WIX - Wix.com: Expanding Business Partnerships And Profits Make It Attractive

2023-12-13 14:46:31 ET

Summary

• Wix.com has experienced a surge of 40.95% in its stock value over the last six months.
• The company has a substantial user base of 258 million and 4 million premium subscribers.
• Wix.com's improving profitability strategies and expanding business customer base presence make it an attractive investment option.

Wix.com Ltd. ( WIX ) has experienced a significant surge of 40.95% in its stock value over the last six months, propelled by improving top and bottom line performance as seen in Q3 2023 earnings and a compelling growth trajectory. This company, a prominent player in cloud-based development tools, caters to a substantial user base of 258 million and 4 million premium subscribers. With improving profitability strategies, particularly in larger business solutions and operational efficiencies, Wix.com presents upside potential due to its expanding market presence and improving financials. Therefore, investors may want to take a bullish stance on this stock.

Company overview

Wix.com is a prominent cloud-based development platform offering a suite of tools for website building, e-commerce, marketing, and business management. With 258 million users and 4 million premium subscribers, it caters to individuals and businesses, emphasizing customizable solutions. While creative services dominate revenue, the company's growth strategy focuses on enhancing profitability through larger business solutions, which are increasingly contributing to revenue and gross profit.

Competitors like WordPress, Squarespace, Inc. ( SQSP ), and Shopify Inc. ( SHOP ) operate in similar spheres, offering website building, e-commerce, and digital marketing services. Wix.com's competitive edge lies in its intuitive drag-and-drop editor, a wide range of customizable templates, and the integration of artificial intelligence tools for enhanced website creation and optimization.

The company's growth drivers include continuous product innovation, especially in AI-driven tools that enhance the user experience and conversion rates. Additionally, partnerships and collaborations, such as the strategic agreement with Intuit and Mailchimp, open up opportunities to expand offerings and tap into new customer segments. As online presence becomes increasingly vital for businesses and individuals, Wix.com's user-friendly platform, coupled with its evolving technology, positions it favorably for continued growth and market expansion in my view.

Financial overview

Wix.com has demonstrated consistent year-over-year top-line growth, reflecting an upward trajectory in its financial performance. In Q3 2023 , the company reported a noteworthy surge in revenue, hitting $1.51 billion over the TTM. Concurrently, the gross profit margin has exhibited steady annual growth, standing at 62%, underscoring the efficiency in revenue conversion and profit generation.

While the net income has sustained a negative trend over the past decade, the trailing twelve months show a marked improvement with a negative $8.8 million, signifying a substantial enhancement from FY2022's figure of negative $424.9 million.

Levered free cash flow for the TTM amounted to $132.6 million, reflecting an improvement over FY2022. Notably, the company anticipates a free cash flow margin between 20 and 21% for FY 2023, excluding HQ investments, attributable to enhanced operational efficiency.

Wix.com has cash and cash equivalents totaling $504.7 million TTM while maintaining long-term debt at $568.9 million, similar to the prior quarter's $568.1 million. With a quick ratio of 1.22, the company remains sufficiently liquid to cover its short-term liabilities, signifying a stable financial position for potential investors.

Valuation

Wix.com has surged by 40.95% in the last six months following bullish endorsements from Barclays Capital and Bank of America . With 258 million users and 4 million premium subscribers, Wix.com leads the website-building sector, particularly in SMBs and professional segments, signalling strong growth prospects. The targeted margin expansion from 4% in 2021 to an anticipated 25% in 2025, underscores Wix.com's drive toward profitability, especially within higher-margin business customer segments and AI-powered innovation.

The company's consistent pattern of exceeding expectations in financial performance, coupled with upbeat revenue growth forecasts and expanding gross margins, bolsters the case for a positive valuation.

In relation to its industry peers, Wix.com appears favorably positioned regarding its forward price-to-earnings ratio of 25.54. In comparison to Squarespace, Inc. ((SQSP)) trading at a ratio of 36.02, and Shopify Inc. ((SHOP)) at 107.05, Wix.com's lower multiple suggests potential undervaluation. Despite experiencing notable price momentum, this valuation comparison indicates a possible discrepancy, possibly due to the market not fully pricing in Wix.com's improving revenue and gross margin trajectory, attributed to proactive cost efficiency and product innovation highlighted by both Bank of America and Barclays Capital.

Wix.com's significant market share position as the leading simpler website builder, surpassing Squarespace in 2021 , further accentuates its competitive strength. Considering Wix.com's growth potential and dominant market position, this undervaluation relative to its peers might be indicative of untapped potential, making it an attractive prospect within the sector.

Risks

Investing in Wix.com comes with several considerations. First, the company's growth trajectory in the self-creator segment is influenced by macroeconomic factors beyond its control. While their innovative products aim to sustain growth, economic downturns or prolonged instability could hinder their ambitions for double-digit growth. Second, the competitive landscape poses a risk, particularly in agency partnerships. Wix.com's reliance on attracting more agencies for growth might face challenges if competitors intensify or saturate the market with similar offerings, potentially impacting market share. Lastly, the company's significant dependence on strategic partnerships like the Intuit and Mailchimp agreement raises concerns regarding exclusivity and commitment. Changes in partnership terms or reduced commitments might impact revenue projections, given the crucial role these partnerships play in Wix.com's expansion plans.

Final thoughts

Wix.com has shown significant improvement YoY in its top and bottom line performance. The company's progress stems from a growing user base encompassing individuals and businesses, accompanied by notable advancements in cash flow, an expanding profitable customer segment, and improved operational efficiencies. These positive financial indicators suggest a favorable outlook for investors, supporting a bullish perspective on Wix.com

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