WIX: Deep Dive

Hi,

I wrote this post for the Fool’s WIX premium boards and thought I would post for the readers here on Saul’s board as well…


Tomorrow morning before the market opens, WIX is scheduled to announce their Q4 and full year 2018 earnings results. In anticipation of this event, I thought I would provide a deeper look at the company and some key metrics, so that we can put tomorrow’s results in the context of what has transpired previously.

Background:

Much like its bigger competitor, Shopify ($20B market cap vs. $6B for Wix), WIX was founded by happenstance when its founders were attempting to build a website for another business they were launching and found the process so cumbersome they decided to solve for it. Here is how the company’s website describes those early days:

Wix was established in 2006 by Avishai Abrahami, Nadav Abrahami, and Giora (Gig) Kaplan. While constructing a website to be the basis of another start-up idea, the Abrahami brothers and close friend Kaplan quickly discovered that creating their own website was difficult, frustrating and very costly. It was this experience that led them to build a platform that empowered anyone to create their own website with no coding or design skills needed - for free.

In 2006, Wix was born, forever changing the way people create their web presence. Today, with over 120 million users across 190 countries, anyone can create their own stunning website - no creative limits, no coding – just complete freedom to express themselves and manage their entire business online.

After almost a decade of growth, Wix now offers a drag and drop website builder with HTML5 capabilities, 100s of designer-made templates, top grade hosting, innovative apps and tons of features for free. Additionally, we offer valuable premium services, though our business model still allows us to provide complete websites to everyone for free!

Wix continuously pursues ways to provide its current and future users with the finest technology, support, and unique solutions to create and manage an incredible online presence.

https://support.wix.com/en/article/the-history-of-wix

Purpose:

While Shopify boasts of the celebrities (like Kylie & Kendall Jenner, Drake, Adele & Lady Gaga https://www.smartrmail.com/blog/12-celebrities-with-great-sh…) that build websites on their platform, WIX holds down the corner of the web for “the people.” Here is their purpose statement:

Wix.com is a leading cloud-based development platform with millions of users worldwide. We make it easy for everyone to create a beautiful, professional web presence.

Promote your business, showcase your art, set up an online shop or just test out new ideas. The Wix website builder has everything you need to create a fully personalized, high-quality free website.

Listen to Cramer talking to Abrahami about how WIX delivers for small business owners and “empowers the little guy:”

https://www.cnbc.com/video/2018/12/12/wix-com-ceo-new-ascend…

So if Shopify is the premium web platform service, think of WIX as the low cost alternative.

Metrics

Ok let’s take look at some key business indicators related to WIX’s customer base:


*# of Users (thousands):*               

**2017:                                          2018:** 
 **Q1     Q2     Q3     Q4             Q1     Q2     Q3     Q4** 
         
         103    109    114    119            125    131    136    -
%Y/Y:    25%    24%     23%   22%            21%    20%    20%    -
%Q/Q:     6%     5%      5%    5%             5%     5%     4%    -     

     
*Premium Subscriptions:* 
     
         2,6    2,9    3,1    3,2            3,5    3,6    3,8    -
%Y/Y:    38%    35%    33%    31%            29%    28%    26%    -
%Q/Q:     8%     7%     7%     6%             7%     6%     5%    -

*Revenue:*  

          93    104    111    118            138    146     156   -  
%Y/Y:    50%    51%    47%    41%            49%    41%     40%   -
%Q/Q:    10%    12%    7%      7%            16%     6%      6%   -

*Collections:*

         115    117    120    132            160    160     162   -
%Y/Y:    51%    44%    38%    35%            39%    37%     36%   -
%Q/Q:    17%     2%     3%    10%            21%     0%      2%   -

