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Squarespace Inc
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Good afternoon, good evening. My name is Felicia and I’ll be your conference operator today. At this time I would like to welcome everyone to Squarespace’s Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions].
Christopher Chiou, you may begin your conference call.
Good afternoon, and thank you for joining us for Squarespace’s third quarter 2021 earnings call. My name is Christopher Chiou, and I’m the Head of Investor Relations and Corporate Development at Squarespace. With me today are Anthony Casalena, Founder and CEO, and Marcela Martin, CFO. They will share some prepared remarks and then open up the call for questions.
On today’s call we'll be referencing both GAAP and non-GAAP financial results and operating metrics. You can find additional information on how we calculate any of the metrics discussed on this call, including a reconciliation of GAAP to non-GAAP measures in today’s press release, which can be found in the Investor Relations section of our website. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
The matters we’ll be discussing include forward-looking statements pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, which include but are not limited to those related to our future financial results, new product introduction, and the company’s marketing strategy. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Actual results may differ materially from those contained in the forward-looking statements.
Please take a look at the filings with the SEC for a discussion of the factors that could cause the results to differ. Any forward-looking statements that we make on this call are based on assumptions as of today, November 8, 2021, and we undertake no obligation to update these statements as a result of new information or future events.
I’ll now turn the call over to Anthony.
Thank you, Christopher. Good afternoon everyone, welcome! My name is Anthony Casalena, Founder and CEO of Squarespace. Thank you for joining us today as we report another strong quarter of growth and profitability.
At Squarespace, we exist to help people’s creative ideas stand out and succeed, and as more people choose to turn their passions to debentures 02.25, we strived to be the best company to support them as they differentiate themselves, grow their audience, and most importantly, transact with our customers.
Our belief in this mission is as strong as ever. During the pandemic it became increasingly important for businesses to digitize, develop an online presence and engage with their community. The pandemic accelerated existing trends around e-commerce, solidifying the importance of businesses transacting with their customers online, beyond just selling goods. We believe these trends will continue to define e-commerce. Squarespace empowers and make it easier for anyone to make a great saying, with an impactful and beautiful online presence.
During the quarter we took significant steps to scale our business and introduce new differentiated product features to meet the evolving needs of our customers, as an all-in-one platform. We continue to execute across several growth levers, including deeper penetration of multimodal commerce; commerce as a critical growth driver moving forward as we continue to expand our offerings for consumers; new and renewed marketing campaigns with some of the biggest global brands which highlight the diverse selling opportunities available to the Squarespace platform; continue to add a national expansion, now to more than 200 countries and territories with eight languages and growing, as well as revamped Circle Professional Referral Program.
Before Marcela gets into financial details, I'd like to highlight a few notable achievements this quarter. First, we surpassed a significant milestone by crossing 4 million unique subscriptions, a testament to our all-in-one platform and Squarespace’s ability to continue to attract new customers.
Second, our revenue grew 24% year-over-year, an achievement against a strong Q3 and 2020. Also on a trailing 12 month basis, we achieved $749 million in revenue, of which $210 million was commerce related revenue. We've done so well maintaining strong gross margins at 84%.
Finally, our adjusted-EBITDA and unlevered free cash flow this quarter exceeded the high end of our guidance, which gives us the flexibility to invest further in our business. We believe our combination of scale, growth and profitability places us in an elite class of technology companies with a compelling financial profile.
There are over 800 million small businesses and self-employed ventures globally that need our support. We remain confident in the long term trajectory of the creator economy and have many opportunities for future growth as we continue to scale our business profitably.
In September, to support our new platform vision of Everything to Sell Anything or what you have all know as our multimodal commerce approach, we have announced a series of new product features and improvements to existing products focused on helping our customers sell online in multiple ways, across physical products, digital content, classes, appointments and reservations. With more and more people thinking of creative ways to sell the things they are passionate about, we're focused on providing today's entrepreneurs with everything they need to thrive, all in one seamless integrated platform.
To highlight two specific new launches as part of our roundup, first we launched Squarespace Video Studio, which is an app that helps anyone create professional level videos to promote their business and tell their story effortlessly. The app pulls in content and brand elements from their website in order to create marketing materials to mend [ph] their site design.
Within our many updates to unfold, our award winning app to help anyone stand out on social media, we’d like to highlight BioFit. BioFit is a quick simple website that users can create directly on their phone, intended to go into social media buyers. These simple sites can route visitors to deeper content and functionality, depending on what their creator would like to optimize for. This enables linking to other sites, monetizing content or collecting tips.
These updates were inspired by the trends of the evolving small business landscape and the flourishing creator economy with services based businesses poised for increasing levels of success as many businesses broaden their way to transact. Everything To Sell Anything is a broad vision to help our customers convert their dreams into adventures.
The introduction of these products and updates are done in conjunction with the launch part in our Everything to Sell Anything campaign, which we continue to run internationally to reinforce our positioning. This campaign was syndicated by many news outlets and we received an incredibly positive response.
