irrigated.
ah - the typo’s! Irrigated - I actually like that better than irritated…
In 2013 assets were twice as great as liabilities (even though the company did not make a profit). Each subsequent year, the assets grew, but the liabilities grew faster. By the end of 2016, the liabilities exceeded the assets. Net income fell from -$28.7M to -$46.9M as subscriptions grew. (Note, it’s hard to summarize complex financial statements in a few short words. Best to refer to the financial statement links posted above.
Putrid,
I haven’t looked at the financials yet. How much of their losses are really losses? From what I understand about how the accounting works the growing liabilities are largely because of their growing deferred revenues which can’t be recognized until the subscription term period (usually 12 months) has ended. This is an accounting requirement. So if the “growing losses” are because of this then it’s not something to worry about. If, on the other hand, WIX has a growing percentage of marketing, customer acquisition, and customer retention costs then this could be a problem. In your analysis did you break the growing liabilities down into components that are worrisome and components that are just for GAAP accounting requirements?
Chris
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Lastly, a good lesson for everybody is not to wish ill for other people - OneEyeBirdRtns
I have NEVER wished another investor ill!!! Never. Ever. Quite the opposite. I post what I post because I wish folks would consider other financial realities…in order to avoid personal financial pain.
OK. OK. We’re all products of our own personal experience. I survived the “Dotcom Boom.” I survived, but I lost over a half-million dollars. That left a mark.
As a corporate executive, I was involved in a great many acquisition/divestiture decisions. I carry those memories/lessons within me.
I try, as best I can, to direct the attention of others to other financial realities. Funny (not) how those efforts are met with derision, pious abnegation, or willful dismissal.
I don’t begrudge ANYONE financial success.
If you believe I’m waaay off base, please offer facts to support your opinion. I cite the financials as presented in the annual report. If you think I’m full of it, say so and cite facts. Otherwise, dispel with the ad hominem attacks. They serve no purpose.
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From what I understand about how the accounting works the growing liabilities are largely because of their growing deferred revenues which can’t be recognized until the subscription term period (usually 12 months) has ended. - Chris
All I can do is refer you to the annual report. As WIX explains, the full subscription price is recognized as a “collection.” The collection revenue (using an annual subscription example) is recognized as “revenue” on a monthly basis. Someone pays for an annual subscription and, in the first month, 1/12th of the subscription is recognized as “revenue”. The balance is classified as “deferred revenue”. From that starting point, one can evaluate profits and losses.
Hope this helps.
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If you believe I’m waaay off base, please offer facts to support your opinion.
Ok, post 27096, you wrote:
Not for me. I’m not “investing” in WIX. You, on the other hand, may wish to take a moment or two to contemplate your “investment”.
could have said, “I see substantial risk in WIX but hopefully it will work for you.” To me, comes across as mean-spirited, esp. the “”, but I’ll take your word for it that you meant it entirely for the other person’s benefit.
If it matters, I lived during 1999 to 2001 too - what I learned, among other things, is that in the right environment, speculation can work wonders (watched an MSN portfolio go up 10x in one year) but you never want to confuse speculation with investing…but people are big boys and girls on this board…and Saul’s has a pretty nifty Knowledge Base which goes into pretty extraordinary detail how he does things (he is a GROWTH investor pure and simple, to a degree you rarely see in individual portfolios - which makes him absolutely and utterly unique - I like that - and he willingly posts his thoughts and ideas for no charge whatsoever - how great is that?) - might be worth reading? Up to you.
enough posting from me on this…be well…
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enough posting from me on this…be well… - OneEyeBirdRtns
I apologize if my choice of words rubbed you or anyone the wrong way. I wish you well. I truly do.
And I’ve already stated (although in words that might not have resonated): “speculation can work wonders but you never want to confuse speculation with investing”
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I think that what may be causing some of the confusion is, as someone has already stated, that GAAP accounting of the SAAS model requires the services that remain to be supplied after the money is paid in advance be carried as an obligation or debit. This makes companies with lots of actual free cash flow (like WIX, and all the other SAAS model companies) look like they have a large GAAP debt (which doesn’t actually exist). At least that’s how I understand it, and correct me if I am wrong.
Best,
Saul
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This makes companies with lots of actual free cash flow (like WIX, and all the other SAAS model companies) look like they have a large GAAP debt (which doesn’t actually exist). At least that’s how I understand it, and correct me if I am wrong. - Saul
OK. I’ll correct you. I’ve always considered “free cash flow” as cash that is totally unencumbered. That is, it’s brass in pocket. It’s yours. You don’t owe that money to anyone.
The WIX case is different. WIX claims that “collections” and deferred revenues are free cash flow. Are they really? Each and every month, subscribers expect to receive a service. WIX pays for that service. That’s hardly “unencumbered free cash flow”. Quite the opposite. The subscriber expects to receive a service for that cash. That’s not “free cash”. That’s an obligation.