A few other notable data points from Wix's 3Q 2018 earnings report:

```
*   Non-GAAP operating income of $16.3 million, an all-time high and up 376% y/y;
*   Record operating cash flow of $27.6 million; 
*   Free cash flow of $23.7 million, up 25% y/y
*   Accelerating monetization drove results as average revenue per subscription increased 11% y/y and conversion increased year over year;
*   Board of Directors authorizes $100 million in share repurchases;
*   Gross margin on a GAAP basis in the third quarter of 2018 was 79%, compared to 83% for the third quarter of 2017; 
*   Non-GAAP gross margin in the third quarter of 2018,calculated as non-GAAP gross profit as a percent of revenue, was 80%, compared to 84% for the third quarter of 2017:
*   Under ASC 605, third quarter 2018 GAAP gross margin as a percent of revenue would have also been 79%.

Source: [https://investors.wix.com/press-releases](https://investors.wix.com/press-releases)

Finally, here is WIX's forecast for Q4 and end of FY18:

Q4 2018 Outlook Y/Y growth 

*     Revenue $161- $162 million 36% – 37%

*    Collections $176 - $178 million 33% – 35%

*Analyst estimates:*

*     The consensus EPS Estimate is $0.31 (+93.8% Y/Y) and the consensus Revenue Estimate is $162.01M (+36.7% Y/Y).

*     Over the last 2 years, WIX has beaten EPS estimates 50% of the time and has beaten revenue estimates 100% of the time.
```

I hope this is helpful in assessing WIX's performance when they report tomorrow morning.

I'll report back after reading results and listening to conference call.

Best, Swift...
Long SHOP
WIX Ticker Guide
24 Likes

Ok folks, WIX released its earnings report for Q4 and full year 2018 early this morning. Here is the updated key business indicators:


# of Users (thousands):               

2017:                                          2018: 
         Q1     Q2     Q3     Q4             Q1     Q2     Q3     Q4 
         
         103    109    114    119            125    131    136    **142**
%Y/Y:    25%    24%     23%   22%            21%    20%    20%    **19%**
%Q/Q:     6%     5%      5%    5%             5%     5%     4%     **4%**    

     
Premium Subscriptions: 
     
         2,6    2,9    3,1    3,2            3,5    3,6    3,8   **3,983**
%Y/Y:    38%    35%    33%    31%            29%    28%    26%   **24%**
%Q/Q:     8%     7%     7%     6%             7%     6%     5%    **4%**

Revenue:  

          93    104    111    118            138    146     156   **164**
%Y/Y:    50%    51%    47%    41%            49%    41%     40%   **39%**
%Q/Q:    10%    12%    7%      7%            16%     6%      6%    **6%**

Collections:

         115    117    120    132            160    160     162     **176**     
%Y/Y:    51%    44%    38%    35%            39%    37%     36%     **33%**
%Q/Q:    17%     2%     3%    10%            21%     0%      2%      **8%**

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Hit submit before finished…

How WIX did against analyst estimates (source: seekingalpha.com):

Wix.com (NASDAQ:WIX): Q4 Non-GAAP EPS of $0.42 beats by $0.11; GAAP EPS of -$0.12 misses by $0.03.

Revenue of $164.2M (+38.5% Y/Y) beats by $2.19M.

Some additional highlights from the WIX press release:

– Q4 revenue of $164 million, up 39% Y/Y and FY’18 revenue of $604 million, up 42% Y/Y marks the fifth consecutive year of revenue growth exceeding 40% since our IPO
– Q4 collections were $176 million, up 33% Y/Y and FY’18 collections were $658 million, up 36% Y/Y
– All-time high non-GAAP operating income in FY’18 of $47 million, up 419% Y/Y
– Record free cash flow in FY’18 of $102 million, up 44% Y/Y
- Increasing monetization drives average revenue per subscription growth of 12% Y/Y
- Elevated momentum of product development in 2018 paves the way for multiple opportunities to monetize beyond website building in 2019
PR Newswire

https://mma.prnewswire.com/media/562291/Wix.jpg

“Wix’s ability to develop a best-in-class product experience drove strong results in 2018,” said Avishai Abrahami, Co-founder and CEO of Wix. “In 2018 we rolled out more products than ever before, and in 2019 we are looking forward to delivering these products to users and expanding our reach into new and exciting markets. We believe that these new products and markets will drive growth in the coming years. I’m thrilled with the progress we have made in giving our users even more tools to create without limits and look forward to an exciting 2019.”

