LegalZoom’s Third Quarter Revenue Climbs 13% Amid Record Cash Flows and Upgraded Guidance
Subscription Strength and Operating Efficiency Drive Financial Upside
LegalZoom (NASDAQ: LZ) posted robust third quarter results, reporting $190.16 million in revenue—up 13% from last year. The bulk of this gain came from a thriving subscription business, with recurring revenue up 13% year-over-year to $125.36 million, driven by continued momentum in compliance offerings. The quarter also delivered record levels of free cash flow and significant gains in operating efficiency, signaling healthy financial management even as net margins tightened.
Cash Flow Surges Despite Narrower Margins
While net income dipped to $4.51 million from $11.05 million a year earlier, LegalZoom sharply increased cash generated from operations and free cash flow, both up over 70% and 114% year-over-year respectively for the quarter. Cash and cash equivalents reached $237.15 million at the end of September, marking a gain of $95 million so far in 2025, while free cash flow hit $46.99 million for Q3 alone—doubling last year’s Q3 performance.
| Q3 2025 | Q3 2024 | Year-Over-Year Change |
|---|---|---|
| Revenue: $190.16M | $168.60M | +13% |
| Subscription Revenue: $125.36M | $110.72M | +13% |
| Transaction Revenue: $64.80M | $57.88M | +12% |
| Net Income: $4.51M | $11.05M | -59% |
| Net Margin: 2% | 7% | -71% |
| Adjusted EBITDA: $46.32M | $47.10M | -2% |
| Free Cash Flow: $46.99M | $21.98M | +114% |
Subscriber Base and Transaction Activity Continue Upward
Subscription units at quarter-end stood at 1.96 million, rising 14% year-over-year, and the average order value reached $251, an 11% increase over last year. Business formations, a key operating metric for LegalZoom, climbed 12% in Q3 versus a year ago. Despite the increase in customers, the average revenue per subscription unit ticked down slightly to $256 (from $264), likely reflecting a shift in mix or competitive pricing in LegalZoom’s expanding offerings.
| Key Metric | Q3 2025 | Q3 2024 | % Change |
|---|---|---|---|
| Subscription Units | 1,959,000 | 1,717,000 | +14% |
| Business Formations | 126,000 | 113,000 | +12% |
| Average Order Value | $251 | $227 | +11% |
| ARPU (per subscription) | $256 | $264 | -3% |
Guidance Raised: Revenue Growth Outlook Brightens for Full Year
With solid execution behind the quarter, LegalZoom is increasing its revenue outlook for 2025 and now expects $748 million to $752 million in revenue—translating to around 10% year-over-year growth at the midpoint. Adjusted EBITDA guidance is unchanged at $168–$170 million, maintaining a robust margin profile of roughly 23%. For the fourth quarter, management forecasts $182–$186 million in revenue (14% annual growth at the midpoint) and Adjusted EBITDA of $46–$48 million, reinforcing confidence in both customer retention and platform scalability.
Takeaway: Growth Strategy Delivers Despite Margin Pressures
LegalZoom’s results show the benefits of its shift toward a subscription-first, technology-powered business. Top-line growth, robust operating cash flow, and a rapidly growing customer base are outpacing pressures on margins, partly driven by investment in product, talent, and market expansion. With guidance pointing higher and liquidity stronger, LegalZoom appears well-positioned to build on these results and continue innovating for the nearly 36 million U.S. small businesses in its sights.
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