WIX - Wix.com upgraded by RBC Capital on pricing power strong free cash flow

Wix.com ( NASDAQ: WIX ) shares rose more than 1% in premarket trading on Thursday as RBC Capital Markets upgraded the website development company, citing its pricing power and its strong free cash flow position.

"We see WIX as a solid defensive play benefiting from structurally higher new business formation vs. pre-COVID, in the midst of exerting its pricing power for its very sticky subscription business and on a path towards significant & underappreciated [free cash flow] growth over the next several years," analyst Brad Erickson wrote in a note to clients.

Erickson raised his rating on Wix.com ( WIX ) shares to outperform from sector perform, while boosting the per-share price target to $100 from $80.

In addition, Erickson noted that Wix.com ( WIX ) has faced headwinds since it stopped seeing COVID-19 related benefits in the middle of 2021, including lower-quality subscriber churn and "structurally higher" new business formation compared to prior to COVID. It has also faced headwinds to its subscriber base and dealt with the weakening economy and impact from Apple's ( AAPL ) Identifier for Advertisers, but Erickson said "all of this is generally known and understood" and thus, should not be a surprise to investors.

In the near and medium-terms, Wix.com ( WIX ) could raise prices every three to four years and the headwind of new business formation is likely here to stay, which should wind up being a benefit to the company.

"We like WIX's differentiated focus on product development, particularly for [e-commerce] solutions where we think the opportunity to grow and gain share both in agency channels as  well as from Wordpress, remains significant," Erickson added.

The company may also benefit if it is able to hit its longer-term growth targets provided at last year's analyst day, as well as moderating foreign exchange headwinds and the fact it has become more shareholder friendly, citing the presence of activist investor Starboard and a share buyback program.

Erickson also noted Wix.com ( WIX ) could be a M&A candidate, perhaps merging with competitor GoDaddy ( GDDY ), given that both companies count activist investor Starboard as an investor.

Earlier this month, Wix.com ( WIX ) said the Israeli court authorized its repurchase program for an additional six months through July 4, 2023 .

Analysts are largely cautious on Wix.com ( WIX ). It has a HOLD rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates WIX a HOLD .

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