Lior Shemesh, CFO of Wix, added, “2018 marked our fifth consecutive year of greater than 40% revenue growth since our IPO in combination with record margin expansion, driving free cash flow of over $100 million. This combination of growth and profitability highlights our ability to generate positive returns on investments in our business. Our 2019 outlook reflects continued growth from existing and new products as we plan to make additional investments this year to bring these new products to market and expand into new markets. Additionally, the strategic change we initiated last year of a greater focus on generating higher value from our user cohorts is producing early signs of success. We believe this new initiative along with new products and the expansion of our addressable market will continue to deliver strong growth for years to come.”

Additional Q4 2018 Results and Highlights

Gross margin on a GAAP basis in the fourth quarter of 2018 was 79%, compared to 85% in the fourth quarter of 2017; non-GAAP gross margin in the fourth quarter of 2018, calculated as non-GAAP gross profit as a percent of revenue, was 80%, compared to 85% in the fourth quarter of 2017
Under ASC 605, fourth quarter 2018 GAAP gross margin as a percent of revenue would have also been 79%
Results in the fourth quarter include the impact of the change from net (agent) to gross (principal) accounting related to the amended terms of our partnership agreement with Google announced early last year. As previously stated, the initial impact is an approximately $30 million benefit to FY 2018 revenue and collections. This impact also has resulted in a year-over-year decrease in our GAAP and non-GAAP gross margins
GAAP net loss in the fourth quarter of 2018 was $(5.8) million, or $(0.12) per share, compared to a net loss of $(6.6) million, or $(0.14) per share, for the fourth quarter of 2017
Non-GAAP net income in the fourth quarter of 2018 was $20.8 million, or $0.42 per share, compared to a non-GAAP net income of $7.2 million, or $0.16 per share for the fourth quarter of 2017
Net cash provided by operating activities in the fourth quarter of 2018 was $36.1 million, while capital expenditures totaled $3.4 million, leading to free cash flow of $32.7 million, compared to $19.6 million of free cash flow in the fourth quarter of 2017, a 67% year over year increase
Added 147,000 net premium subscriptions in the fourth quarter of 2018 to reach 4.0 million as of December 31, 2018, a 24% increase over the total number of subscriptions at the end of 2017
Added 5.9 million registered users in the fourth quarter of 2018. Registered users as of December 31, 2018 were 142 million, representing a 19% increase compared to the end of the fourth quarter of 2017

Additional Full Year 2018 Results and Highlights

Revenue for the full year 2018 was $603.7 million, or 42% y/y growth. Collections for the full year 2018 was $658.4 million, or 36% y/y growth
Had foreign exchange rates remained constant from when we provided our initial full year 2018 guidance in February, collections would have been approximately $10.2 million higher, or $668.6 million, 38% higher than the prior year
Gross margin on a GAAP basis for the full year 2018 was 79%, compared to 84% in 2017; non-GAAP gross margin in the full year 2018 was 80%, compared to 85% in 2017
Under ASC 605, full year 2018 GAAP gross margin as a percent of revenue would have also been 79%
Results in 2018 include the impact of the change from net (agent) to gross (principal) accounting related to the amended terms of our partnership agreement with Google announced early last year as described above
GAAP net loss for the full year 2018 was $(37.1) million, or $(0.77) per share, compared to a net loss of $(56.3) million, or $(1.24), per share in 2017
Non-GAAP net income for the full year 2018 was $51.3 million, or $1.07 per share, compared to a non-GAAP net loss of $(0.5) million, or $(0.01) per share, in 2017
Net cash provided by operating activities for the full year 2018 was $115.7 million, while capital expenditures totaled $14.1 million, leading to free cash flow of $101.6 million, compared to $70.7 million of free cash flow in 2017, a 44% year-over-year increase

