LegalZoom’s first quarter performance drew a positive response from the market, as the company delivered revenue growth despite ongoing macroeconomic challenges. Management credited this outcome to a combination of accelerating subscription growth, successful pricing initiatives, and the strategic integration of Formation Nation. CEO Jeffrey Stibel highlighted that subscription revenue growth marked a turning point, stating, “Q1 marks the first time in the past year that our subscription revenue growth has accelerated on a sequential basis.” The quarter also benefited from cost efficiencies and increased adoption of bundled service offerings, which helped offset weaker demand for new business formations.
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LegalZoom (LZ) Q1 CY2025 Highlights:
- Revenue: $183.1 million vs analyst estimates of $177.2 million (5.1% year-on-year growth, 3.4% beat)
- Adjusted EPS: $0.13 vs analyst estimates of $0.13 (in line)
- Adjusted EBITDA: $37.01 million vs analyst estimates of $34.91 million (20.2% margin, 6% beat)
- Revenue Guidance for Q2 CY2025 is $183 million at the midpoint, roughly in line with what analysts were expecting
- EBITDA guidance for the full year is $165 million at the midpoint, in line with analyst expectations
- Operating Margin: 4.9%, up from 2.9% in the same quarter last year
- Subscription Units: 1.92 million, up 319,000 year on year
- Billings: $219.5 million at quarter end, up 13.3% year on year
- Market Capitalization: $1.64 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions LegalZoom’s Q1 Earnings Call
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Ella Smith (JPMorgan Chase) asked about the drivers of strong subscription unit growth. CEO Jeffrey Stibel explained this was due to a combination of bundling entry-level products and focusing on upselling and cross-selling to higher-value offerings.
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Pat Mcllwee (William Blair) questioned whether marketing spend would increase following the new brand campaign and Formation Nation integration. Stibel said overall spend would remain stable, with shifts in allocation rather than a net increase, and CFO Noel Watson emphasized flexibility in managing expenses.
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Sang-Jin Byun (Jefferies) inquired about macroeconomic impacts beyond business formations. Stibel and Watson noted continued negative pressure on volumes due to uncertainty and policy changes but reiterated confidence in managing through various scenarios.
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Elizabeth Elliott (Morgan Stanley) sought insights on the sustainability of recent pricing changes and their applicability to other products. Stibel said pricing remains a lever but stressed the need to add value alongside price increases.
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Stephen Ju (UBS) asked about potential to increase customer lifetime value at Formation Nation through upselling and cross-selling. Stibel described early integration efforts and the opportunity to grow LTV over time while maintaining the strengths of each brand.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will closely monitor (1) progress in driving double-digit subscription revenue growth and improving customer retention, (2) further integration of Formation Nation and the development of upsell and cross-sell capabilities within its customer base, and (3) LegalZoom’s ability to maintain expense discipline and margin targets despite ongoing macroeconomic uncertainty. Additional attention will be paid to the impact of new product enhancements and technology investments, particularly those involving artificial intelligence.
LegalZoom currently trades at $8.96, up from $7.27 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).
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