Despite increased revenue and higher adjusted earnings, shares of LegalZoom Inc. fell by more than 20% earlier this month.
The stock price of the Glendale-based legal and accounting-services provider experienced the decrease the day after the company reported second-quarter earnings. On Aug. 8, shares closed at $15.35; the following day it shed 20.5% to close at $12.21.
That is a marked contrast to the first quarter, when the company’s stock price went up 25% from a close of $8.33 on May 9 – the day the company released its quarterly earnings – to a close of $10.41 the following day. Or even when third-quarter earnings were released Nov. 10, when shares closed at $9.46 and the following day closed at $10.44, an increase of just more than 10%.
The share price of LegalZoom closed at $11.52 on Aug. 24.
The company reported on Aug. 8 an adjusted net income of $19 million (10 cents a share) for the quarter ending June 30, compared with adjusted net income of $9.6 million (5 cents) in the same period of the previous year. Revenue increased by 4% from the second quarter of the prior year to $169 million.
In the conference call with analysts to discuss second-quarter earnings, LegalZoom Chief Executive Daniel Wernikoff attributed the increase in revenue to growth in subscriptions, which increased 12% year over year, benefitting from both an increase in (average revenue per unit) and new subscription growth from the freemium lineup rollout.
“Transaction (average order value) declined 26% year over year as a result of the freemium lineup,” Wernikoff said. “Q2 represents the trough of lower year-over-year (average order value) performance, and we expect a reversion of this trend in the back half of the year as we lap the new line of rollout.”
Wernikoff then discussed the company’s newest offering – LZ Books, a product that helps small-business owners, and especially so-called solopreneurs, navigate the complexities of taxes.
“LZ Books provides a simple, automated accounting offering as well as the ability to send unlimited, custom-branded proposals and invoices, receive payments 24/7 from clients, link bank accounts for automated income and expense categorization, and access month-over-month cash flow trends,” the company said.
Wernikoff said that based on a recent customer study, roughly two-thirds of its business formation customers are solopreneurs, which the company defines as either single-member limited liability corporations or sole proprietors.
Over 90% of its formation customers form through LegalZoom before they consult a business tax professional, and only a little more than 5% have established bookkeeping methods prior to forming their business through LegalZoom, Wernikoff said.
The company, therefore, built what it believes to be the most well-designed product for the large market, he added.
“With LZ Books, you’ll be able to create your first proposal, with access to an attorney if needed, send it for digital signature, go from invoice to electronic payment, download and auto categorize expenses from your bank account and, even more importantly, seamlessly integrate with LZ Tax,” Wernikoff said.
