Here is a summary of my notes on WIX I’ll start with Bear’s introduction of Wix to the board earlier this month (as modified by me in my notes):
Bear - 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 They have 100 million users and 2.5 million are paying (premium). Subscriptions can run for 1 year or multiple years.
Saul – Up until about three years ago, Wix used to be a simple website set-up and hosting company, but in the last three years they’ve become a (low-end) online website and business development site (a low-end Shopify). They also released ADI, or Artificial Design Intelligence, which can create and set up a website in minutes. Here’s what Wix said about it:
We Launched Wix ADI: Wix unveiled the first-ever AI solution for design and creation for desktop and mobile websites worldwide. It was designed to eliminate the most significant challenges of building websites – time, design and content creation. It instantly produces tailored websites by learning about the user through a few simple questions, then selects content to create a unique design. From billions of high-quality combinations and possibilities, Wix ADI selects the perfect combination for each users’ need.
Bear again - The History Wix is based in Israel. Its IPO in Nov 2013 was at $16.50. 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 $3.3 billion, so their $290 million of revenue in 2016 puts the P/S ratio at about 11.5…I never said they were cheap… They also made a tiny acquisition in March – they bought Deviant Art for $36 million in cash. This altered their expectations for this year slightly, but I will mostly ignore it since it’s so little. I’ll give the numbers they provided a few weeks earlier when they reported their 2016 results.
Saul - Bear called this a tiny acquisition but Deviant Art has 40 million registered members world-wide. That could potentially make a very significant addition to Wix)
Bear again - How do they make money? Like Shopify, they have a lot of different ways they can make money.
- They put ads on web sites of free-site users (to attract more users) – they have over 100 million users most of whom use the site for free.
- 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 100 million users and growing! 50 or 60 thousand users is just 5 or 6 hundredths of 1 percent of 100 million. That’s all they need to sign up for premium each month to keep pace. And the average revenue per new subscriber is rising - up from $132/yr to $153/yr in 2016!
- Get new premium users to upgrade, by adding more features.(#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 isn’t just what else can we do? It’s what can’t we 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.
Performance
Revenue:
2015: 45 49 54 57 = 205
2016: 62 69 76 84 = 291
Saul - Note that they were up 42% for the year, but it’s accelerating. Here’s the percent increase in revenue by quarter:
**2016: 37.7 40.8 40.7 47.4 = 42.0**
Bear again - 2016 totals
Collections: 342M (up 42%)
Revenue: 290M (up 43%)
FCF: 36M (up 149%)
Levels at end of 2016:
Av Collection per New Sub: $153/yr (up 16%)
Registered Users: - 97M (up 26%)
Premium Subs: - 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
Stock Based Comp in 2016: 28M (2015: 19M) – about avg for a growth tech company, much lower than some
Guidance
(midpoints…again before the acquisition)
2017 Collections: 455M (up 33%)
2017 Revenue: 410M (up 41%)
2017 FCF: 71.5M (up 98%)
… I 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.
Summing Up
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: I 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 subscribers compared to Shopify’s 400k merchants. So…that’s nice.
I bought some shares yesterday.
Bear
Press release - Dec quarter results
***Yearly
Collections growth accelerated to up 42%,
Revenue up 43%
***Quarterly
Collections growth accelerated to up 46%
Revenue growth accelerated to up 48%
Free Cash Flow was a record $18.7 million, up 122%
Adj earnings – 6 cents (first time profitable).
Premium Subs up 39% Y/Y to 2.5 million
… In the last twelve months, we delivered innovative products such as Wix ADI, and the mobile Wix App, as well as growth in our brand and successful marketing execution, highlighted by our Super Bowl LI campaign….The re-acceleration in top line growth this quarter was exceptional – a direct result of the improvement in conversion of registered users to premium subscriptions and higher collections per new subscriptions due to record adoption of our vertical solutions. The stronger than expected non-GAAP profitability highlights the scalability of our low-cost, fixed-cost model. We expect to deliver continued top line growth and higher free cash flow in 2017 by further leveraging our investments in technology and marketing.
Quarter Results
Revenue up 48% to $84.2 million from $56.8 million
Collections up 46% to $97.7 million from $66.9 million
Adj gross profit was 87% of collections up from 85% a year ago
Adj oper income was $3.9 million up from a loss of $4.4 million
Adj net income was $2.7 million, up from a loss of $5.4 million
Adj earnings per share was 6 cents, up from (-13) cents
Adjusted EBITDA was $17.9 million up from $7.0 million
Free cash flow was $18.7 million up from $8.4 million
Added 171,000 net premium subscriptions to reach 2.5 million, up 39% from a year ago.
