Squarespace: Google Domains Acquisition Is Value Accretive but Cross-Sell Opportunity Is Limited

We raise our fair value estimate for no-moat Squarespace 7% to $24 per share as the firm enters a definitive agreement to acquire Google Domains' assets. While domain registration is commoditized and lower margin relative to Squarespace’s core website building tools, we view the acquisition as a prudent strategy to expand the established domain registrar business and cross-sell complementary online presence solutions to millions of acquired customers at a lower acquisition cost. After the acquisition, we expect Squarespace to become a leading registrar by domain volumes; however, the firm will still be dwarfed by dominant provider GoDaddy, which manages about 84 million domains. The $180 million acquisition will be funded through cash and an extension of existing credit facilities, and we expect the deal to close in the third quarter of 2023 with no regulatory pushback. Despite an improved outlook, Squarespace shares continue to screen as overvalued relative to our updated fair value estimate.