WIX vs BL vs MULE

Investment Analysis Clubs Saul’s Investing Discussions
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I’ve had a chance to look at these 3 companies. They are all adjusted EPS negative companies with very fast revenue growth. I’ve had a small position in WIX which I was going to sell but after earnings I looked at it again. I have no position in BL and have been trying to decide whether I should buy some. I have a decent sized position in MULE. So I’ve now looked at all 3 again and have made some comparisons.


                            MULE     BL       WIX
Customers                   1131     1850     2.865 million
Users                        N/A     171,423  2.865 million   
1YR growth Customer count    23%      31%      35%
1 YR growth User count                23%      35%
Market Cap                  $2.9B    $2.0B    $2.9B
TTM Revenue                 $210M    $136M    $356M
1YR Rev Growth               60%      47%      48%
Recurring Rev Growth         62%      47%      48%
Deferred Revenue            $144.4M  $78.8M   $182.2M
$ based net retention        116%     117%
EV / Sales                   10.8     14.1     7.6
TTM CFFO                     -$1.8M  -$1.1M   $66.3M
1YR CFFO Growth              N/A      N/A      149%
Stock based comp (TTM)       $14.3M   $6.8M   $35.9M

MULE and BL both sell to enterprise customers. Those sales are complex with long lead times but they will likely keep a customer for a long time and be able to expand the revenue from that customer over time. WIX has a very large user base so the loss of any one customer is insignificant; also, WIX is now starting to see more and more business from business (as opposed to individual website builders). WIX is also already a cash generating machine and their 2017 full year guidance calls for 85-88% increase in FCF over 2016.

Given the above, the only real negative with WIX that is see is the SBC of about 10% of TTM revenue. BL is at around 5% of TTM revenue and MULE is at 7% of TTM revenue. But the differences in cashflow and growth makes me wonder why invest in BL when MULE and WIX look better based on the above metrics. Any BL holders care to weigh in?

Chris

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MULE and BL both sell to enterprise customers. Those sales are complex with long lead times but they will likely keep a customer for a long time and be able to expand the revenue from that customer over time. WIX has a very large user base so the loss of any one customer is insignificant; also, WIX is now starting to see more and more business from business (as opposed to individual website builders). WIX is also already a cash generating machine and their 2017 full year guidance calls for 85-88% increase in FCF over 2016.

Given the above, the only real negative with WIX that is see is the SBC of about 10% of TTM revenue. BL is at around 5% of TTM revenue and MULE is at 7% of TTM revenue. But the differences in cashflow and growth makes me wonder why invest in BL when MULE and WIX look better based on the above metrics. Any BL holders care to weigh in?

Chris,

Intrigued by the post but puzzled by your conclusion. Based on the first paragraph I clipped, I thought you were going to say WIX was your clear favorite. Why do you say BL is the odd man out and lump MULE in with WIX?

Bear

PS I agree that Wix is compelling.

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Intrigued by the post but puzzled by your conclusion. Based on the first paragraph I clipped, I thought you were going to say WIX was your clear favorite. Why do you say BL is the odd man out and lump MULE in with WIX?

Yes, WIX is my clear favorite of the three and I will probably buy some more tomorrow. MULE is my next favorite because of the higher revenue growth rate and because I read the earnings call transcript. MULE management said that the deals had been pushed into Q3 and Q4 but so far none of the deals that they are working on have been lost yet.

I’m puzzled more by why own BL when you can own MULE. I think that BL customers may be a little easier to acquire than MULE customers. Here’s why. MULE must convince the CIO to adopt MULE’s offering, but the deal will be very large so that finance (and maybe even the CFO will need to give his/her blessing for the MULE expenditures). But BL’s offering targets the finance and accounting groups so the CFO will already be involved. I think though that since a) BL’s growth rate is lower than MULE’s and b) BL’s valuation is higher than MULE’s, why own BL at all unless you believe that their growth rate will really accelerate dramatically (no evidence of that though)?

Chris

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WIX dropped 10 points after recent earnings report so the market obviously did not like the news.

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WIX dropped 10 points after recent earnings report so the market obviously did not like the news.

