Since going public in April of last year, shares of Squarespace (NYSE:SQSP) have lost nearly 60% of their value. While the company reported strong revenue growth in its most recent quarter, it also posted a wider-than-expected net loss. With concerns mounting about its ability to generate sustainable profits, investors have been fleeing the stock.
One of the biggest problems facing Squarespace is that it is losing money on every sale. The company’s gross margin was just 31% last quarter, down from 33% a year ago. This deteriorating margin profile is a big concern for investors, as it suggests that Squarespace may not have the pricing power necessary to generate long-term profitability.
What’s more, Squarespace’s revenue growth is starting to slow down. The company’s top line rose 33% last quarter, down from 39% growth in the prior quarter.
This slowdown comes as competition in the website builder space intensifies. Shopify (NYSE:SHOP), for example, reported 63% revenue growth last quarter.
Investors are also worried about Squarespace’s high level of debt. As of the end of March, the company had $238 million in long-term debt on its balance sheet. This gives Squarespace very little financial flexibility if its business starts to deteriorate.
With concerns mounting on multiple fronts, it’s no wonder why investors are running for the exits. Until Squarespace can prove that it can generate sustained profitability, the stock is likely to remain under pressure.
Conclusion:
Why is Squarespace stock dropping In short, the company is losing money on every sale, margins are deteriorating, revenue growth is slowing down, and it has a high level of debt.
