Online legal service provider LegalZoom (NASDAQ: LZ) announced better-than-expected revenue in Q3 CY2025, with sales up 12.8% year on year to $190.2 million. On top of that, next quarter’s revenue guidance ($184 million at the midpoint) was surprisingly good and 4% above what analysts were expecting. Its GAAP profit of $0.02 per share was in line with analysts’ consensus estimates.
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LegalZoom (LZ) Q3 CY2025 Highlights:
- Revenue: $190.2 million vs analyst estimates of $183 million (12.8% year-on-year growth, 3.9% beat)
- EPS (GAAP): $0.02 vs analyst estimates of $0.02 (in line)
- Adjusted EBITDA: $46.32 million vs analyst estimates of $45.29 million (24.4% margin, 2.3% beat)
- Revenue Guidance for Q4 CY2025 is $184 million at the midpoint, above analyst estimates of $176.9 million
- EBITDA guidance for the full year is $169 million at the midpoint, in line with analyst expectations
- Operating Margin: 3.4%, down from 9.6% in the same quarter last year
- Free Cash Flow Margin: 24.7%, up from 16.4% in the previous quarter
- Subscription Units: 1.96 million, up 242,000 year on year
- Market Capitalization: $1.79 billion
"Our results further validate the strategic shift we made in our business. Importantly, the proof points we’re seeing across the business give us confidence that we’ve built a strong foundation for our next phase of growth," said Jeff Stibel, Chairman and Chief Executive Officer of LegalZoom.
Company Overview
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ: LZ) offers online legal services and documentation assistance for individuals and businesses.
Revenue Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, LegalZoom’s sales grew at a sluggish 5.7% compounded annual growth rate over the last three years. This wasn’t a great result compared to the rest of the consumer internet sector, but there are still things to like about LegalZoom.
This quarter, LegalZoom reported year-on-year revenue growth of 12.8%, and its $190.2 million of revenue exceeded Wall Street’s estimates by 3.9%. Company management is currently guiding for a 13.8% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months, similar to its three-year rate. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average. At least the company is tracking well in other measures of financial health.
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Subscription Units
User Growth
As an online marketplace, LegalZoom generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Over the last two years, LegalZoom’s subscription units, a key performance metric for the company, increased by 12.1% annually to 1.96 million in the latest quarter. This growth rate is strong for a consumer internet business and indicates people love using its offerings. 
In Q3, LegalZoom added 242,000 subscription units, leading to 14.1% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and LegalZoom’s take rate, or "cut", on each order.
LegalZoom’s ARPU has been roughly flat over the last two years. This isn’t great, but the increase in subscription units is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if LegalZoom tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace. 
This quarter, LegalZoom’s ARPU clocked in at $256. It declined 3% year on year, worse than the change in its subscription units.
Key Takeaways from LegalZoom’s Q3 Results
It was great to see LegalZoom’s revenue guidance for next quarter top analysts’ expectations. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its number of subscription units missed. Overall, this print had some key positives. The stock traded up 8.3% to $11.02 immediately after reporting.
So should you invest in LegalZoom right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