Added 5.0 million registered users to reach 97.0 million, up 27% from a year ago.
2016 Year Results
Revenue up 43% to $290.1 million from $203.5 million
Collections up 42% to $342.1 million from $241.7 million
Adj operating income was ($12.5) million up from a loss of ($29.3) million
Adj earnings per share was (-37) cents improved from (-71) cents)
Adjusted EBITDA was $42.6 million up from $14.7 million
Free cash flow was $36.2 million up 150% from $14.5 million
Cash was $93 million up from $39 million
Recent Business Highlights
Acquired flok, a customer loyalty and engagement platform to enhance CRM technology.
Announced Integration with Square: Wix announced a partnership with Square to give Wix merchants and entrepreneurs in North America a new way to transact. The Square integration improves payment processing and allows both online and in-person payments via a mobile device based POS. In addition, a user can create a stunning Wix Store and, with a few clicks, manage its store and its catalog on the Wix App with the ability to accept payments online or in-person with Square.
Wix launched its Super Bowl campaign in mid-January on YouTube and Facebook Live, the first company to launch a Super Bowl campaign using these live video platforms.
Wix Mobile Growth: Wix users have created over 22 million mobile sites to date, making Wix one of the largest mobile site development platforms globally.
Global E-commerce Platform: E-commerce subscriptions reached 332,000 during the quarter. Growth of e-commerce and transaction-enabled websites continues to exceed overall subscriptions growth, highlighting Wix’s broad reach with small businesses.
Strong Platform Engagement: Continued engagement with the Wix ecosystem is illustrated by 480 million user contacts saved onto the Wix platform by users. Leveraging Wix’s MyAccount CRM system, business owners track customer activity data, manage relationships and communicate using Wix ShoutOut, Wix’s email marketing solution.
Guidance
• For the Mar quarter
Revenue of $89 to $90 million (up 45% to 46%)
Collections of $107 to $109 million (up 41% to 44%)
• For the full year 2017:
Revenue of $409 to $411 million (up 41% to 42%)
Collections of $452 to $458 million (up 32% to 34%)
Free Cash Flow of $71 to $72 million (up 96% to 100%)
Definitions:
Collections is the total cash collected by us from our customers in a given period and is calculated by adding the change in deferred revenues to revenues for the same period.
We adjust collections and revenue to measure them on a constant currency basis by assuming the same exchange rates as the prior period applied to the reported figures in the current period.
Adj earnings represents net GAAP earnings as adjusted for share-based compensation expense, amortization, and acquisition-related costs.
From Conference Call
Why Cash is more important than earnings: For example if in a certain quarter we were able to increase our collection by $10 million, it drives more marketing expense in the amount of $4 to $5 million. Now we recognize the entire cost as expense in the quarter, but out of the $10 million that we collected, we recognize only $2.5 million as revenue; you actually see increased cash but actually lower operating profit because of the model. This is why we don’t provide guidance for operating income: because it’s not the best measurement for our model.
How they are getting leverage out of decreased percentages of marketing and R&D expenses: We do anticipate that in 2017 we’re going to see more leverage coming from marketing, meaning it will go down to approximately 40% to 41% of collections from the 44% we saw in 2016. Year after year we see more and more leverage coming in marketing, simply because of the fact that all those historical cohorts keep on generating more and more revenue for us. The marketing is just to acquire the new cohorts, so obviously we see a very nice leverage in terms of lowered percentage of expense. I think that it will continue in 2018 and 2019, at least.
The same goes for the R&D. We’ve seen that the R&D has gone down again by two points from 2016 to the guidance that we are providing in 2017. Also from 2015 to 2016 it was down by two points. I think that it will continue in the next two to three years.
A new product they are anticipating in the summer: We believe that the new product we are about to release will be spring to summer this year. And we are super proud of what it is. I think it’s a big surprise and as it’s being tested here at Wix I think most of the people were shocked that this actually can work and it does what it does. But we’re not going to give more details at this stage. It’s a new product and is going to be slowly rolled out during the year.
Shareholder Update Letter (excellent!)
Our quarterly performance was highlighted by accelerating collections growth to 46% and revenue growth to 48%, record conversion of registered users to premium subs, record collections per new annual subs in the US, and greater adoption of our vertical solutions.
Net premium subs up by 700,000 for the year to 2.5 million, up 39% from a year ago
Registered users up 20 million to 97.4 million
Free cash flow up 149% to $36.2 million
Conversion of new registered users to paid subs during the quarter improved once again and reached a new all-time high. The continued improvement in conversion is a result of ongoing enhancements to Wix ADI, our editor platform, and the improved functionality of our Wix OS
Collections per new annual sub in the US increased to $153 from $131 a year ago. This was mainly due to a higher mix of subs for higher-tiered packages and those with a vertical application, as well as increasing App Market purchases.
