LegalZoom is yet another interesting story. After all, how is a ~1.2bn company connected with O.J. Simpson, Kim Kardashian, Jessica Alba, and Kobe Bryant, all in completely unrelated ways?

As someone with a legal background, it’s impossible not to recognize Robert Shapiro as one of LegalZoom's founders. Shapiro was part of O.J. Simpson's "Dream Team" of attorneys, who famously led to his acquittal in what is often called the "trial of the century."

Brian Lee, another co-founder, partnered with Kim Kardashian and Shapiro to launch ShoeDazzle[.]com, and later teamed up with Jessica Alba to create The Honest Company. Finally, Jeff Stibel, LegalZoom's newly appointed CEO, co-founded Bryant Stibel with NBA Hall of Famer Kobe Bryant.

Enough with celebs. Let’s focus on the stock!

Within months of the initial Covid-induced lockdowns in 2020, new business applications, a key indicator of future business formations, rose and have since remained above pre-pandemic levels. As business formations serve as a gateway for customers to access LZ’s broader ecosystem, the question is whether there will be a regressions towards pre-pandemic levels, and to what extent.

While the relationship with job quit rates have proven to be spurious, other factors have contributed to this growth, including trends in remote and hybrid work, the proliferation of alternative income streams (e.g., NIL, influencers, and freelancing), the improvement of digital enablement tools (e.g., gig platforms), and the availability of SMB loans and grants. Weighing these factors, I expect a limited regression, after which business applications will resume growing at MSD-to-HSD rates.

Additionally, Jeff Stibel, the newly appointed CEO, argues that LZ “should be tethered to the recurring services needed by millions of small businesses, well beyond the formation and regardless of where [they] sit in the macroeconomic cycle.”

Indeed, as the new freemium model “continues to resonate in the market,” the adoption of higher-value, post-formation products, primarily subscriptions, is expected to accelerate, lifting ARPU closer to its potential.

At the same time, the ongoing shift in the revenue mix towards subscriptions is expected to structurally drive margins higher over time. For context, subscription revenue gross margins are assumed to align with software peers in the 70%-80% range, while partner revenue, now included within transaction and subscription revenue, is recognized at gross margins close to 100%.

In light of these points, LZ is unjustifiably trading at a significant discount to SMB SaaS peers. Among these competitors, INTU stands out as particularly relevant, as its QuickBooks solution directly competes with LZ Books, while its TurboTax product previously competed with the recently reoriented LZ Tax.

On top of trading at an all-time low from a time-series perspective, the current 7.9x discount to INTU seems highly compelling in light of the fundamental acceleration LZ is about to experience. Instead, a 5x to 6x discount, corresponding to a multiple more representative of the broader market, would be more appropriate.

https://preview.redd.it/7ql01s6a3x3e1.png?width=1700&format=png&auto=webp&s=1d33a354ae8ee0a5bbdd6345dc820af194434c36

https://outsiderscorner.substack.com/p/mbb-se

He says this in his latest interview: https://youtu.be/-5Weeox0Xus?si=18hXYT3gRVfQsZK3?t=46m8s

What's the correlation which he is describing?