LZ Q3 Deep Dive: Subscription Model, AI Investments, and Channel Partnerships Drive Growth

Online legal service provider LegalZoom (NASDAQ:LZ) reported Q3 CY2025 results beating Wall Street’s revenue expectations, 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.

Is now the time to buy LZ? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

LegalZoom’s third quarter results were met positively by the market, following robust revenue growth and strong execution in its subscription business. Management credited the acceleration to higher adoption of its compliance-focused offerings and the ongoing shift toward do-it-for-me solutions, which blend technology and human expertise. CEO Jeffrey Stibel highlighted the company’s ability to attract more established small businesses, noting, “We have transitioned beyond stabilizing the business, having now built a strong foundation for accelerated growth.” Efforts to expand bundled services and deepen strategic partnerships—such as with 1-800 Accountant—also contributed to the quarter’s momentum.

Looking ahead, management’s raised outlook is underpinned by continued investments in artificial intelligence (AI), expanded product suites for existing businesses, and deeper integration with technology partners. Stibel emphasized that new AI-driven concierge offerings, broader channel relationships, and a refocused marketing strategy are expected to drive further adoption and increase share of wallet among established small businesses. “We are now expanding our focus areas beyond business formation to serve existing businesses,” Stibel said, identifying AI-supported human expertise as a core differentiator for LegalZoom’s future growth strategy.

Key Insights from Management’s Remarks

Management attributed LegalZoom’s outperformance to momentum in compliance-based subscriptions, the introduction of new concierge services, and a shift in marketing and channel strategy.

• Compliance offerings gain traction: The company’s compliance concierge suite, targeting established small businesses with bundled legal and business services, showed strong adoption and improved retention, supporting subscription growth and higher-value customer relationships.
• AI integration accelerates: LegalZoom deepened its AI strategy, including a new enterprise deal with OpenAI and the rollout of AI-powered tools for customer support and internal efficiency. AI-driven product launches are expected to enhance personalization and streamline workflows for both customers and employees.
• Expansion of DIFM (Do-It-For-Me) solutions: High-end concierge products, including nonprofit, reinstatement, dissolution, entity conversion, and forthcoming tax solutions, offer small businesses access to professional services at lower costs than traditional providers, broadening LegalZoom’s serviceable market.
• Marketing strategy shift: The company moved away from search engine marketing toward brand and channel-focused campaigns, resulting in improved return on ad spend and increased brand awareness among small businesses. This shift supported a 25% year-over-year increase in partner channel growth.
• Leadership and organizational changes: Several key appointments—including a new Chief Business and Customer Officer and a new Head of Product with AI and subscription expertise—aim to integrate technology, product, sales, and service, positioning the company to accelerate product innovation and customer engagement.

Drivers of Future Performance

LegalZoom’s outlook centers on expanding its AI-powered product suite, deeper channel partnerships, and a focus on serving established small businesses to drive sustainable growth and profitability.

• AI-driven product expansion: Management believes further investment in AI will enable the rollout of additional automated services, such as state compliance filings and AI-enhanced advisory tools, increasing both efficiency and customer value.
• Channel and partnership diversification: The company is prioritizing broader relationships with partners like OpenAI and 1-800 Accountant, aiming to reach a wider range of existing businesses and create more recurring revenue streams. This includes embedding LegalZoom services in partner platforms and testing bundled tax and legal offerings.
• Margin and cost discipline: While reinvesting cost savings into growth initiatives, management expects continued discipline in operating expenses. Risks include potential headwinds from lower renewal rates in initial bundled cohorts and the integration of acquired businesses, which may moderate near-term subscription unit growth.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be watching (1) the pace and effectiveness of new AI-enabled product launches and their adoption by existing small businesses, (2) continued growth in channel and strategic partner contributions, particularly the integration of bundled tax and legal services, and (3) execution on margin improvement amid ongoing investment in technology and organizational changes. Progress in cross-selling and customer retention for expanded subscription offerings will also be key indicators.

LegalZoom currently trades at $12.45, up from $10.18 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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