As part of our ongoing investment in international markets, we’ve began launching local campaigns as well, starting with Australia and the United Kingdom. For instance in Australia, our Make a Name for Yourself campaign aims to inspire, encourage and celebrate local entrepreneurship. The campaign aims to build individual to turn their personal experience into ideas and to a beautiful online presence reflective of who they are.
I'm incredibly excited to pair our evolving platform and product innovations with such a beautiful and telegraphic campaign, which I think resonates very well with the next generation of entrepreneurs and creators. I'm looking forward to seeing everything they do at Squarespace.
With that, I’ll pass it to Marcela Martin, our CFO, who will walk you through the financials.
Thank you, Anthony, and thank you everyone for joining today. We are excited to share our third quarter results and we continue to be even more excited about our fundamentals and the state of our business.
We delivered a strong revenue growth this quarter ahead of expectations. Revenue was $201 million in the quarter, an increase of 24% over the same quarter last year, driven by strong performance across both presence and commerce. Our commerce revenue reached $60 million representing 55% year-over-year growth, which includes Tock’s revenue.
Bookings grew 22% during the same period and we achieved annual run rate revenue of $789 million as of the end of Q3, 21% higher than the prior year. Continued to strong revenue bookings and annual run rate revenue were driven by growth in unique subscriptions of 13.5% year-over-year. ARPU grew almost 6% to $198 due to growth in commerce, including our scheduling products and the additional hospitality services offered through Tock. We deliver adjusted EBITDA of $38 million, and 19% margin and unlevered free cash flow of $47 million, a 24% margin.
We achieved year-over-year revenue growth of 24% over a strong Q3 last year. Breaking it out, presence revenue grew 14% year-over-year and our commerce revenue experienced 65% year-over-year growth. Presence revenue was driven by strength in personal and business class subscriptions, as well as healthy growth in Google workspace, which we account for on a net revenue basis and social product.
We delivered a total of $60 million in commerce revenue this quarter, which grew 55% versus Q3, 2020 through COVID. Organically and without the inclusion of Tock revenue, commerce would have grown approximately 34% year-over-year. Commerce revenue was driven by a strength in our basic and advanced commerce subscription plan, as well as continued strong growth in our multimodal offering, office scheduling and campaign.
Driven by the strong growth in our commerce business, comments represent an increasing percentage of our overall business. As of the end of Q3, 2021 commerce represented 30% of our total revenue. The total transactional or non-subscription revenue represents 25% of the total commerce revenue. Non-subscription revenue continues to grow as a percentage of revenue on a year-over-year basis as a GMV that flows through our platform continues to increase.
GMV has grown 38% this quarter versus last year. We saw particular strength from services based GMV, notably from our scheduling product. The inclusion of stock related GMV contributed to the year-over-year growth rate, though labor job issues in the hospitality industry impacted our expectations of its potential growth.
Fiscal growth represents a meaningful portion of our GMV needs, some of which was impacted by issues related to the global supply change. Trend wise, during the quarter GMV dipped during the summer months picking up in September.
Finally, our take rate has stabilized quarter-over-quarter as we will now include the Payment Processing Services through Tock going forward. Our results this quarter were strong and we believe issues facing the global supply chain and labor shortages in the hospitality industry adversely impacted our commerce business and growth would have been even higher, but for these issues.
We are very excited about our growing revenue base. Our total annual run rate revenue has grown to $708.6 million or 21% higher than the annual run rate revenue at the same time last year, as it represents 42% increase compared to the end of Q1 of 2020.
Markets outside the U.S. continue to be a driver for Squarespace, and our international expansion is one of the more important areas of growth and focus. After reclassifications that shifted some of the revenue from the U.S. to international, our international revenue was almost $62 million in the quarter, representing a 23% year-over-year growth rate and 31% of total revenue. The reclassification pertained to certain revenues which should have been classified as international revenues during Q1 and Q2 of 2021. Accordingly in Q3 we have reclassified approximately $4.1 million and $5.1 million related to Q1 on Q2 respectively as international revenue.
Using the updated reclassification in 2021, Q1, Q2 and Q3 international year-over-year growth would have been 37%, 34% and 23% respectively. Further Q1, Q2 and Q3 U.S. year-over-year growth would have been 29%, 30% and 24% respectively. These changes are outlined in our 10-Q.
Much of the growth was driven by our performance in the English speaking countries, including Australia, U.K. and Canada. In addition, we continue to invest to expand our offerings to other non-English speaking countries. As part of our international expansion strategy, we deepen our marketing efforts across key geographies such as Germany, U.K. and Australia.
We have recently launched two new languages for our website, Swedish and Dutch, where we plan to expand our supported languages further, beginning with Norwegian and Danish in the first half of 2022.
