Why LegalZoom Stock Was Rocketing Higher This Week

LegalZoom (NASDAQ: LZ) stock, which has rarely been much of an outperformer on the market, did very well over the past few trading days. On news of solid quarterly performance, investors piled into the stock. This left it with an outsize gain in price of over 27% week to date as of Friday before market open, according to data compiled by S&P Global Market Intelligence.

A (slight) set of double beats

Those quarterly results that so pleased the market were published after trading hours on Wednesday. LegalZoom earned revenue of $168.6 million, which was 1% higher year over year. The two components of the company's top line went in different directions, with subscription revenue rising 5% to $110.7 million, and transaction revenue dropping 7% to $57.9 million. Analysts tracking LegalZoom were estimating total revenue of $167.5 million.

The company managed more impressive growth on the bottom line, with non-GAAP (adjusted) net income flying 27% higher to $29.7 million. On a per-share basis this shook out to $0.17, again topping the average pundit projection ($0.15, in this case).

The increase in LegalZoom's take from subscriptions is a stated goal of CEO Jeff Stibel, who took over as the company's leader early this year. Subscription revenue is also more pleasing than the one-off variety with transactions, as it tends to be steadier and more predictable.

In the earnings release, the company attributed its bottom-line jump to lower expenses and savings from restructuring moves.

Steeper growth in the cards?

LegalZoom also proffered quarterly and full-year 2024 revenue guidance. For the latter period, it's expecting total revenue of $678 million to $682 million, against the less than $661 million of 2023. On average, analysts are modeling slightly over $681 million for the entirety of 2024.

While that shift to subscription revenue is certainly encouraging, I can't imagine that LegalZoom's rather staid business of offering legal documentation and assistance stands in front of any significant growth opportunities. It's not an exciting business or stock to me, so this happy investor reaction feels somewhat overblown in this instance.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.