GDDY - Wix.com: Hidden Value Play

Summary

• The e-commerce market is expected to continue growing, and Wix.com is well-positioned to capitalize on this trend through its expanding product offerings and increased monetization efforts.
• Recent improvements on the monetization side will guide the company to quarterly profitability in 2023.
• Competition remains a question mark; however, Wix's product experience is superior to its competitors which will allow them to prevail in the market.
• I rate the stock as "Buy" with as much as 52.4% upside from today's price on the back of a recovering E-Commerce Market.

Wix.com (WIX) is a leading cloud-based web development platform with a strong focus on providing small businesses and individuals with an easy-to-use and intuitive platform for creating professional websites. The company has a growing user base, with over 238 million registered users and approximately 6 million premium subscribers. One of the critical strengths of Wix is its strong brand recognition and customer loyalty. The company has invested heavily in marketing and has developed a strong reputation for providing high-quality and user-friendly web development tools. As a result, Wix has a large and loyal customer base that is likely to continue using the platform for the long term, as seen from the strong development of its quarterly cohorts. Another key strength of Wix is the diversity of its revenue streams. In addition to its core web development platform, the company also generates revenue from various other sources, including e-commerce, advertising, and premium services. This diversification of revenue streams helps to reduce the company's overall risk profile and provides a more stable foundation for long-term growth.

Overall, Wix represents a compelling investment opportunity for those looking to capitalize on the growing demand for web development tools and services. The company's strong brand recognition, customer loyalty, and diverse revenue streams make it well-positioned to continue growing and outperforming the market in the long term, which is why I rate the stock as "Buy."

E-Commerce Market

The ShopTech infrastructure and e-commerce market have experienced significant growth over the past several years as more and more consumers have turned to online channels for their shopping needs. This trend has been fueled by various factors, including the widespread adoption of mobile devices, the increasing availability of high-speed internet, and the convenience and ease of shopping online.

Wix has played a significant role in this market, providing small businesses and individuals with an easy-to-use platform for building and hosting professional websites. The company's e-commerce capabilities have been particularly important, as they allow users to set up online stores and sell their products and services directly to consumers.

Looking to the future, the e-commerce market will continue to grow rapidly. Several forecasts project growth to be around 12% p.a. for at least the next three to four years as more and more consumers become accustomed to shopping online and new technologies emerge to facilitate this trend. Still, global online retail amounts to only 15-20%, which will be 50% and more towards the end of the decade. Wix, although it has seen declining growth in recent quarters, is well-positioned to capitalize on this growth as it continues to develop and improve its platform and expand its offerings to meet the evolving needs of its customers.

Increasing Monetization and Profitability

Wix has made several efforts to improve its monetization in recent years to push for profitability and drive long-term growth. One key focus for the company has been increasing the average revenue per user ((ARPU)) through selling premium products and services. To this end, Wix has introduced a number of new premium offerings, such as advanced design and development tools, e-commerce capabilities, and marketing and advertising services. These offerings are targeted at the company's most active and engaged users, who are more likely to be willing to pay for additional features and functionality.

In addition to selling premium products and services, Wix has also looked to increase its monetization through advertising. The company has developed several advertising products and services that allow businesses to target specific user segments and promote their products and services through the Wix platform. This has helped to diversify the company's revenue streams and provide a new source of income.

Finally, Wix has also focused on improving its operational efficiency to drive profitability. This has included optimizing the company's marketing and sales efforts, implementing cost-cutting measures, and streamlining its operations. These efforts have helped to improve the company's bottom line and set the stage for long-term profitability.

Overall, Wix's efforts to improve monetization have driven growth and pushed the company toward profitability. As the company continues to focus on these efforts, it will likely be well-positioned to continue growing and outperforming the market in the long term.

Valuation

According to my forecasts, Wix's fair valuation at $123.28, representing an upside to today's price of 52.4%. Wix has seen continuous customer growth in recent quarters, driven by the stark rise in demand for web development services. Hence, as the company continues to add customers while raising its ARPU slowly but steadily, Wix's revenue should continue to grow at approximately ~10% p.a. over the next five years, fueled by a reaccelerated E-Commerce business and more robust demand once economic sentiment will improve. Further, as the company has seen massive improvements in its monetization efforts (see graphic above), I expect Wix to take advantage of operating leverage to push through in terms of profitability, which I expect to materialize in 2023. As a result, I expect EBITDA to grow almost 27.4% p.a. over the following years to ~$457 million by 2026. Wix has always traded cheaply relative to its peers. While the times of massive growth appear to be over for the company, Wix remains excellent from the fundamentals and expects margin expansion to make this stock a hidden value play.

Risks

There are some potential downside risks to investing in Wix. One risk is the company's reliance on the continued growth of the e-commerce market. While it is probable that the e-commerce market will continue to grow, as outlined above, recent economic turmoil and, consequently, declining consumer sentiment have shown that the market can quickly slow down and contract, which would affect Wix and its push for profitability negatively.

The web development platform market is highly competitive, with many companies vying for market share. Wix, Shopify (SHOP), WooCommerce, Magento (ADBE), and GoDaddy (GDDY) are among the leading players in this market. Each of these companies offers a range of products and services for building and hosting. The result is a highly competitive market dynamic, which makes further growth more complex and may result in a full-blown price war. I assess the eventuality of this scenario turning into reality to be low-medium. Nonetheless, it remains essential for potential investors to track over the following years.

Finally, there is also the risk of technological change and disruption. The web development industry constantly evolves, and new technologies and platforms may emerge that render Wix's products and services obsolete. If this were to happen, it could negatively impact the company's financial performance and market position.

Overall, while Wix has a strong brand and a large and growing user base, there are some potential risks to investing in the company. It is crucial for investors to consider these risks carefully and to thoroughly research the company before making any investment decisions.

Conclusion

Wix has seen strong growth in recent years. The company has made several efforts to improve its monetization, including introducing premium products and services and expanding its advertising offerings. These efforts have helped drive growth and push the company toward profitability. As the e-commerce market continues to grow, with forecasts projecting growth of around 12% per year for the next several years, Wix is well-positioned to capitalize on this trend.

Despite these challenges, the company's strong brand, customer loyalty, and diverse revenue streams make it a compelling investment opportunity and a "Buy," according to my analysis. However, Wix does face competition from other web development platforms, and there is always the risk of technological change and disruption. It is vital for investors to carefully consider these potential risks before making any investment decisions.

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