Recent Business Highlights

*Launched Ascend by Wix: In December, we launched Ascend by Wix, a suite of 20 products that allows businesses to easily connect with and manage their customer base, as well as promote and grow their brand and business online. Ascend is now open to users in all languages.
*Introduce Wix Turbo: We plan to announce Wix Turbo, a platform-wide performance boost that improves speeds across all Wix websites. With Wix Turbo, the Wix platform has been supercharged to ensure Wix sites are faster than ever.
*Began Roll Out of Wix Payments: We recently introduced Wix Payments to users in the U.S. Wix Payments users benefit from being able to manage their entire business, from orders to payments, on one platform, including reviewing transaction and payout details in the Wix Payments Dashboard. We plan to launch Wix Payments in the U.K. in Q1 and other countries in Europe and in Asia throughout the year.
*Wix Answers Closes Agreement with MyHeritage: We recently signed an agreement with MyHeritage, which will be utilizing the Wix Answers Knowledge Base, ticketing system, and call center tools. This is one of the first enterprise class clients to use the full Wix Answers product. We are in the process of hiring a team to expand the reach of this product.
*Wix Partners with Universities: Our Academic Partnerships team has been working with schools and universities all over the U.S. to make Wix a part of their curriculum. These partnerships are aimed at helping students establish an online presence and learn why it’s such a critical part of any career path. For example, Wix partnered with the University of South Carolina and is now integrated into several different courses that form part of the school’s Internet Retailing program. We also have launched a Wix for Students program where we offer discounted premium plans to verified current students and various schools.

https://seekingalpha.com/pr/17417351-wix-reports-fourth-quar…

Best, Swift…
No position WIX

4 Likes

Looks like a good quarter with a beat on earnings and revenues but guidance is a little weak - so it’s down almost 12% today.

https://finance.yahoo.com/news/israels-wix-com-fourth-quarte…

It predicts 25% revenue growth for 2019, a significant drop from 39% revenue growth this last quarter. At first glance, I’m not too concerned since WIX usually beats revenue guidance. On the other hand, it’s typically a modest beat.

I’m still inclined to hold on longer term.

What do others here think?

Dave

2 Likes

It would be interesting to hear Bear’s thoughts.

I’m not sure if WIX has typically low balled guidance in the past.

Results and guidance look rubbish $1/2 bn run rate Corp with a limited TAM falling from 30s to 20s% growth
vs
Anyone else growing as fast or faster at twice the run rate
Or
Same cap growing twice as fast.

Forget about it. I’m selling and sinking into Nutanix, Twilio or even Square or Shopify.

The only thing they have going for them is profitability.

A

5 Likes

Results and guidance look rubbish $1/2 bn run rate Corp with a limited TAM falling from 30s to 20s% growth
vs
Anyone else growing as fast or faster at twice the run rate
Or
Same cap growing twice as fast.

Forget about it. I’m selling and sinking into Nutanix, Twilio or even Square or Shopify.

The only thing they have going for them is profitability.

A

Yes, I was too kind in my description of the guidance.

And there is the question of whether they low ball guidance. If not, I agree that it looks best to move on for now.

OTOH, I don’t agree with description of a “limited TAM.” It’s TAM is massive and growing - a primary reason for owning WIX longer term.

dave

1 Like

Look at the key business indicators I posted above. Rate of growth has been falling in all 4 areas Y/Y, Q/Q for 2 years now.

This is why I sold out of Wix last month.

The guidance does not surprise me. Low ball or not, the actual numbers tell an important story.

Best, Swift…
WIX Ticker Guide
No position.

2 Likes

Forget about it. I’m selling and sinking into Nutanix, Twilio or even Square or Shopify.