This quarter, we observed some macroeconomic headwind, particularly on new business formation. According to the U.S. Law of Labor Statistics, the growth rate this quarter fell approximately 18% year-over-year, with a steeper month over month decline in July and August. We believe this had an impact on customer acquisition this quarter as compared to the previous year, as the unique subscriptions growth rate in Q3, 2020 was one of our record high quarters.
The downward trends we saw in July and August recovered significantly in September, where business formation growth remained flat year-over-year. Further, we continue to believe that Squarespace makes it easy as every to start the business, and this secular trend support a massive growing market opportunity that will allow us to continue to expand our customer base and revenue over time.
During the third quarter, unique subscriptions grew 13.5% year-over-year to over $4 million. As a reminder the unique subscription may account for both presence and commerce revenues, as it represent a single count of what could potentially be multiple offering. This growth has been complemented by a 6% year-over-year increase in average revenue per unique subscription to $198 over 3% of which was organic growth versus $188 in the previous year.
As we have accelerated the pace of adding new products to the all-in-one platform over the last two years, we continue to see immense opportunity in cross selling various subscriptions throughout the customer base.
Squarespace has a strong fundamental, including attractive margin profile. Our gross profit margin was 83.6% in Q3, slightly below Q3, 2020, though its slightly higher sequentially, due to the consolidation with Tock, where payment processor fees represent the largest component of Tock’s revenue.
Our strong gross profit margin allows us to continue to invest in R&D, which grew 27% year-over-year to $49 million and marketing and sales up 35% versus prior year to $80 million. G&A expenses will now return to a more normalized level without the impact of the direct leasing cost, but is still growing 168% year-over-year, growing to $32 million. Part of this increase was driven by the market performance of stock based compensation rent.
Our strong fundamentals are also reflected in non-GAAP margins and profitability measures. Adjusted EBITDA was $38 million in the third quarter versus $41 million a year ago. Our unlevered free cash flow grew to approximately $47 million this quarter from approximately $45 million in the prior year, driven by higher revenue, partially offset by a decline in net working capital.
Q3 unlevered free cash flow exceeded the midpoint of the guidance range by approximately $24 million. The main reason for this positive volume relate primarily to the timing of prepayments, timing of certain tax payments and delays in capital projects.
We had a strong and healthy balance sheet. Cash on investments reached over $200 million at the end of the quarter. Our net leverage improved this quarter to approximately 2.3x, the last 12 months adjusted EBITDA.
Now let’s move on to fourth quarter guidance and what we are expecting in the full year of 2021. For the next quarter and full year 2021, we are cautiously optimistic given the strength in our business and some of the macro factors impacting Q3 that could continue or worsen in Q4. Our guidance reflects this.
We remain confident that growth in our commerce business will continue to outpace presence, driven by a strong adoption of our diversified multimodal offering such as our e-commerce stores, scheduling campaign, member areas and Tock.
Near term uncertainty driven by three micro economic factors may create some headwind. This includes the overall trends related to business formations in the U.S., global supply chain issues which affect fiscal product GMV, and continued labor shortages that impact the hospitality industry in multiple ways.
Our guidance assumes this headwind remains through the end of the year. Improvement or further deterioration in Q4 could either positively or negatively impact our results. Therefore in Q4, 2021 we expect to achieve total revenue between $203 million and $206 million and our level of free cash flow between $7.7 million and $12.7 million. This implies a year-over-year revenue growth rate between 18% to 20% and an unlevered free cash flow margin between 3.8% and 6.2%. We expect our margin to be seasonally lower in Q4 due to an increase in prepayments associated with Q1 as our tightened spend.
Unlevered free cash flow is comprised of cash flow from operating activities between $11 million and $17.3 million. Capital expenditures of $5.8 million and $7.3 million and cash paid for interest expenses net of associated tax benefit between $2.5 million and $2.7 million. The majority of the unlevered free cash flow we generated above our guidance in Q3 2021, we expect to repay in Q4 2021 based on the timing of certain expenses and prepayments.
For our full year 2021 guidance, we have increased our total revenue expectations to between $780 million and $783 million from $772 million to $780 million previously. This implies a year-over-year revenue growth rate of approximately 26% at the top end of guidance, which would have been an acceleration of the 2019 annual revenue growth rate of 24% and is slightly below our 2020 annual revenue growth rate of 28%.
We also expect unlevered free cash flow between $117 million and $122 million from $102 million to $116 million previously, representing a margin between 15% and 16%. The guidance has increased currently based on the increase in the full year revenue guidance and timing of prepayments.
Cash flow from operating activities is now between $119.2 million and $125.5 million. Capital expenditures of $12.5 million and $14 million and cash paid for interest expense net of associated tax benefits between $10.3 million and $10.5.
Growth opportunities around added Squarespace, we continue to deliver our financial goals and we remain focused on execution. Our opportunities are significant, continued growth of multimodal commerce, geographical expansion, enterprise and expert community are the key focus areas. We remain very optimistic on the long term secular trends in our industry, the large total addressable market, as well as our ability to execute against our plans.
