LegalZoom trades at $9.04 and has moved in lockstep with the market. Its shares have returned 7.2% over the last six months while the S&P 500 has gained 4.3%.

Is LZ a buy right now? 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 Drive Additional 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 10.5% annually to 1.92 million in the latest quarter. This growth rate is solid for a consumer internet business and indicates people are excited about 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 13.1 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 16.9%.

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 positive characteristics outweigh the negatives, but at $9.04 per share (or 9.5× forward EV/EBITDA), is now the right time to buy the stock? See for yourself in our full research report, it’s free.

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