Brilliant deduction, Holmes! I kid…I kid. And actually it was 13% on Friday. I think the market is focused on some combination of:

  1. Guidance (revenue was down to 44% for the Sep quarter)
  2. ARPU (technically collections per new user, which held tight at $156…same as it was in the March quarter)
  3. Profitability – they are in growth mode and not in a particular rush to take anything to the bottom line.

I think these are all in some way non-issues. Even if growth slows to mid 40%s, I think that will be more than adequate to get the stock moving back up the next few quarters. As for ARPU, I think the climb will be slow and steady. They supposedly just held their ground this quarter because of promotions, and I don’t expect a huge jump any time soon, but as long as it’s up a few bucks every quarter or two, I think it’s certainly going in the right direction. Remember that it’s a multiplier with user growth for revenue. Lastly, no companies seem super worried about profit right now, but I would like to see spending slow a bit. That said, Op Ex was actually less in June than in March.

Bear

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why invest in BL when MULE and WIX look better based on the above metrics. Any BL holders care to weigh in?

Hi Chris,

Just from a simplistic view, I initially took a position in Wix but decided I wasn’t really comfortable with their business model which was providing free websites to millions of users and trying to convert them to paying. It seemed to rely on signing up 5 million free users a quarter (or something like that), and the number of free users added was leveling off (rule of big numbers), where would they be going in 2 or 3 years when that pool of new free users really slowed down. And finally, why invest in a company doing something that Shopify was doing much better.

BlackLine seems like a fascinating early company to get into. Its continuous accounting is apparently just starting out and they have just part of 1% of their TAM, but they are growing very rapidly, and have just made an alliance with Deloitte, the largest of the big four, and the king of accounting. They automate and continuously run a lot of accounting which was previously done manually, on XL spread sheets, and taking up lots of man hours. And once they sign up a company they have the company for good.

To answer your question: Do I want to invest in WIX which has a kid’s business plan of giving away millions of free websites and running them for people, on the hope of signing up a few, or BlackLine, which has an adult business plan of changing the way business accounting works…and has a huge runway? It’s a no-brainer for me.

Best,

Saul

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PS And from a practical point of view, can you give me a reason why would I buy Wix when I already have an oversized position in Shopify?

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Any BL holders care to weigh in?

Chris, did you happen to read my write-up on BL?

http://discussion.fool.com/blackline-bl-an-evaluation-32791400.a…

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Hi again Chris,

Sorry, but I keep thinking of additional points.

You asked why BL’s already very rapid growth rate might accelerate. You are a big company, and this little company BlackLine comes to you and says they would like to automate your accounting. You hesitate for sure, and do considerable due diligence.

Now this little company Blackline points out that Deloitte, the king of the accounting world, trusts you enough that they have incorporated your system in their own, you still may hesitate, but perhaps a lot less. Means more rapid growth, and with larger clients.

I also see imagine the quality of the five million new free sign-ups every quarter with Wix goes down gradually as anyone at all can get a free website. The quality of new customers with Blackline goes up as they get larger and more established (see above).

I won’t belabor it any longer, I promise!

Best,

Saul

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An even simpler reason.
I suspect WIX growth may slow and the business plan may unravel, whereas Blackline is more likely to be consistent, if not accelerate for the reason Saul points out.

Blackline is in a dull, boring industry. Users of it will truly be real sticky.

The big risk for BL is competitors barging in, but their link with Deloitte is almost akin to Amazon supporting Shopify.

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Saul,

Thanks for your responses. In reading your responses, it seems to me that you are weighing some qualitative factors much more than wha the numbers are showing.

When I was looking at WIX I pretty much ignored the 5 million free accounts they add and focus on the number of premium accounts they add. Below is the percentage increase in premium accounts added each quarter for the the past 9 quarters (note that they numbers are sequential increases not q/q!!):

9.6%
9.3%
7.5%
9.7%
9.4%
8.2%
7.5%
8.4%
7.2%

And here is their q/q revenue growth for the past 6 quarters (note: no deceleration):

38%
41%
41%
48%
50%
51%

And here is their annual revenue including guidance:


	Revenue in $M					
	Q1	Q2	Q3	Q4	Total	Rev Growth
2012					43.7	
2013					80.5	84.2%
2014					141.8	76.1%
2015	44.5	48.6	53.6	56.8	203.5	43.5%
2016	61.6	68.7	75.6	84.2	290.1	42.6%
2017	92.5	103.5	109.5(E)	422 (E)	45.5% (E)

Note there there is no slowing in growth (stable for 3 years now).