We would like to remind the audience that our Virtual Investor Day will be held on Thursday, November 18, 2021. We are very excited for this upcoming event next week and the opportunity to share more on the Squarespace’s story and our future. It will be a webcast beginning at 1:00 PM Eastern Standard Time and you can find the registration details in the Events and Presentation Sections of our Investor Relations website.
And with this, I will pass it on to Anthony for final remarks.
I'm incredibly proud of our achievements this quarter. We are making excellent progress towards the vision of not only helping our customers represent themselves online, but also helping them transact with their customers, no matter how that transaction may occur. This wave of existing business is transacting online in many ways, along with the new generation of creators and entrepreneurs will drive durable growth for Squarespace in the years to come.
In closing, I'd like to thank all of our employees, partners and customers and shareholders for their ongoing support. Thank you, again. We look forward to seeing many of you at our Investor Day next week.
Thank you, Anthony and Marcela. We’ll now turn the call over to Q&A. Operator, please open the line for questions.
[Operator Instructions]. The first question we have comes from Trevor Young from Barclays. Please go ahead Trevor, your line is now open.
Great! Thanks so much. Just on the GMV common Marcela, I think you noted that it dipped in the summer and then pick back up in September. I just want to clarify that you're saying that growth slowed in those summer months, but didn't actually declined year-on-year. Is that correct? And then how has that trended so for into October? Have we seen kind of stable trends, improvement? Any detail that would be helpful. Thank you.
Hi Trevor! Thanks for your question. Yes, you heard that correctly. It was a little bit soft on the goods side, very strong on scheduling and we attribute that to the macro trends that you see with supply chain challenges so far. And October, what we have seen so far is according to what we had expected.
Great! Thank you.
The next question we have comes from Sterling Auty from JPMorgan. Sterling, your line is open.
Yeah, thanks, I appreciate it. I want to follow-on that line of questioning, but kind of expand upon it. So you mentioned a number of factors, the business starts in the U.S., supply chain constraints. I wonder if could just kind of characterized the magnitude? What's having the bigger impact on the business and how are you managing your marketing spend in particular in light of those elements?
Hi Sterling! Look, I mean we had a very good strong Q3 financial, and what we can tell you is that scheduling performed really well and of all what we had anticipated, we have a very powerful set of tools for creators and any professional that want to sell their time, and we are very happy with the performance that we have had so far. I think that all of our scheduling tools for events, appointments and so on are putting us as a leader in this space.
Online commerce also performed better, a little bit better than what we had expected, and we believe that commerce will continue to grow and will become a more meaningful contributor to their overall needs of our top line growth.
Unique subscriptions performed a little bit lower than what we had expected and we attributed that to the slow U.S. business formations that we saw in July and August, combined with a little bit of personality in international. Summer months typically drive lower conversion rates.
What we have seen in Tock is that we fitted a record number of signers in the quarter. So we are quite pleased with the performance of the business from a volume perspective, however the product mix was the driver of the lower than expected revenue for payment. We see subscriptions continue to increase, but what we have observed in Tock in particular was that the business had been impacted by labor shortages, as very well know in the industry and how that is impacting the hospitality industry in general, and again I mean the supply chain has impacted – we believe that it has impacted the growth of GMV on online commerce stores, and again I mean the strength that we have seen in GMV have come for the most part from our scheduling tools.
That makes sense, and then maybe one quick follow-up. I think there’s a lot of discussion around what might happen to the e-commerce world as we go through the holiday season, in spite of the supply chain constraints. I think you mentioned that in your guidance you're assuming that the constraints continue. But in particular how have you kind of factored in the e-commerce environment for the holiday season in light of those constraints.
What we have assumed, of course you know we are optimistic about the business. You can see the performance that we have had in Q3, but we are cautious, because the holiday season may also impact our scheduling business, which has performed really well so far. But consumers may shift spend towards goods – sorry, towards travel and entertainment, right. And if that occurs, also what we can – what we could expect is that that could impact the growth that we had in consider for unique subscriptions or websites underlying.
In GMV, of course we are – again, we are very optimistic about the Q4 season, but we remain cautious because of the supply changes and also for increases. I mean the food price inflation is real and that can impact of course Tock and our commerce stores.
I think to just add to what Marcela’s saying, within Squarespace’s revenues, you are seeing a pretty dynamic picture emerge really, where you know our business a decade ago or 5 years ago was going to be mostly defined by new website creation domains and to a lesser extent back then people transacting through the platform. And now you're seeing a business that has revenues from scheduling, revenues from hospitality, restaurants, to go ordering, revenues from events, revenues from member areas and all these different ways that we are enabling people to transact.
