LegalZoom Q3 Revenue Rises 3% as Subscriptions Offset Transaction Decline

LegalZoom Inc. (NASDAQ: LZ) reported third-quarter 2026 revenue growth of 3%, as an 11% increase in subscription revenue offset a sharp decline in transaction revenue. Profitability also strengthened, with adjusted EBITDA rising 8% and its margin expanding, while the company maintained the midpoint of its full-year revenue guidance despite continued pressure on customer acquisition.

Revenue for the quarter ended September 30 was $195.1 million, up from $190.2 million a year earlier. Subscription revenue increased to $140 million from $125 million, while transaction revenue fell 14% to $55 million from $65 million.

GAAP net income rose to $8.1 million, representing a 4% margin, from $4.5 million a year earlier. Adjusted EBITDA increased to $50.0 million from $46.3 million, and the adjusted EBITDA margin widened to 26% from 24%.

Non-GAAP gross profit grew 6% to $143.1 million, with the corresponding margin improving to 73% from 71%. LegalZoom attributed its margin outlook partly to disciplined cost management and AI-driven efficiencies. Third-quarter free cash flow was $34.1 million, or 17% of revenue, compared with $47.0 million, or 25% of revenue, in the prior-year period.

Subscription growth supported by higher revenue per unit

LegalZoom’s subscription business, which includes registered agent and compliance packages, attorney advice, virtual mail, bookkeeping, legal forms and e-signature services, remained the primary source of growth.

Average revenue per subscription unit increased to $280 from $256 a year earlier. That gain more than offset a decline in subscription units, which fell to 1.85 million from 1.96 million. The company is concentrating on premium legal and compliance products for higher-value new and existing small-business customers, including its Business Manager suite of managed services.

The transaction business was weaker across several operating measures. Business formations declined to 110,000 from 126,000, while total transaction units decreased to 249,000 from 259,000. Average order value fell to $222 from $251. Transaction revenue includes business formations as well as annual reports, filing fees, trademark filings and estate-planning products.

Sales and marketing investment increased as LegalZoom worked to broaden customer acquisition beyond traditional search. Non-GAAP sales and marketing expense rose 15% to $70.0 million and represented 36% of revenue, compared with 32% a year earlier. Customer acquisition marketing expense increased to $51.1 million from $44.2 million.

AI and expert-led services remain operating priorities

Management’s strategy centers on optimizing subscriptions, diversifying go-to-market channels and using AI alongside human experts. LegalZoom said its AI-powered trademark intake reduced the time between purchase and filing by 20% in the third quarter compared with the first quarter, supporting more efficient attorney capacity and higher product gross margins.

The company also reported that agentic AI was handling thousands of customer-care chat interactions and fully resolving almost 50% of inquiries. An early rollout for customer calls had an approximately 25% resolution rate, while AI-powered coaching reduced missed sales opportunities by about one-third, according to internal company data.

LegalZoom is also expanding partnerships and investing in social, video, audio, streaming and AI-based distribution. The company said these efforts are intended to attract high-intent small businesses and reduce reliance on traditional search channels.

Full-year outlook maintained around its midpoint

For fiscal 2026, LegalZoom expects revenue of $797 million to $803 million and adjusted EBITDA of $180 million to $185 million. Management said the outlook implies approximately 6% year-over-year growth in both revenue and adjusted EBITDA and reiterated the midpoint of its full-year revenue guidance.

For the fourth quarter, the company forecast revenue of $190 million to $196 million and adjusted EBITDA of $48 million to $53 million. LegalZoom expects the scaling of higher-value initiatives and continued partner-channel momentum to support revenue, partly offset by ongoing customer acquisition pressure for the remainder of the year.

The profitability outlook includes expected gross-margin benefits from cost controls and AI efficiencies, alongside continued spending on channel diversification, higher paid-acquisition costs, expert-led services and seasonal sales capacity ahead of the first-quarter peak in business formations.

LegalZoom identified several uncertainties that could affect results, including its dependence on business formations, the conversion of transaction customers into subscribers, subscription renewals, macroeconomic conditions and competition. Its outlook also depends on maintaining service quality, continuing product innovation, protecting its brand, managing regulatory requirements and sustaining third-party relationships.