I also see imagine the quality of the five million new free sign-ups every quarter with Wix goes down gradually as anyone at all can get a free website. The quality of new customers with Blackline goes up as they get larger and more established (see above).

Saul, I’m not seeing this in the numbers when you look at the results of those who pay for the service. The other point you made is that you think the quality of revenue is lower for WIX; I think by this you mean that the customers may leave (product/service is less sticky that BL’s) or that they will run out of customers to add. We’re not seeing this though in their results and some things they have said include:

a) seeing more businesses starting to use Wix to make websites
b) adding new capabilities in their offering which should make it more appealing to existing and new users. Here are some things they have improved over the past couple of years:

March 31, 2015
Wix.com Launches Latest Verticalized Solution: WixMusic
https://investors.wix.com/investor-relations/press-releases/…

July 14, 2015
Wix.com Launches Automatic Facebook Ad Creation Tool Giving SMBs Easy-to-Use Promotional Capabilities via the Wix ShoutOut Product
https://investors.wix.com/investor-relations/press-releases/…

August 26, 2015
Wix.com Adds Integrated CRM Capabilities for Small Businesses
https://investors.wix.com/investor-relations/press-releases/…

October 7, 2015
Wix.com Launches New Editor Creating the Most Comprehensive and Customizable Code-Free Web Design Platform
https://investors.wix.com/investor-relations/press-releases/…

October 21, 2015
Wix.com Teams Up With Macklemore & Ryan Lewis to Launch Wix Music 2.0
https://investors.wix.com/investor-relations/press-releases/…

November 24, 2015
Wix.com Enhances WixHotels With TripAdvisor Instant Booking
https://investors.wix.com/investor-relations/press-releases/…

January 6, 2016
Wix.com Launches Wix Bookings to Streamline and Optimize Online Scheduling
https://investors.wix.com/investor-relations/press-releases/…

March 9, 2016
Wix.com Launches Wix Restaurants Bringing a True DIY Solution for Online and Mobile Ordering to Restaurants Worldwide
https://investors.wix.com/investor-relations/press-releases/…

April 5, 2016
Wix.com Recognized as Google Apps Online Partner of the Year
https://investors.wix.com/investor-relations/press-releases/…

June 7, 2016
Wix.com Launches Wix ADI - Artificial Design Intelligence - and Delivers the Future of Website Creation for Desktop and Mobile Websites Worldwide
https://investors.wix.com/investor-relations/press-releases/…

July 26, 2016
Wix Launches Pro Gallery And Partners With Condé Nast On Initiative To Support Emerging Photographers
https://investors.wix.com/investor-relations/press-releases/…

October 5, 2016
Wix.com Launches Wix App Providing a Powerful Mobile Operating System for Small Business Owners, Store Owners, Hoteliers and Bloggers Around the World
https://investors.wix.com/investor-relations/press-releases/…

January 10, 2017
Wix.com Integrates with Square to Make Shopping Easier for Businesses and their Customers
https://investors.wix.com/investor-relations/press-releases/…

January 19, 2017
Wix.com to Acquire flok to Provide Enhanced CRM Technology for Businesses
https://investors.wix.com/investor-relations/press-releases/…

March 17, 2017
Wix Announces Launch of SEO Wiz Tool and Google Search Console Integration
https://investors.wix.com/investor-relations/press-releases/…

April 26, 2017
Launch of Wix Video Gives Users Unparalleled Video Capabilities
https://investors.wix.com/investor-relations/press-releases/…

July 25, 2017
Wix Introduces Wix Code
https://investors.wix.com/investor-relations/press-releases/…

Now this little company Blackline points out that Deloitte, the king of the accounting world, trusts you enough that they have incorporated your system in their own, you still may hesitate, but perhaps a lot less. Means more rapid growth, and with larger clients.