And so in any given quarter, I think you're going to see – and so far as these macro events keep kind of washing over us, those revenue streams are impacted in different ways at different times strengthen. For instance, you know when COVID started, our scheduling business was really hit hard for a couple of months and now has picked up and is one of the strongest performers within that commerce portfolio.
So yeah, I don't think any one individual trend that we see there is going to have such an outsized impact, but they are all real and depending on the sector you're looking at, the sub sector within Squarespace, they are just going to play out in different ways.
Excellent you guys! I appreciate it.
Thank you.
Thanks.
Next we have Siti Panigrahi from Mizuho. Please go ahead.
Hey, thanks. Congratulations! Good quarter. So Anthony and Marcela, I want to ask you about, you know in the beginning for Q2 you were a little concerned about delta variant and you also talked about some of your concern heading to Q4. But what are the areas that exceeded your expectation in Q3 and as your looking forward to Q4, what do you think you know are going to be key driver of Q4 or in next few quarters?
Yes, thanks Siti. Yeah, I mean we have been investing over the long run in the resilience of the business and this is what Anthony was trying to portray earlier when he was talking about these different revenue streams that we have so far. And what I was trying to convey was that, for example in a COVID environment or in a Delta environment with lockdown, we could have expected that for business and domain, those were going to thrive, while our scheduling business and unfold business would have been negatively impacted, right, and they obviously would occur without lockdown.
So what we have seen in Q3 that performed really well is commerce stores continued to perform well, though GMV had been impacted, particularly for good. I mean when I say it has grown, but it hasn’t grown as strongly as scheduling, the GMV for scheduling businesses.
Scheduling has performed really well and Unique Subscriptions were a little bit lower than what we had expected, part of that because of seasonality and part of that we believe is because of U.S. information business as our overall business continued to be skewed towards domestic, right. And again, I mean we stop, we are quite excited about the business. Record number of diners in the quarter, so that’s a major milestone for the business. So transaction wise the business is performing really well. It's getting the traction that we were expecting and you know we are even more excited with the tools that we have continued to create to support these time-slotted businesses for the hospitality industry.
And Anthony, late September you introduced so many features and how does that expand your competitive positioning, and also the new campaign, Everything to Sell Anything, how do you see that campaign going to drive any kind of growth?
Yeah, well I'm really proud of the team and I'm proud of what we released and I love the new positioning. Its inherent in that campaign, because you know I think multimodal commerce maybe is not the best way of describing what we do from a consumer perspective, but I think yeah Everything to Sell Anything is.
And you know along with a couple of releases we highlighted fire sites and Unfold, we highlighted of course these video, studio coming out. There was a slew of other improvements across the product line and really we used it as an opportunity to sort of recap and say, hey! you know Squarespace is not just websites and physical commerce, it’s so much more. It's tools for the hospitality industry; its tools for appointment booking and scheduling; there's new emerging business models we want to highlight, things like member areas if we're going to expand into more tools for online courses and video, and you know it’s just – there’s this huge opportunity in commerce out there that it’s just beyond simple, physical commerce.
I mean that’s of course big too and again, I’ve said it on previous call. We have almost a decade of investment in our commerce engine. It's one of the most powerful ones on the internet. But when you combine that with all these other ways to transact in one platform and one company, I think it’s where Squarespace is really going to start to shine. It’s certainly shining now, but you know we're going to lean more into that in years to come.
And you see that reflected in the numbers as well with $60 million in revenue, that's about 30% of our revenue, just around there, you know this quarter coming from those commerce related activities and we think that’s just going to continue to grow, yeah.
That’s great. Thank you, thanks for this color.
Thank you.
Thanks Siti.
Next question comes from Josh Beck from KeyBanc. Please go ahead.
Thank you team for taking the question. I wanted to go back to the international growth. Obviously that’s been one of the future opportunities for you as a business. I think this quarter was similar or maybe a touch below U.S. Was that may be related to some of the measures that we've seen in Australia and some other countries. Just curious maybe what some of the impacts were this quarter and how we should be forgetting about those trends over a longer time horizon?
So in short – thanks for the question. So in short, yes, I think you know as we see the climate very – I mean just very different scenarios in various regions. But you know from an international standpoint we continue to introduce new languages. Marcela mentioned two coming in the first half of next year. We've been pushing with localized campaigns. Actually in the slide that shows in our YouTube channel you can see some of what we did in the UK and Australia and we're going to be launching new payment mechanisms. So you know we have stuff on the horizon which will further enhance our ability to convert in those international markets.
But you know just to circle back around to the beginning of a question, yeah, I mean depending on where people are allowed to travel with lockdown, with opening up and part of what we're seeing is kind of interesting and it was – you know we discussed, we touched on this as part of the prior answer. You know just because a lockdown exists or doesn't exist, there’s all kinds of dynamic that you have created now post lockdown. All the supply chain issues, labor shortages, all that, you know that's not – I don't think a lot of people could have maybe known exactly that that was going to play out quite like that, and they are impacting different industries in different regions in a desperate way.
