LegalZoom’s (NASDAQ:LZ) Q3 Sales Top Estimates, Stock Jumps 10.8%

Online legal service provider LegalZoom (NASDAQ:LZ) beat analysts’ expectations in Q3 FY2023, with revenue up 8.3% year on year to $167.3 million. Guidance for next quarter’s revenue was also better than expected at $156 million at the midpoint, 1.2% above analysts’ estimates. Turning to EPS, LegalZoom made a GAAP profit of $0.04 per share, improving from its loss of $0.05 per share in the same quarter last year.

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LegalZoom (LZ) Q3 FY2023 Highlights:

• Revenue: $167.3 million vs analyst estimates of $160 million (4.6% beat)
• EPS: $0.04 vs analyst estimates of $0.01 ($0.03 beat)
• Revenue Guidance for Q4 2023 is $156 million at the midpoint, above analyst estimates of $154.1 million
• Free Cash Flow of $19.4 million, down 48% from the previous quarter
• Gross Margin (GAAP): 64.6%, down from 67.6% in the same quarter last year
• Subscription Units: 1.6 million, up 153,000 year on year

“We had another strong quarter of financial performance, but equally important, we continue to demonstrate increased product velocity with the release of Business Licenses and the continued evolution of Legal Forms,” said Dan Wernikoff, LegalZoom’s Chief Executive Officer.

LegalZoom (NASDAQ:LZ) is an online platform that provides online legal services to individuals and small businesses. The company’s co-founders found it difficult and expensive to find lawyers and file paperwork when trying to start a business so they started LegalZoom instead to address this pain point.

Online MarketplaceMarketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Sales GrowthLegalZoom’s revenue growth over the last three years has been unremarkable, averaging 12.9% annually. This quarter, LegalZoom beat analysts’ estimates but reported mediocre 8.3% year-on-year revenue growth.

Guidance for the next quarter indicates LegalZoom is expecting revenue to grow 5.8% year on year to $156 million, improving on the 3.8% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results, analysts covering the company were projecting sales to grow 6.3% over the next 12 months.

Usage Growth 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 users, a key performance metric for the company, grew 11.3% annually to 1.6 million. This is decent growth for a consumer internet company.

In Q3, LegalZoom added 153,000 users, translating into 10.8% year-on-year growth.

Key Takeaways from LegalZoom’s Q3 Results
Sporting a market capitalization of $2 billion, LegalZoom is among smaller companies, but its more than $212.1 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

It was great to see LegalZoom beat analysts’ revenue expectations this quarter, driven by better-than-expected transaction and subscription revenue. We were also glad it topped Wall Street’s adjusted EBITDA, EPS, and full-year revenue guidance estimates. The cherry on top was the plethora of new products the company released during and after the quarter, including LZ Books, an online accounting solution, Doc Assist, a free document summarization tool, and Business Licenses, a compliance product. Overall, this quarter’s results seemed fairly positive and shareholders should feel optimistic. The stock is up 10.8% after reporting and currently trades at $11.69 per share.

The author has no position in any of the stocks mentioned in this report.