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Introduction & Market Context
LegalZoom.com Inc (NASDAQ:LZ) presented its Q1 2025 results on May 7, 2025, highlighting continued growth in a large but fragmented legal services market. The company operates in a $51 billion serviceable available market (SAM) with relatively low digital penetration, as only about 4% of legal services in the U.S. are delivered online.
The company’s stock responded positively to the results, with shares jumping 14.48% in aftermarket trading to $8.30, building on momentum from its strong Q4 2024 performance when it beat earnings expectations.
As shown in the following slide, LegalZoom maintains a strong position in the online legal and compliance market, having formed 4.7 million businesses and delivered 4.3 million estate planning solutions since inception:
Quarterly Performance Highlights
LegalZoom reported solid Q1 2025 financial results, with total revenue reaching $183 million, a 5% year-over-year increase. The company’s profitability metrics showed even stronger improvement, with adjusted gross profit growing 10% to $123 million (67% margin) and adjusted EBITDA surging 33% to $37 million (20% margin).
The quarterly financial snapshot demonstrates the company’s ability to grow revenue while significantly expanding margins:
The company’s performance was primarily driven by its subscription business, which grew 8% year-over-year to $116 million in Q1 2025. Subscription units increased to 1.92 million, up from 1.61 million in the same period last year, though average revenue per user (ARPU) declined from $272 to $252.
The following chart illustrates the consistent growth in subscription revenue and units over the past year:
Transaction (JO:NTUJ) revenue, which includes business formations and other one-time services, showed modest 1% growth to $67 million in Q1 2025. While business formations declined from 139,000 in Q1 2024 to 131,000 in Q1 2025, total transaction units increased from 336,000 to 341,000.
Strategic Initiatives
LegalZoom outlined three key strategic focus areas: optimizing its subscription business, reorienting its go-to-market strategy, and leveraging AI to deliver expertise. The company is making progress on all three fronts.
A significant development was the acquisition of Formation Nation on February 10, 2025, which enhances LegalZoom’s market position with differentiated premium and value brand segmentation. The acquisition is expected to be accretive to non-GAAP earnings per share and positively contribute to adjusted EBITDA.
As shown in the following slide, Formation Nation brings a seasoned leadership team with extensive experience in business formation and compliance:
LegalZoom is also enhancing its compliance offerings with improved status monitoring and notifications. The company performs ongoing reviews of legal and government developments to keep customers informed of changes to filing requirements:
The company is leveraging AI to improve its service offerings, including enhanced business license alerts that track requirements across 90,000 jurisdictions:
Forward-Looking Statements
For Q2 2025, LegalZoom expects revenue between $181 million and $185 million, with adjusted EBITDA between $37 million and $41 million. For the full year 2025, the company projects approximately 5% revenue growth and adjusted EBITDA of around $165 million, representing a margin of approximately 23%.
Management expects to exit 2025 with double-digit subscription revenue growth in Q4, though they anticipate a mid- to high-single digit decline in U.S. business formations compared to 2024. The company emphasized its commitment to adjusted EBITDA expansion and noted that its variable cost structure would allow it to achieve its EBITDA target regardless of revenue fluctuations.
The following slide details the company’s guidance for Q2 and full-year 2025:
Competitive Industry Position
LegalZoom emphasized its strong competitive position in a durable market with long-term growth potential. The company highlighted a 19-year CAGR of 4% in small business formations, with over 5 million businesses formed annually in the U.S. Business formations have increased 61% from 2021-2024 compared to the 2016-2019 average.
The company maintains a strong financial position with $210 million in cash, no debt, and consistent free cash flow generation. Approximately 70% of total expenses are variable, providing flexibility to preserve margins in different economic environments.
As illustrated in the following slide, LegalZoom’s unique market position includes over 9 million completed legal milestones, leading positions in online business formation and estate planning services, and brand awareness that exceeds competitors by more than 50%:
LegalZoom summarized its investment highlights, emphasizing its position as the largest digital player in a large and fragmented market, its shift toward subscription-based revenue, and its leadership team’s focus on both growth and profitability:
With its strong Q1 2025 results, strategic acquisition of Formation Nation, and ongoing initiatives to leverage AI and enhance its subscription offerings, LegalZoom appears well-positioned to continue its growth trajectory in the evolving legal services market.
Full presentation:
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