Now let’s look at BL’s results:


	Revenue in $M (GAAP)					
	Q1	Q2	Q3	Q4	Total	Rev Growth
2012						
2013					0	
2014					51.7	
2015	18	19.4	21.7	24.5	83.6	61.7%
2016	26.6	29	32.2	35.3	123.1	47.2%
2017	38.6	41.3			171.5	39.3%

The revenue growth has been slowing down for the past 3 years. I guess when I see this I wonder is there is some problem in scaling their business. The addition of Deloitte may help but isn’t it prudent to see evidence of this in the numbers?

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Thanks Chris, That’s really an impressive bunch of statistics for Wix, I have to admit, and the list of things that they have added is very impressive. All I can say is that in late April I became uncomfortable with my position (as well as thinking it duplicated Shopify and added up to way too much in one field). I sold out over a week or two at prices from $81.09 to $70.40 (average price was probably about $74). As I see that it is now at $61.85 I have no regrets. I admit that I don’t understand why it has fallen so much, with such good results.
Saul

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Blackline Revenue History


	Q1	Q2	Q3	Q4		% change
						
Revenue (millions)						
2013					38	
2014					57	50%
2015	18	19	22	24	83	46%
2016	27	29	32.2	35.3	123.5	49%
2017	38.6					xx

Hi Chris. That’s my BL data. Shows a steady 50% revenue increase. Their guidance for 2017 currently is disappointing. We’ll see in a few days time whether they have upped it or not.

Great case for WIX though. I haven’t looked at it since it was first introduced to this board. I remember not much liking the large SBC and how it was being used to give WIX a positive FCF and operating income. This board has talked about it a lot already and don’t want to open up a can of worms here.

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All I can say is that in late April I became uncomfortable with my position (as well as thinking it duplicated Shopify and added up to way too much in one field). I sold out over a week or two at prices from $81.09 to $70.40 (average price was probably about $74). As I see that it is now at $61.85 I have no regrets. I admit that I don’t understand why it has fallen so much, with such good results.

Yes SHOP and WIX are sort of related. SHOP enables merchants to run online businesses and WIX enables people and companies to build websites. WIX is continuously adding features that may appeal to businesses.

I had a very small position in WIX and the price drop after earnings led me to look at it more closely. I added today after selling all of my UBNT.

On the earnings call there were several analysts asking about deceleration and management said they are not seeing any deceleration. I don’t see it either. Maybe 1-2 large institutions are closing their positions leading to a share price drop.

Chris

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Chris -

Re.:“MULE must convince the CIO to adopt MULE’s offering, but the deal will be very large so that finance (and maybe even the CFO will need to give his/her blessing for the MULE expenditures)”

Not necessarily. With these “platform” changes, IT teams have a way to segment their work and attempt to proof read the concept and viability before jumping in. Even when they do, they’ll have to spread the work over a period of time due to the disruptive nature of the change. I’ve seen this at some of my clients that are willing to adopt a new platform.

The incumbents have a trench that’s difficult to get them out of, but the selling point of MULE is really the ease of use / reuse and the ability to form an application network. I haven’t worked with it first hand, but the anecdotal evidence I have supports that claim.

Net, I feel the TAM potential is high for MULE, but steady growth with focus on their services is going to be critical for their customers’ success (and theirs). That is currently in-line with their leadership focusing on high quality professionals for both sales and services.

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but the selling point of MULE is really the ease of use / reuse and the ability to form an application network. I haven’t worked with it first hand, but the anecdotal evidence I have supports that claim. Net, I feel the TAM potential is high for MULE, but steady growth with focus on their services is going to be critical for their customers’ success (and theirs). That is currently in-line with their leadership focusing on high quality professionals for both sales and services.

Hi how2namit
Thanks so much, and welcome to the board!
Saul

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Thanks Saul. I’ve been a great (but silent) fan of this board for a while now. It’s an amazing group of posters we have here. I’m just thankful be able to catch up on the intense knowledge that’s being shared so generously – H2N.

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Gaucho - I looked at Wix too and passed. I actually was very impressed and attracted by the top line growth. SBC was a little high but not the highest dilution I’ve ever seen. Yes I also hold SHOP so I kind of felt well represented in this space from a B2B if not a B2C basis (I guess a bit like Square vs Paypal).

What stopped me from buying is that this seems unable to actually deliver profits.

