Squarespace, Inc. (NYSE:SQSP) was upgraded to Buy from Neutral by Citi analysts, who also raised the firm's price target on the stock to $40 from $30 per share in a note to clients on Tuesday. Furthermore, the firm also opened a 90-day positive catalyst watch on the shares.
The analysts stated that the website building and hosting company's fundamentals are strong, and its estimates have upside. In addition, the analysts noted that the upgrade reflects an improved growth outlook.
"We expect upside to 2023 and 2024 top line and uFCF estimates given the countercyclicality benefits Squarespace enjoys in a tougher macro, better than expected domain growth in 1Q23, US business formations holding up better than expected, and stronger demand trends from a year ago as indicated in our survey," the analysts wrote.
They noted that the company's strong 4Q22 results and FY23 guide showed improvements and hinted at accelerating growth in the business.
Meanwhile, the analysts believe that the company is "benefiting through some countercyclicality as new business formations are holding up along with better-than-expected domain growth YTD."
Other factors Citi mentioned that resulted in the upgrade include positive results in the firm's Web Builders Survey, which "shows web professionals viewing Squarespace as having strong functionality demonstrating its competitive positioning," multiple fundamental drivers, structurally higher margins, and "upside tension to estimates," as they see the improvements continuing into 2024 and beyond.