I decided to pull the trigger and just sold too. The numbers don’t justify holding.

Limited TAM - I meant building brochure ware websites and blog sites.

Compare that to Shopify’s transactional e-commerce TAM of 25 trillion or e payments in the trillions.

A

1 Like

It would be interesting to hear Bear’s thoughts.

I’m not sure if WIX has typically low balled guidance in the past.

Wix’s 2018 revenue guidance at the high end, as of:

Dec17: $595m
Mar18: $597m
Jun18: $599m
Sep18: $602m

And of course they’ve achieved $604m. So I wouldn’t suggest anyone expect that the $761m they’ve guided for is a significant sandbag. Note that FCF guide is up 38%, but I think when they deliver that or better, the market will yawn, because an expectation of profitability improvements are baked into the current PE of ~105.

I’ve long said that if Wix’s growth trends down toward 30% in the next couple years, I’d still be happy. But I agree with others here that high-20’s growth already for 2019 (which probably means Q3 and Q4 will be mid or even low 20’s) is fairly disappointing. I still see very little downside here. In fact, I would expect that Wix continues to outpace the market, but I can’t see shares appreciating wildly. I’m thinking maybe we see $150/share in the next couple years, but probably nowhere near $220 (a double).

I like to only invest in things I could see doubling or tripling, so I’ve trimmed my Wix position quite a bit this morning. (Lucky for me, I trimmed yesterday too, since Wix was up 40% YTD!) Will I sell it all? Depends if I can find something else that I’d like to buy or add to. Honestly, right now it’s hard to see anything doubling or tripling in short order, so I’m having a little trouble finding things I want to buy.

Bear

27 Likes

https://seekingalpha.com/article/4242570-wix-com-ltd-wix-ceo…

Earnings c.c. can be read at above link.

My overall synopsis is: not impressed. I sold all my holdings today pre-market at $111.25.

Wix is basically changing their business model from freemium to a higher end. This is discussed in the call. The way the c.c. read to me, is the growth is slowing, because the number of customers is limited. They are maximizing revenue from their current customer base by increasing fees.

WIX management feels the brand is stronger and they are trying to get away from freemium to increase the value of their brand. They did not say this, but I think going forward they are targeting more website developers than average mom and pop entrepreneur.

The thing I really disliked about the c.c. was I felt all the analyst were trying to get more insight on the projections and management IMO was side stepping the questions. That is how most of the Q&A read to me.

Brent Thill
Questions are on the guidance. I think a number of investors are still trying to reconcile this. So I just want to make sure I laid this out correctly. You had a pretty material price hike. You have Ascend and Code coming, yet you’re guiding the organic business down about 1,000 basis points. If you take the Google contribution out, you grew mid-30s and the guide is in the mid-20s. And so, I think there’s just a lot of questions around your guidance. Is there something different you’re doing? Or are you not reflecting some of these initiatives? I think if you could just clarify. And I just want to make sure to that the tax rate ex Google, you would’ve been mid-30% growth last year?

Lior Shemesh
Okay. So obviously, the guidance that we provided and I want to clarify something that we said also in the past, every time that we launch a new product, the benefit – though the immediate benefit that we see on our top line is quite limited because when we start the year, about 80% of our collection coming from previous cohort. So even if the product is doing amazingly good, the benefit of the top line is quite limited. It doesn’t mean that we are not going to see upside from it, but when we provide the forecast at the beginning of the year, obviously, we take into consideration that fact. So you are right, it’s mid-20. It’s mid-20 on a much larger number, but – and we hope and we do everything as always, and we have a very good track record of delivering and make sure that we get positive ROI on our investments. And obviously, every positive ROI is going to be part of our top line in the future.

It seems that WIX is in transformation as a company. Do I believe this is a good business, yes. Will it continue to make money and be successful in long run I believe so. Others on the board already discussed the issue and it is this, if you are aiming to be a ruthless allocator of capital then you probably need to try for companies that are executing at a higher level.

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