Money & Markets Week Ahead for May 16, 2021: Squarespace is launching its initial public offering this week. And it’s bringing something unique to the IPO table.
I examine Target Corp.’s (NYSE: TGT) quarterly projections as retail earnings take center stage.
We’ll also see how existing home sales performed in April.
Here’s more of what to look for in the week ahead on Wall Street:
Squarespace IPO: What to Expect
There are a few initial public offerings on the calendar this week.
One big one is for Squarespace Inc. It will price its IPO on Thursday.
The company plans to list on the New York Stock Exchange under the ticker SQSP.
What it is: Squarespace provides a platform where individuals and businesses can create websites.
The company provides users with websites, domains, e-commerce, social media and other marketing tools.
It competes with providers like WordPress and GoDaddy.
In its S-1 filing with the Securities and Exchange Commission, Squarespace said it has approximately 3.7 million subscribers to its platform.
Squarespace has driven its top-line revenue higher in each of the last three years.
In 2018, the company reported $389.9 million in total revenue. That figure jumped to $621.1 million in 2020.
However, that growth has come at a cost.
Operating expenses have gone from $75 million in 2018 to $167 million in 2020. That has driven its net income from $43.1 million in 2018 to $30.5 million in 2020.
The offering: This is a direct listing, so the company won’t raise any new capital from the IPO.
The direct listing means company shareholders will not be subject to a 180-day lock-up period, which is common in most IPOs.
Registered stockholders plan to sell nearly 40.4 million Class A shares.
According to Renaissance Capital, Squarespace raised $308 million in a private placement in 2021 by selling 4.5 million shares at $68.42 per share.
If the IPO is priced at that point, Squarespace could see a market value of $10.2 billion.
There are no underwriters on the deal, but Goldman Sachs, JPMorgan, Barclays, RBC Capital Markets, Citi, Bank of America Securities, William Blair, Raymond James, JMP Securities, KeyBanc Capital Markets, Piper Sandler, Mizuho Securities, Fifth Third Securities and Citizens are serving as financial advisors.
The skinny: Unlike previous IPOs I’ve discussed, Squarespace is bringing in positive cash flow.
However, as expenses continue to grow, the company’s net revenue shrinks.
It’s not a huge red flag, but something to consider for the Squarespace IPO.
The company also joins several other tech companies that have chosen to use a direct listing to become public.
The price point of around $68 seems in line with its valuation.
Deeper Dive: Target Corp. (NYSE: TGT)
Retail companies will take centerstage for earnings this week as several major outlets are scheduled to report:
- Walmart Inc. (NYSE: WMT)
- Home Depot Inc. (NYSE: HD)
- Lowe’s Companies Inc. (NYSE: LOW)
- Target Corp. (NYSE: TGT)
- L Brands Inc. (NYSE: LB)
- Ross Stores Inc. (Nasdaq: ROST)
- Kohl’s Corp. (NYSE: KSS)
- Foot Locker Inc. (NYSE: FL)
- Buckle Inc. (NYSE: BKE)
Today, I’ll focus on Target Corp.
It operates more than 1,800 stores in the U.S.
According to the company, there is a Target store within 10 miles of most doorsteps in America.
Target Earnings Per Share Rebound
The company had a rough second quarter of 2020 as sales were hampered by COVID-19 lockdowns.
However, Target’s earnings went from $0.60 per share to $3.40 per share in just a quarter.
Those earnings have pared back slightly but still remain higher than they have been since 2018.
Since quarter one 2018, Target has beaten Wall Street projections for earnings per share in all but two quarters.
Target Revenue Shows Pattern
The company’s quarterly revenue shows a trend of higher first-quarter revenue followed by lower sales in the next three quarters.
In 2020, the company started the year with $23.4 billion in revenue, followed by lower revenue over the next three quarters.
Interesting to note that even with the COVID-19 pandemic in 2020, its second-quarter revenues decreased at a slower rate than the previous two years.
Analysts are projecting another decline in both earnings and revenue for this quarter.
Consensus is for earnings of $2.06 on revenue of $21.26 billion.
The skinny: Target did a solid job reopening after the COVID-19 lockdowns were eased in late 2020.
Its annual total revenue for 2020 was actually more than $10 billion higher than 2019.
I think its trend of lower sales and lower EPS will continue this quarter, but I see Target beating Wall Street expectations again.
Money & Markets Week Ahead: Data Dump
The National Association of Realtors will unveil its April existing home sales report on Friday.
This report tracks the number of existing residential buildings sold in the previous month.
In March, existing home sales dropped 3.7% month over month but were 12.3% higher on a year-over-year basis.
The median existing-home sales price hit an all-time high of $329,100 in March.
U.S. Monthly Existing Home Sales Remain Above 6 Million
Despite a recent drop in existing home sales over the last three months, sales continue to be stronger than prior to the COVID-19 pandemic.
Analysts expect 6.06 million existing-home sales in April — a slight increase from March.
Earnings Reports
To finish off the Money & Markets Week Ahead, here’s a look at some of the key earnings reports due out this week:
Monday
Tencent Music Entertainment Group (NYSE: TME)
Niu Technologies (Nasdaq: NIU)
Riot Blockchain Inc. (Nasdaq: RIOT)
Tuesday
Walmart Inc. (NYSE: WMT)
Home Depot Inc. (NYSE: HD)
NetEase Inc. (Nasdaq: NTES)
Baidu Inc. (Nasdaq: BIDU)
Wednesday
Cisco Systems Inc. (Nasdaq: CSCO)
Lowe’s Companies Inc. (NYSE: LOW)
Target Corp. (NYSE: TGT)
L Brands Inc. (NYSE: LB)
Thursday
Applied Materials Inc. (Nasdaq: AMAT)
Ross Stores Inc. (Nasdaq: ROST)
Hormel Foods Corp. (NYSE: HRL)
Kohl’s Corp. (NYSE: KSS)
Friday
Deere & Company (NYSE: DE)
Booze Allen Hamilton Holding Corp. (NYSE: BAH)
Foot Locker Inc. (NYSE: FL)
Buckle Inc. (NYSE: BKE)
That’s all for this week.
Until next time…
Safe trading,
Matt Clark
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Bull & The Bear, as well as the Marijuana Market Update. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.