Very helpful. And then maybe just a follow up on the unique subscriptions. Obviously the last two years where we have a lot of the quarterly detail, very unusual time for a lot of reasons. Just so as we think about next year, anything to call out with respect to seasonality? Is there a bit of a New Year's halo; you start to see stronger formation in a typical year, just anything that we should be calibrating on and just in terms of seasonality for next year.
Hi Josh! Look, I mean with seasonal, let me walk you through a typical seasonality of unique subscriptions on a non-COVID year. Q1 is the strongest and Q3 are strong and the lowest are typically Q2 and Q4. Actually Q4 is stronger than Q2, right, that’s on a regular basis. But I just want to call out that because of the nature of the unique subscription, like Unfold has – it’s not a product that is fully attached to you know yet to websites or to domains. So Unique, typically Unfold the account as Unique and then we have the other set of subscriptions, domains, like member areas, campaigns, etc., that they get attached to each other and that they account for one.
The reason why I’m clarifying this is because Unfold has a slightly different seasonality than the rest of the what I would say the whole Unique subscriptions, which is that typically Q3 is the strongest actually with Q1, it’s the strongest quarter for Unfold – sorry, excuse me, I’m saying Q1 and Q2 are the strongest for Unfold and Q3 and Q4 are the weakest for Unfold.
So overall what we can expect is that as we move into 2022, the seasonality will remain as I have explained it to you before, where Q1 is going to be the strongest quarter and Q2 the weakest.
Very helpful context. Thank you, Marcela, thank you Anthony.
Next question comes from Naved Khan from Truist Securities. Please go ahead.
Yeah, thanks a lot. Maybe just a quick clarification on the trends you described in terms of growth over the summer. You said July and August were weak. September saw some improvement and you said that October is consistent with your expectations. Can you maybe just compare and contract October versus September and has the recovery in September sort of continued into October or has it even hinged higher or how should we think about that? And then I have a follow-up.
Sure. Hi Naved! October has been a little bit of a stronger month compared to September. So we still remain cautious on how the business formations will remain for the rest of the year, just because of the typical trends that we see in the industry.
One more thing that I alluded earlier, I don’t know how clear I was, that if we yet need to see when you know borders starts to open up and consumers may shift this year in particular more compared to other years as they have been stuck in their home for you know almost two years, they may shift expense towards more travelling and entertainment rather than typical services or websites or domain. But so far what we feel at the moment, we are confident with the guidance that we are provided based on what we have seen so far and so far when I’m saying so far, I’m saying as of today.
Understood, that’s super helpful. And really just a bigger picture question. So in terms of hospitality and leisure, how should we think about that as a up category? How meaningful could it be if it recovers, either through growth in payments and your ability to kind of capture that or other things, just maybe speak to that.
Thank you for the question. We think it’s going to be huge. That’s you know why we were so excited to partner up and join forces with Tock. We have so many businesses on the platform that are starter based businesses, service based businesses, web based businesses, time charter businesses and I mean you know I’m starting how to figure out off the top of my head, but what percent of it, our whole GDP, it’s like 4% or something like that. So we need to reference that checking on that number, but it can be absolutely massive.
In fact I think when you look across all of the revenue streams that we enable within our commerce offering, all of them can individually be – you could have a company just doing one of them and it could be a very, very large company and that applies to scheduling and appointments, that applies to time slotted businesses and that’s to go ordering reservations, events. That applies to e-commerce of course which we’ve all seen and we’ve got some bets on some newer things like member areas where we think that there’s a lot of businesses out there that are going to want to sell time and expertise and you know provide access to video classes and courses and you know paid newsletters, all of those I think can be very big on their own and the powerful part of what we do is that we’ve got all of that in one single platform.
And I think we could set this up really well for the future, because again as we’re referencing earlier on this call, you know this business is not – we just need another website, another website, another website or we probably will become best in e-commerce or you know scheduling, you know the scheduling industry, like the types of businesses that are being powered by our scheduling products, they are affected, everything else is lost.
So we’re trying to set up a really robust and durable revenue stream and one that can grow with these customers. I think if you looked at Squarespace five years ago versus today, the big difference is the more we’re part of that commerce transaction, we get to scale with our customers, all the more services. But also as we’re part of more, as they transact more, you know we’re able to grow with them. Five, ten years ago – lets pick ten years ago. That’s definitely not the case for Squarespace. Your website gets a bunch of more traffic and you know bandwidth and storage is commoditized in our industry and you know for small sites years ago.
So this is an exciting time for us and I think when you think about any one of those revenue streams that I’m referencing there and you take a ten year view and think, okay – or even a five year view and say, are people going to be booking more orders online, more appointments online, selling more online or less in five years, I think the answer is clearly more in all of the basic categories that we service. We’ve intentionally gone from really, really broad revenue streams, right. Now there is a lot of niches within them, but you know these categories I’m describing are just you know – they are really big.
