Wix is never going to be a $100 billion company. It’s never even going to be a $30 billion company with the current business model. How can I say that so confidently? Unit economics.
Wix makes around $171/year from each of their 4.3 million paying customers. That’s $735 million/year. But where are these numbers headed?
It doesn’t take much more than common sense to tell that 4.3 million is a lot of websites. I have no idea if they’ll get to 8 million or 10 million, but I’ve got a pretty good sense that they won’t get to 50 million. How many people of the 7 or 8 billion in the world:
a) need a website
b) are willing to pay $171/year for it
c) are able to pay
Mostly small businesses, of which there are millions. But Wix already has millions of customers, plus 150m+ users who don’t pay. They’ll convert a few million of them over the next few years, but it isn’t hard at all to see this petering out in the near future.
It’s also hard to imagine they can keep squeezing more out of them each year. Maybe that $171 goes to $200, but it’s going to meet resistance somewhere, especially from those who would have already churned if it weren’t so cheap.
Worst case, I think ARPU stalls out at $200 or so, and Wix is only able to sign a couple million more paying customers. Let’s say 6m customers * $200/year, giving them 1.2 billion in annual revenue. Let’s generously give them a 25% net margin…that’s 300m profit. Even if they have a PE of 30 (which will likely drop as they stagnate), that puts market cap at $9 billion…not much larger than present.
Best case? I’d be impressed if Wix EVER gets to the $2 billion mark in annual revenue. $250 ARPU * 8m customers doesn’t seem very likely, but let’s give it to them. Let’s be REALLY generous and give them a 35% net margin. That’s 700m profit. With a PE of 35 (again not likely if they’re not growing) they’d be a $24 billion company.
That’s a wide range from worst case to best…but in no scenario could I imagine Wix becoming a $100 billion…or even $50 billion company.
The point is that even if I’m wrong, this is helpful. It sets expectations. These expectations can be adjusted…there’s nothing keeping us from updating these assumptions if things change. But it gives us a realistic picture of what to expect. And if I’m making obvious errors, we can discuss.
The story of Wix in particular is a good reminder to me that this is what happens when you have millions of tiny customers. They’re not particularly loyal. They’re very price sensitive. And none of them are increasing their spend dramatically. That’s why enterprise customers can be so powerful. If Smartsheet sells a few thousand dollars worth of subscriptions to a group at Wells Fargo, maybe 12 of their other groups adopt Smartsheet next year, and suddenly Wells is spending 12x what it was just a year ago with Smartsheet. This is the “expansion” we see in NER, and Wix will never really have it. Maybe a few users will create a second website, but most don’t need it.
On the other hand, Smartsheet only has something like 80,000 customers. Alteryx has something like 5,000. And not only are they therefore a lot less saturated than Wix, but obviously their products are offering a lot more value, and their customers also have a lot more ability to spend.
Part of the reason I estimated more for Alteryx in the next few years than Smartsheet is that customer count differential. But I also realize Smartsheet probably just has more potential customers than Alteryx anyway, because Alteryx is a more specialized and complex product. But those are topics for another post.