Wix.com ( NASDAQ: WIX ) shares rose on Thursday as investment firm Oppenheimer upgraded the web development company, noting that the involvement of activist hedge fund Starboard is likely to be a "positive catalyst" that could help accelerate changes to the company.
Analyst Ken Wong moved his rating on Wix.com ( WIX ) shares to outperform with a $110 price target, noting that the company said it will deliver roughly 20% margins by fiscal 2025, but that could as high as 30%, especially if Starboard, which has a 9% stake in the company, helps it improve its operations.
"Our conversations indicate that investors are generally constructive on Wix's more balanced approach, but view activist involvement as a positive catalyst to potentially accelerate efforts to streamline operations, and hold management accountable to staying the course (equally important)," Wong wrote in a note to clients. "We believe a combination of these initiatives could deliver meaningful shareholder value."
In addition, Wong noted that Wix.com ( WIX ) is cutting its spending on research and development and sales and marketing, which could help it improve its "curb appeal," given that the company is likely over-investing in both areas compared to its peers. It's also possible the company could start to cut headcount, which it has not really done, outside of Customer Care.
The analyst said that any improvements could be used to buy back stock, as Wix.com ( WIX ) already has a $500M buyback authorization and with improved cash flow, it could grow higher, perhaps as much as $200M per year.
Other issues that could help improve sentiment is the company's investor messaging and being able to "consistently" deliver on conservative, yet achievable targets.
"Investors believe activists serve as a guard rail to keep management focused on operational improvements," Wong explained.
Earlier this month, a Bank of America analyst said the involvement of Starboard in Wix.com ( WIX ) may be about industry consolidation, given it also has a 5% stake in GoDaddy .
Analysts are overwhelmingly bullish on Wix.com ( WIX ). It has a BUY 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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Wix.com rises as Oppenheimer upgrades, citing activist involvement as 'positive catalyst'