And just to add to that, I think we – you know all of these service, the tools that we’re having in the platform are positioning us to deliver – you know we believe absolutely in the market, in services in particular. When you think about the Tock application right, it’s a tool that was born to help and serve restaurants. But it’s actually a tool that has expanded to much more than that and we have the celeries, wineries, museums that use that tool. So it’s quite exciting and you know combined with scheduling where we tackle a lot of the health and wellness industry, I think that you know as Anthony said, we are very, very well positioned for the future.
Yeah, we’ve got a really diverse wide coverage there, but I’d also like to emphasize that we actually go very, very deep in these different categories, because if it was just surface based, if we just kind of went out there and said, Oh yeah, we’ve got scheduling. Sure we have to go ordering, I just don’t think that that would translate to meaningful, actual meaningful revenue, because we wouldn’t be really powering the kind of businesses that we have always attracted to our platform.
I mean Squarespace is always attracted a customer set. It was more serious, more design conscious, you know wanted to pay and really wanted to succeed and stand out and so we have to paid that with deep functionality and not just surface level functionality. And I think when you look across our product offering, we are really – we're in an incredibly unique spot with regards to that, considering what we've built and what we’ve bought.
Makes sense. Good work. Thank you, guys.
Thank you.
The next question comes from Ken Wong from Guggenheim Securities. Please go ahead Ken.
Fantastic! Anthony I wanted to circle up on something you touched on earlier in your call. You mentioned revamping your referral program, your partner referral program. Something we've kind of heard might be in the works. Just would love to get your sense for what’s changed there? How that might potentially drive subs down the line, potentially change your commerce mix to the extent that you're moving a little more up market. And any color there would be their fantastic.
Thank Ken. Yes, so we introduced a new referral program. We've been testing it in non- USGO’s for a little bit. But in seeing how it perform we started to roll that out across our whole circle program just to help incentivize people who are already on the platform, already building on the platform to build more on the platform, and to share in our success.
I think two things there; one, the Circle program which is of course our professional community has always been incredibly important to us. Squarespace has always been a favorite choice of designers and web professionals because of our design orientation and the fact that they're using us, they are able to get out-of-the-box so much further than that they would have to fix design on something that’s kind of inherently out-of-the-box a little more broken. So, we’ve always been – we've always resonated very well with that community and it’s just another step in us partnering with them and servicing them.
The other thing that I'd like to help equip them when is, we've got tens of thousands of people out there putting sites on Squarespace. That means that they are in front of businesses as they are getting started, and I think that gives us an opportunity for things with, for instance Tock to say hey, you're setting up a new restaurant, you are setting up – you are producing a website for an event. Consider plugging in this system versus something. It integrates better, etc., etc. as you are getting your client set up. So that puts us in a really great spot. And it’s one that, if you were for instance Tock standalone, you really wouldn't be in front of, because you don't have tens of thousands of people in front of small businesses that are, right there when they're getting set up.
So Circle remains really important to us. We said about the referral program rolling out more broadly now as opposed to us just testing it locally. And I'm exciting about equipping the Circle members to help really introduce our clients to our broader range of services. There is just so much more. They can sell them on Squarespace right now, than they could three, four, five years ago. It’s just a completely different product portfolio.
Got it, got it. I really appreciate the color on the cross sell opportunity. And Marcela just wanted to just take a quick cut at just leverage. It looks like a lot more profitable this quarter. I guess how much of that might be short term in nature, perhaps you guys dialed back on marketing with the funnel looking at little softer. Labor shortages as you mentioned, maybe put a dampener on hiring ramp.
Is the number we saw in Q3 and how you're guiding Q4 kind of the right numbers to build off of or should we expect that there may be a little bit of pent up demand and kind of the cost might flow back in a more meaningful way once some of this macro stuff clears.
Hey Ken! We had a little bit off shift of spend from Q3 to Q4 and mostly related to hiring, right, and the hiring piece. But other than that, I mean we have been pretty aligned on the rest of the expenses with what we had expected originally.
Great! Thanks a lot guys.
Thank you.
Next we have, Brad Erickson, Brad from RBC Capital Markets. Please go ahead.
Hi! Thanks. I want to come back to the net sub adds. It sounds like things improved in September and then again a bit in October. So I guess the question is, we kind of try and dimensionalize the net add levels going forward. Are we – would you say it’s fair to say we're approaching say COVID levels once again after that sort of summertime seasonal slowdown. I mean, if you look at it, you just did more in Q3 than Q1, but less than Q2. So just trying to get a sense of any sort of baseline run rate your seeing and expecting in terms of net sub adds as we look forward, hopefully beyond COVID and obviously what’s baked into the guidance, and then I have a follow-up. Thanks.
