LegalZoom Earnings: Key Metrics to Monitor Amid Strategic Shifts

LegalZoom (NASDAQ: LZ) is set to report its first-quarter 2025 earnings on May 7, offering investors a critical update on the online legal services provider’s performance. With the stock trading at $7.35—a discount to its $9.43 consensus price target—the results will test whether LegalZoom can sustain its growth trajectory amid evolving market dynamics. Here are the key metrics and strategic shifts investors should watch for.

Financial Performance: Growth vs. Margin Trade-offs

LegalZoom’s Q4 2024 results underscored mixed signals. While revenue grew 1.9% year-on-year to $161.7 million, slightly outpacing estimates, the company’s ability to scale profitably remains under scrutiny. will reveal whether the Q1 2025 guidance of $177 million in revenue and $34.5 million in adjusted EBITDA is achievable. Investors should note two critical trends:

1. Subscription Units vs. Declining ARPU: The 14.3% year-on-year increase in subscription units to 1.77 million highlights strong customer acquisition, but average revenue per user (ARPU) fell 5.1% to $263. This suggests a potential shift toward lower-margin products or pricing strategies to attract price-sensitive customers. Sustaining unit growth while managing ARPU declines will be pivotal for long-term revenue health.

2. Margin Resilience: Gross margins rose to 67% in Q4 2024, up 270 basis points from a year earlier, driven by operational efficiency. If Q1’s EBITDA margin holds near the 27% level seen in Q4, it would reinforce LegalZoom’s cost discipline. However, investors should assess whether margin expansion is sustainable as the company integrates its Formation Nation acquisition.

Strategic Moves: Acquisition Integration and Market Positioning

LegalZoom’s February 2025 acquisition of Formation Nation—a small-business services firm—adds complexity to its Q1 narrative. The $49.3 million deal aims to boost EBITDA and EPS in its first year by leveraging Formation Nation’s customer service expertise and brand segmentation (premium “Nevada Corporate Headquarters” vs. DIY “Inc Authority”). Investors should watch for:

• Synergy Realization: Management will likely discuss cost savings and revenue cross-selling opportunities. A slowdown in subscription growth or a further dip in ARPU could signal integration challenges.
• Customer Segmentation Success: Whether the dual-brand strategy is attracting high-value clients without cannibalizing existing customers will be key. Metrics like premium service adoption rates or cross-sell rates might be disclosed.

Balance Sheet and Capital Allocation

LegalZoom enters Q1 with a robust net cash position of $134.2 million (8.6% of its $1.56 billion market cap), offering flexibility for share buybacks or further acquisitions. While the company increased its repurchase authorization in 2024, specifics for 2025 remain unclear. Investors should press management on:

• Debt-Free Strategy: With minimal debt ($7.88 million), LegalZoom’s focus on free cash flow (Q4’s $35.88 million, 22.2% margin) suggests a conservative approach. Yet, its 8.4x EV/EBITDA multiple leaves room for aggressive capital returns.
• Growth Prioritization: Whether cash is allocated to organic expansion (e.g., tech upgrades) or bolt-on acquisitions will indicate strategic confidence.

Institutional Sentiment: A Mixed Picture

Institutional investors sent mixed signals in Q4 2024. Vanguard added 14.5% to its stake, while BlackRock reduced holdings and T. Rowe Price exited entirely. This divergence reflects uncertainty about LegalZoom’s ability to outpace competitors in a saturated legal tech market. A positive earnings surprise could attract new buyers, but lingering concerns over revenue stagnation may keep some funds on the sidelines.

Conclusion: A Wait-and-See Moment

LegalZoom’s Q1 results will determine whether its strategic moves—particularly the Formation Nation acquisition—can breathe new life into a stock that has underperformed expectations. The company’s strong EBITDA margins (27.3% in Q4), net cash position, and subscription unit growth offer a foundation for optimism. However, investors must weigh these positives against risks like slowing revenue growth, ARPU erosion, and institutional skepticism.

If LegalZoom reports Q1 revenue near $177 million, maintains EBITDA margins above 25%, and provides clarity on acquisition synergies, the stock could rebound toward its $9.43 price target. Conversely, a miss on these metrics—or further declines in ARPU—might push shares lower, especially given the 8.4x EV/EBITDA multiple, which already reflects limited upside. For now, the earnings call will be a litmus test for whether LegalZoom’s pivot to premium services and operational rigor can justify its valuation. The stakes are high: the company’s next move could solidify its position as a legal tech leader—or expose lingering vulnerabilities.