LegalZoom IPO Roadshow Notes

Online legal services. 8M shares at $11 mid-point = $88M deal split 3.8M primary/4/2M secondary, NYSE: LGZ

Books: Morgan Stanley & BofA, Cover: RBC, Blair, Cantor & Montgomery [strange banker group here, not a stable formation!]

CEO John Suh does a good job. Been running the company for the past 7 years. Mission is to “solve everyday legal problems” for people.

Company built a platform and trust over time to be a primary source for legal information and services.

Individuals and small businesses need more than just accuracy; they expect customer service, speed and value-based pricing.

Company introduced a new monthly “legal plans” service that provides ongoing services from their “network of lawyers.”

Wants to be thought of as the “Intuit (INTU) of legal services.” Took 20 years for tax preparation to reach 30% penetration. Legal services are just now becoming viable online and just now beginning to take hold.

Handling the myriad legal code differences and process requirements is a significant challenge and represents a competitive “moat” that won’t be easy or cheap to reproduce.

Average billing rate for lawyers is $300/hour so making the process more productive is an obvious win.

Brand building has been important to the company as well. LegalZoom has achieved high awareness in the professional and semi-affluent demographic.

Growth strategy is via the new “legal plans” that combine automation with real lawyers and international expansion.

Self service appeals to a large number of people but far more appreciate a hybrid approach. LegalZoom wants to get quality legal firms to “plug in” to the LegalZoom platform and use it for their client service.

Shift is going on now which moves the business from transactions to a mix of transaction and subscription services.

Company will be in “investment mode” to scale up the subscription business. Operating and EBITDA margins will be down in order to drive high lifetime value from customers.

The target model calls for 30% adjusted EBITDA margins (from 8% last year with a dip in 2012). We’ll have a full breakdown with our IV model when published. It’s unclear whether or not the company can actually achieve the target model.

[One question is how available these legal resources will be to subscribers when they are busy with “real work.”]

In conclusion it’s a deal that should get done because of their recurring revenue but may face some early hurdles as their expansion strategy will get tested over the next few quarters.