Thanks for the question. Actually what we have seen is that, we have accelerated the pace of new unique subscriptions compared to 2019 for the last couple of quarters. So I mean in terms of seasonality, we are considering that we are going to go back to a little bit of what it was 2019, in terms of seasonality. But definitely not the pace of the growth compared to 2019, because we believe that we are going to grow unique subscriptions factor than what we did in 2019.
That’s very helpful, thanks. And then just to follow up, we may have missed it in the filing or the presentation, but can you give us Tock’s contribution to revenue in the quarter please? Thanks.
Well, I mean we have reported the growth. So I think you can you know determine that from the previous figures that we have reported and the current organic versus inorganic growth. Organically we grew 34% year-over-year and our total growth has been 55%.
That's great. Thank you.
Next question comes from Aaron Kessler from Raymond James. This is the last question. Please go ahead Aaron.
Great! Thank you. Maybe just all of the questions has been asked, but maybe on marketing tools, can you just talk about maybe what’s the roadmap maybe for additional marketing solutions for SMBs? And then just maybe the timing of kind of some of your local language rollouts as well. Thank you.
Aaron sorry, you sounded very choppy. So you're asking about marketing tools.
Yeah, just maybe on marketing inclusions you're thinking that you could be rolling out for your clients and kind of the traction with some of your key marketing tools today.
Yeah. So right now the marketing tools portfolio consists of Video Studio, what we are helping within SEO, email campaigns, those sorts of things. We haven't talked about exactly what's coming up on the road map next, but it’s sort of things that are going to be kind of in that vein for small businesses.
Got it! Great! And just any update, kind of the timing of the some of the local language rollouts as well.
Marcela, could you remind us, was it Norwegian and Danish in the first half of next year?
Yeah.
Those are the next ones on the queue. And then also, no specific timing on it, but Seppa [ph] will happen at some point soon and that will help us in regions that expect that.
Got it. That's helpful. Thank you.
And it seems we have time for one more question. Next would be Matt Pfau from William Blair. Please go ahead Matt.
Hey great! Thanks guys for fitting me in. Just wanted to ask a couple of clarifications on the comments around Tock and specifically what drove the mix of lost payments with the diners being up. And then, the labor impact, how do we think about that? Is it just lower capacity at the restaurants because of the labor issues? Is that the main impact or is there something else there to think about. Thanks.
Sure, thanks for the question. I'll give a couple of remarks on each. So first off, during the pandemic Tock started as a business that was basically centered around diners buying experiences in restaurants and that reservation system. Obviously that went to almost nothing as the pandemic rolled around and locked downs occurred. And they launch a to-go-ordering business, so that those businesses could thrive during that time, and actually that was really, really, really well received and a lot of businesses use that.
But to-go business has a different margin profile than the bookings space business. And over the past two quarters, people have really started to return to restaurants, Marcela noted earlier that it was a record quarter for Tock and people eating in those restaurants. That revenue shift is mixed. It has shifted back more to being in-person versus to-go.
And so we have a number of things we're looking at there to attract that, but it’s – activity on the platform is very, very high. Tons of attention on it and we'll just keep adapting as see those trends kind of move back and forth. But the good thing is we have both those revenue streams on the platform, so we'll be able to capture demand off of both.
When we were talking about labor shortages and supply chain issues and how that affects hospitality, well first off with the supply chain issues restaurant may not be able to open for one of two reasons. One, the cost of goods or their ability to access just the raw material they need to serve customers is impacted by all of this and if you're in that world, shifting your payment, your reservation system is probably not at the top of the list of things do you want to pursue right now.
Also, with labor shortages, that’s also affecting our ability to open, and if they can open, they might not be able to open at full capacity and so all of that is kind of happening and swirling behind the scenes as we move forward. But we are still very optimistic about the future what Tock, because again just the amount of activity on the platform, the amount of dinners using the system, the versatility of the system, the ability to apply it to other time slotted business like events, its stuff that we are really excited to do. And again as we move into next year, Tock has its own road map that’s really exciting from a product standpoint, and it's going to be a great 2022 with them.
Great, thanks. I appreciate it guys.
With that, I will hand back to the management team for closing remarks.
Thank you, everybody for joining the call, and for the super insightful questions. Look, when I look at the business and I think about how we're situated, I have never been more confident in how we are positioned, because again, and we touched upon it on this call, it is not just that Squarespace is dependent on one single revenue stream, it is not just e-commerce, it is not just website, it’s not just demand, it’s not just scheduling, it’s not just hospitality.
We are able to address all of those in one platform and it leads to these interesting scenarios, right, where these macro events are going to impact one in a different way to impact the other. But look, commerce as a percentage of revenue is higher than ever within the company, and we're going to see that continue.
So looking forward to an exciting 2022, and we will see many of you later and all of you soon. And also, just a reminder that we have an Investor Day coming up next week, November 18, and looking forward to seeing many of you there. It will give us the opportunity to really dive into our models a little bit more and to help further the story. Thank you.
Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.