I’d like to introduce the newest company in my portfolio, Wix. They first piqued my interest when they grew revenue 48% for the Dec quarter…they simply hadn’t been on my radar before, even though I was a user. I actually used Wix to create a website for my fantasy football league a couple years ago. Wish I’d been paying attention to the company then!
Wix offers hosted websites for free and also sells premium sites (http://www.wix.com/upgrade/premium-plans). They have 100 million users and 2.5 million are paying (premium). Subscriptions can run for 1 year or multiple years.
Wix is based in Israel. It IPO’d back in November of 2013 at $16.50/share. After a typical post-IPO spike to $30 or so, it retracted, and then languished until early 2016. Since then it has shot up and is now at $75/share. Their market cap is currently about 3.3B, so their 290M of revenue in 2016 puts the PS ratio at ~11.5.
…I never said they were cheap.
They also made a tiny acquisition in March – they bought Deviant Art for 36M in cash.
This altered their expectations for this year slightly, but I will mostly ignore it since it’s so little and I want to give the numbers they provided a few weeks earlier when they reported their 2016 results. But here’s the info on the acquisition: http://seekingalpha.com/news/3245848-wix-buys-deviantart-36m…
https://youtu.be/mqEOdmNMRmo Here’s the CEO on Cramer last Fall. I should probably just let his explanation stand, but he has a thick accent, so nah. I’ll try to analyze the company myself.
How do they make money?
Like Shopify, they have a lot of different ways they can make money.
Sell ads to free-site users (and get more users) – they have over 100M users most of whom use the site for free. Ad time!
Get users to sign up for premium – they’ve been getting 50 or 60 thousand to sign up each month. But overall they’ve got over 100M users and growing! 50 or 60 thousand users is just 5 or 6 hundredths of 1 percent of 100M. That’s all they need to sign up for premium each month to keep pace.
Get premium users to upgrade. The average revenue per user (ARPU) is rising - up from $132/yr to $153/yr in 2016!
#1 and especially #2 and #3 act combine to create the massive revenue increase they’re expecting in 2017: 41%! However, I also believe #4 is quite possible and would result in WAY more revenue in the long run…
- Find new ways to monetize, like Shopify’s merchant solutions, payments, etc. As far as I can tell they haven’t even started to do this, but I would imagine it is coming. In fact, on the CC, there were several questions about this. To one of these, the CEO answered:
“…I think that the question is in not just like what else can we do? The question is what can we not do – because there are so many opportunities.”
They have an ecommerce solution already, so there should be other ways to monetize that than just subscription revenue. They’re also clearly excited about the AI thing the CEO mentioned on Cramer, if you watched my video above. https://www.wix.com/blog/2016/06/wix-artificial-design-intel…
Trust me, it will help to go to Investor Relations where you can listen, but here’s a transcript of the CC: https://seekingalpha.com/article/4046412-wix-coms-wix-ceo-av…
We’ll start with the revenue history:
D16 S16 J16 M16 D15 S15 J15 M15 84 76 69 62 57 54 49 45
2016 totals (https://s2.q4cdn.com/476292493/files/doc_financials/quarterl…) It’s all at this link, but let me hit the highlights:
Collections: 342M (up 42%)
Revenue: 290M (up 43%)
FCF: 36M (up 149%)
Levels at end of 2016:
ARPU: $153/yr (up 16%)
Registered Users: ~97M (up 26%)
Premium Subscriptions: ~2.5M (up 39%)
A few other things…
Cash on hand was 171M, so I guess now it is 135M after the aquisition
New deferred revenue during 2016: 52M (2015: 38M) – this is awesome
SBC in 2016: 28M (2015: 19M) – about avg for a growth tech company, much lower than some
(midpoints…again before the acquisition)
2017 Collections: 455M (up 33%)
2017 Revenue: 410M (up 41%)
2017 FCF: 71.5M (up 98%)
For Q1 revenue guide was 89.5M. Add a million for half a quarter from Deviant, and I still think the 90.5M expected will be easily beat. I just have to imagine they plan to beat, so 45-50% revenue growth is more likely. With all the opportunity, I wouldn’t be surprised to see the rate increase in the next several quarters. But the point is, this kind of growth can make their lofty valuation look not so crazy, rather quickly.
100M users is an incredible network. 40%+ revenue growth for 2017 is an impressive guide, but I think it’s easily beatable. That FCF growth is astounding. Also, though it is speculation at this point it still bears repeating: I just think they have a huge open road ahead when it comes to other ways to monetize. With 100M users, 2.5M who are already paying for subscriptions, they don’t need to sell very much to very many for it to have a tremendous impact.
Comparisons to Shopify can’t help but come to mind. Wix doesn’t have nearly the force multiplier (yet) as they don’t yet do much (any?) monetization other than selling ads and subscriptions. However, they have 2.5M subscripers compared to Shopify’s 400k merchants. So…that’s nice.
I bought some shares yesterday.