Ergo the difference between a traditional business that pockets actual cash when the day is done. WIX can’t do that. What WIX defines as “cash flow” truly is an obligation. Granted, WIX can satisfy that obligation at a reasonable cost, but WIX keeps scrambling to replace expiring subscriptions with new subscriptions. So much so that new subscriptions keep costing ever more cash. WIX doesn’t exhibit “free cash flow” as vanilla companies do. A vanilla company such as ICLR can book the unencumbered cash as an asst. It’s cash that’s free for them to use. WIX? Nah, WIX can’t do that. WIX takes that cash and spends it to provide a service and then spends even more to replace the moribund subscriptions. Hence, WIX’s liabilities have now grown to exceed its assets.
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The WIX case is different. WIX claims that “collections” and deferred revenues are free cash flow. Are they really? Each and every month, subscribers expect to receive a service. WIX pays for that service. That’s hardly “unencumbered free cash flow”. Quite the opposite. The subscriber expects to receive a service for that cash. That’s not “free cash”. That’s an obligation.
Putnid, that is the accounting practice with the Cash Flow Statement. It seems a little out of bounds to argue parts of free cash flow that you do not like. Although you could point this out as maybe a red flag there are a lot of parts of the Cash flow that could be considered “not unencumbered free cash flow” but is accepted under Gaap. (share based compensation, ie) there are so many parts of the Cash flow that we could argue are not appropriate but if you start nitpicking out the parts you do not like you should probably just state that Cash flows should not be used to value the strength of a company. (But if you are truly a value investor I know you would not state that. One thing I do not like is their share based compensation is at 9%. But this isn’t as high as many other Tech companies and I wouldn’t suggest removing it from my calculations of cash flows.
Andy
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WIX, does not compete against the like of Shopify or Magento or that ilk. As such, although it has all the high volume at the bottom of the ladder, it has less room to move paying customers to higher fees over time unless it develops the product to enable business to grow.
In the long run, there may be more value in the customer list for a company like a Shopify to week through and sell upgrades than anything else (that has been a not uncommon reason to acquire companies in the past when growth slows).
I will need to dig further to see what capabilities WIX brings for premium members. I do think WIX would be suit my purposes (outside of my core website) better than Shopify does. But I run real business through my core site, and just plan on using these micro sites as feeders to my core website, but use them to focus on micro search terms on very specific topic areas each, but running no money through any of them.
That does not sound all that lucrative for WIX if I were to do that. But worth digging further into.
The short rebuttal made a lot of excellent points. One point he also made is that he sold due to valuation issues. I have no comment in regard to that. Obviously shares went up even more since his sale.
Tinker
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Hi Putnid,
Appreciate your due diligence on this.
Did you mean to say that - once the annual subscription is over, WIX needs to spend more money to get that business -I.e. Get the same subscriber to renew the service for one more year?
Or you meant that additional / new subscriber cost them more than cost of acquiring previous subscriber?
The former would say the service is not good / not high value after a year - this is unusual but I have seen many cases like this in internet businesses… including hosting business.
The latter says saturating market or rapidly increasing competition. This is generally bane of growth investment. Specially because it’s easy to confuse increasing opex to new product investment vs just acquiring new customers. It has blindsided me in the past and I am still not sure i can separate this out (understand R&D vs SGA spend but sometimes even that doesn’t porovide enough clarity).
Thanks for your help
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Did you mean to say that - once the annual subscription is over, WIX needs to spend more money to get that business -I.e. Get the same subscriber to renew the service for one more year?
Or you meant that additional / new subscriber cost them more than cost of acquiring previous subscriber? - nilvest
Hello nilvest!
I’m really not the correct person to answer your question. I am not invested in WIX and I tried to explain why in my brief analysis. Saul and Bear both like the company and I’m sure they can best explain why.
I’ll offer a few comments based on my review of the Annual Report. Wix’s “freemium” model must consider the following:
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In order to increase revenues and grow, Wix needs ever more subscribers and must make the service sticky enough such that subscribers continue renewing their subscriptions.
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Wix offers free hosting as an inducement to try the service and then opt for “premium” features. To grow their subscriber base, Wix spends ever greater sums to advertise its presence and availability. The free site users represent the candidate pool for paid subscriptions. Given that Wix wants to grow that pool, it must continue spending money to attract a growing number of new users.
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Subscribers fall away over time. As Wix’s own data indicate, there is a noticeable renewal drop-off after one year of service. In order to induce subscribers to remain subscribers, Wix offers an expanding array of services. This costs money. It’s a challenging balancing act.
As mentioned, the company doesn’t interest me as an investment. Time to pass the baton to Bear and Saul.
Thanks for your response Putnid.
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