%.
Is now a good time to buy LZ? Find out in our full research report, it’s free.
Why Does LZ Stock Spark Debate?
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ: LZ) offers online legal services and documentation assistance for individuals and businesses.
Two Positive Attributes:
1. Subscription Units Skyrocket, Fueling Growth Opportunities
As an online marketplace, LegalZoom generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, LegalZoom’s subscription units, a key performance metric for the company, increased by 11.7% annually to 1.96 million in the latest quarter. This growth rate is strong for a consumer internet business and indicates people love using its offerings. 
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, LegalZoom’s margin expanded by 14.9 percentage points over the last few years. This is encouraging because it gives the company more optionality. LegalZoom’s free cash flow margin for the trailing 12 months was 18.5%.
One Reason to be Careful:
Customer Spending Stalls, Engagement Falling?
Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and LegalZoom’s take rate, or "cut", on each order.
LegalZoom’s ARPU has been roughly flat over the last two years. This isn’t great, but the increase in subscription units is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if LegalZoom tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace. 
Final Judgment
LegalZoom’s merits more than compensate for its flaws, but at $10.24 per share (or 10.4× forward EV/EBITDA), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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