I’m really most concerned that they are simply buying revenue. I think if anyone spent the amount that they spend on online advertising they would be able to generate mega growth and huge top line revenues. Literally Wix advertises ahead of every single youtube video I ever launch in Asia (and I’m not really a potential user for them so it isn’t well targeted) - it must be costing them a fortune.

Agreed the toppling growth looks good and accelerating but really are they just buying it at huge cost that is just not profitable?

Saul - on the freemium service model, I have to say as you know it has become a pretty standard business approach now but Wix does seem to monetise it consistently well. It didn’t do LinkedIn any harm when Microsoft came looking. I can imagine it puts Wix on the acquisition target lists as well.

I might put Wix on the watch list in case they can get beyond breakeven and become reasonably profitable.

A

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One of the things I look at with s/w tech companies, based on my 30 years in IT is who is the actual customer of the product. I am always more cautious about investing in companies that target IT as their primary customer.

In most companies, even companies that build s/w products, IT is considered a cost center. Cost centers are a necessary evil so far as most executives are concerned, they make no direct contribution to the bottom line and consume budget and other resources thereby reducing the budget and resources available for profit center activities. Whenever there’s a downturn, either in the general economy or in the affairs of a particular company, you can bet the first place that budgets get cut are cost centers. Most executives (my opinion, I don’t have stats) find certain cost centers indispensable, finance, HR, facilities/transportation, maybe some others depending on the business. But IT is always the weird stepchild. Yeah, they facilitate the rest of the business, in all but the smallest shops, IT is also indispensable, but that doesn’t mean they can’t be starved when things get tough. Unless the C level management has an IT background (not often) or unless the CIO/CTO have a lot of clout (also, not often), executives don’t really understand IT at all, much less, they don’t care to understand. In my 30 years in IT I never had anyone from an operations unit ask if their information was stored on a file server or in a relational database. While there’s an enormous difference to an IT person regarding these storage alternatives, no one else cares. What they do care about is seeing their reports and answers to their queries, the machinations behind the production of that output is irrelevant. And that deep sense of not caring about the actual technology part of Information Technology is endemic with executives. IT budgets are always considered to be greater than they should be.

So that’s one thing going against any company that wants to sell products and services to IT. I will make a caveat here, in that cloud services are increasingly becoming an IT profit center, I’m confident that companies that provide cloud services are more amenable to IT investment than others.

The other thing that gives me pause are the products and claims themselves. At one point in my career I was the manager of the Methods & Tools group that set the standards for a very large IT organization. My group would analyze product offerings that addressed the needs of application development and maintenance. We would receive product demos and sales pitches, bring in trial product for evaluation when we thought it made sense, and work with purchasing and finance (these organizations would also perform non-technical evaluations prior to bringing in any product from a new vendor) when we deemed it worthwhile to proceed with a procurement. We would then establish technology insertion projects with the development and maintenance organizations to establish training and deployment plans. I know this sounds straightforward, but it’s not. Turns out that while the primary function of IT is to inflict change on other organizations, IT itself is pretty resistant to change in process, methodology and supporting tools. IT in this case refers to the personnel that comprise the organization.

While I freely admit, my experience is well dated at this time, I think some of the lessons probably remain true. One very prominent lesson I learned was that most products are sold to IT based on cost savings via productivity improvements. It is a rare occurrence when the promise of a product is realized. An awful lot of wonderful and expensive IT products are relegated to shelfware in short order.

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In most companies, even companies that build s/w products, IT is considered a cost center. Cost centers are a necessary evil so far as most executives are concerned, they make no direct contribution to the bottom line and consume budget and other resources thereby reducing the budget and resources available for profit center activities.

I think you are right about the attitude in many companies, but I think there is increasing recognition that IT can be a lot more. In many companies, if IT can improve the efficiency of the core business process of the company by a few percent, that dollar gain will more than pay for the whole IT budget and then some.

But, of course, this recognition is far from universal.

As an example, prior to their sale SYBEX, the computer self-help book publisher was a customer of mine. Because of my software, they managed to grow their revenues 5X without the addition of a single core operational staff and only about a 30% increase in warehouse staff. This is hardly typical and I have to give a huge amount of credit to a controller who fronted for the CFO to make much of this happen … oh, and, of course facilitated by my software which allowed substantial development tools at very low cost … but it was a wonderful case study.

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