We added more new vertical application subs than in any prior quarter: New subs with a vertical app attached, in particular Wix Bookings and Wix Stores, continues to increase, highlighted by 15% of our new subs being e-commerce subs. Growth of e-commerce and other transaction-enabled subs continues to exceed our overall sub growth, underscoring our broad reach with all many types of small businesses. We ended the year with 332,000 e-commerce sub.
We also continue to see increased activity in our App Market with app purchases in the quarter up 51% year over year. This demonstrates the tremendous value the new products and services we introduced earlier in 2016 present to small businesses and our ability to build and offer businesses increasing functionality.
The $10 million sequential increase in collections during Q4 was our highest such increase ever, and we increased at nearly twice the rate as last quarter ($5.8 million) and this quarter last year ($5.3 million). Collections for the full year 2016 were $342 million, up 42%. This growth was well above our original expectations for the year.
Adj S&M expense during the quarter was 40% of collections, down from 44% of collections last year. By optimizing our channel and geographic mix, we are able to continue growing our marketing investment year over year and remain within our TROI (Time to Return on Investment) range of 7-9 months.
Our cohorts continue to demonstrate negative churn. We added 171,000 premium subs in the quarter, compared to 125,000 last year, and total subs were up 39% to 2.5 million. Conversion of new and existing registered users into premium subs reached an all-time high in the quarter due to Wix ADI, to our vertical solutions, and to enhancements made to our core editor.
63% of our new subs came from existing users. They were users who had already registered with Wix, were using our product, and required no significant additional marketing dollars to convert. Our opportunity to convert a large cohort of existing users is unique to our freemium business model amongst our peers.
Wix Video: Wix Video enables users to showcase, promote, and sell videos online without a commission. The product was developed with filmmakers, educators, fitness instructors, and musicians in mind…
Outlook
In 2017, initiatives in the following areas will enable us to deliver our growth objectives:
Deeper product capabilities: We will invest in product development to offer deeper functionality across our existing and new vertical solutions. We will also invest in horizontal services that enable our products to integrate more seamlessly. These efforts further position us as a platform on which users can manage and grow their business and not just a build a website.
• Mobile capabilities: We can drive even stronger user engagement on mobile. We will invest in providing a more feature rich mobile website experience and further enhance the Wix App with more features and functionality.
• Community outreach: We will empower and grow our incredible community of passionate Wix users to growing our brand globally in local markets.
For 2017, we expect the following:
Revenue of $410 million, up 41.5%
Collections of $455 million, up 33%
Free Cash Flow of $71.5 million.
Free Cash Flow as a percent of collections of 16% in 2017 up from 11% in 2016.
Adj gross margin of 87% of collections
Adj S&M expense of 40.5% of collections
Total adj operating expenses of 70.5% of collections
Fully diluted share count will be roughly 57.5 million shares outstanding
For the first quarter of 2017
Revenue of $89.5 million, up 45.5%
Collections of $108 million, up 42.5%
S&M as a percent of collections at 46%, down from 52% in the quarter. It will be highest in this quarter, as it has been historically, due to branding initiatives, including our Super Bowl campaign.
Saul– There was a nice article on Seeking Alpha in March by Harlem and Stone. https://seekingalpha.com/article/4053734-night-found-wealth-…
Saul - Note to myself
It’s important to remember that the vast majority of their 100 million free users are just free “vanity” websites, and that most of these users have no need for, and will never convert to, paid premium status. They might be the website for a small-time actor or musician for instance, so that someone can look him up on the web and see a list of his past performances, etc. Or an author, where he or she can list her books. These websites are not a business. They don’t sell anything. (The websites are an asset to Wix nonetheless as they each have a couple of Wix ads on them: This website was created using Wix, etc.)
Also you have to think in cohorts. Cohorts of free users that signed up 10 years ago are undoubtedly content with what they have and are unlikely to upgrade to premium in any significant numbers.
That is not to say that WIX won’t grow at a good pace. It’s just to say don’t get too excited about those 100 million free accounts.
Conclusion: It seems to me that this is no longer your grandpa’s web hosting company, but is super-modernizing and breaking out. This is balanced on the negative side by the fact that their acquisition of free accounts has leveled off at 5 million per quarter for three or four quarters now, so growth has to come from better conversion to paid premium accounts and at higher prices with more features attached. They seem to be doing that as revenue growth has not only been maintained but is accelerating. I took a small position a couple of weeks ago.
Saul
For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.
A link to the Knowledgebase is also at the top of the Announcements column
that is on the right side of every page on this board