The Business Formation Stock You Can't Buy, and the One That's Losing Its Channel

The headline sounds like news worth acting on. Bizee, a business formation platform, partnered with entrepreneur Codie Sanchez and announced a $100,000 grant program to help aspiring business owners. It's the latest signal that "buy a business" and "start a business" have become mainstream financial advice again.

There's a problem, though. Bizee is not publicly traded. There is no stock. It was founded in 2004 as Incfile, rebranded to Bizee in 2023, and remains privately held by its co-founders in Houston, Texas. It has helped over one million entrepreneurs form businesses, but you have no way to own a share of it.

If you want to invest in the idea that Americans are forming more businesses and that companies helping them do so are valuable, there is only one place the market has put that thesis on a ticker: LegalZoom (NASDAQ: LZ). And LegalZoom is telling you something that doesn't fit the headline.

The stock has fallen roughly 40% year-to-date. It trades around $6, well below its 52-week high of $12.40, and sits near the bottom of that range. Shares plunged about 30% in a single day in early August after the company cut its full-year revenue guidance. What happened is more useful than the number, because it shows what's actually happening to this business.

LegalZoom makes money in two ways. The first is a one-time transaction: you form an LLC or file a trademark, pay a fee, and the relationship is done. The second, and increasingly important, is a subscription. Most newly formed businesses are legally required to have a "registered agent" — someone who receives official mail on their behalf. LegalZoom charges $249 a year to be that agent. They also sell compliance packages, business plan subscriptions, and attorney services on a recurring basis.

This isn't a side business anymore. Subscription revenue was $133.4 million in the second quarter of 2026, up 11% year-over-year. It now represents roughly 65% of total revenue. LegalZoom spent nearly two decades and hundreds of millions of dollars in marketing to build this. They are no longer selling a one-time filing. They are selling an annual renewal.

And that is what makes the recent trouble so revealing.

LegalZoom told investors in August that they expect a "high single to low double-digit decline" in transaction revenue for the full year. The pipeline to that subscription business is drying up. The reason: Google's shift toward AI-driven search results has structurally reduced the organic web traffic that brings people to LegalZoom's site. The company has acknowledged a "structural step-down" in top-of-funnel search traffic. You used to Google "how to form an LLC" and LegalZoom was on the first page. Now you Google the same thing and an AI summary gives you the answer — or at least enough of it to go somewhere cheaper.

The company cut its full-year revenue guidance to $795 million to $805 million, down from $810 million to $830 million. It also laid off employees and announced layoffs as part of a cost reduction effort. The transaction business is shrinking, and the subscription business can only grow as fast as new businesses are formed.

Here's the tension this creates. LegalZoom's valuation still reflects a company worth $1 billion. On a trailing basis that is roughly 60 times earnings. On a forward basis it's over 100 times. The stock is not priced like a business whose growth engine is broken. It's priced like a business whose growth engine is still working.

The numbers inside the company are complicated enough to explain the confusion. Free cash flow has been strong — about $150 million over the trailing twelve months, or roughly 19% of revenue. The company holds $167 million in cash with manageable debt. Gross margins are 66%. These are the numbers that make the stock look like a bargain at $6.

But the 2.4% operating margin tells you where the real business is. Almost all of that free cash flow comes from the subscription base already in place — the businesses that have already been formed and are paying their annual renewal. The cost of acquiring each new customer — the marketing spend, the search ads, the brand building — eats most of the operating income from the transaction side. That's the hidden arithmetic. The FCF looks good because it measures what the company collects, not what it spends to replace the customers who leave.

LegalZoom has been trying to fix this through brand advertising and human-in-the-loop premium services, hoping that brand recognition reduces their dependency on search. They also acquired Formation Nation in 2025 for $49.3 million to add customer service capacity. But the underlying dependency hasn't changed. They still need new businesses to form. They still need those businesses to find them.

This is the actual investment question. Not whether entrepreneurship is on the rise. Not whether small business formation is a growing market — it is, with 583,000 business applications filed in April of this year alone, up 31% from a year earlier. The question is whether LegalZoom can keep its position in that flow when the channel that built its business is being replaced.

Private companies like Bizee face the same problem. They also depend on search and paid advertising to attract people who want to form an LLC. The partnership with Codie Sanchez — a creator with over a million followers who teaches people to buy and build businesses — is one attempt to build a channel that doesn't depend on Google. Whether it works, or whether other private formation companies figure it out, is a question the market won't answer because there's no stock to trade.

For LegalZoom investors, the arithmetic is simpler. At current levels, the stock rewards patience only if the subscription base proves durable enough to carry the company while the transaction side stabilizes. That's not impossible. Registered agents are a legal requirement. Compliance is annoying but necessary. If churn stays low and the renewal rate holds, the $150 million in annual free cash flow is real and it keeps getting collected.

What the stock doesn't reward is the assumption that things were fine before the search disruption and will go back. The search channel isn't having a bad quarter. It's being structurally replaced. A company whose growth story depends on a search channel that is going away needs to show it has built something else in its place. The subscription base is that something, but only if the transaction funnel can find a new source of inflow.

The test is straightforward. Watch the ratio of subscription revenue to total revenue over the next four quarters. If it keeps climbing past 65%, the business is actually transforming. If transaction revenue falls faster than subscription growth can offset it, the guidance cuts will become guidance cuts again. And at a billion-dollar valuation for a company growing revenue in the low single digits, there's not much room for that.