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Wix (NASDAQ:WIX) Q2: Beats On Revenue But Full Year Guidance Underwhelms


Jabin Bastian /
2021/08/11 2:27 am EDT
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Website design and e-commerce platform provider Wix.com (NASDAQ:WIX) reported strong growth in the Q2 FY2021 earnings announcement, with revenue up 34% year on year to $316.4 million. Wix made a GAAP profit of $37.9 million, improving on its loss of $57.7 million, in the same quarter last year.

Is now the time to buy Wix? Access our full analysis of the earnings results here, it's free.

Wix (WIX) Q2 FY2021 Highlights:

  • Revenue: $316.4 million vs analyst estimates of $311.6 million (1.52% beat)
  • EPS (non-GAAP): -$0.28 vs analyst estimates of -$0.41
  • Revenue guidance for Q3 2021 is $314 million at the midpoint, below analyst estimates of $325.2 million
  • The company dropped revenue guidance for the full year, from $1.28 billion to $1.26 billion at the midpoint, a 1.75% decrease
  • Free cash flow of $14.7 million, roughly flat from previous quarter
  • Gross Margin (GAAP): 61.6%, in line with previous quarter

"As the story of the pandemic continues to evolve, there is an uncertainty whether we are at the end of it, or if there is a massive new wave coming again. For our users, this uncertainty means that they don't know if they should create new online or offline stores, services and events. The result of this uncertainty, for us, is a mild slowdown in the creation of new web presences, which is reflected in our financials, where we came in at the low end of our expectations," said Avishai Abrahami, Co-founder and CEO of Wix.

Founded in 2006 in Tel Aviv, Wix.com offers a free and easy to operate website building platform.

Although the share of digital commerce is rising every year, the majority of the small and medium sized businesses have still not fully embraced it. Having a good looking, interactive website is becoming a must but most small and medium sized businesses don’t have expertise or resources to develop one from the scratch. That in effect drives demand for no-code website building platforms.

Sales Growth

As you can see below, Wix's revenue growth has been very strong over the last year, growing from quarterly revenue of $236 million, to $316.4 million.

Wix Total Revenue

And unsurprisingly, this was another great quarter for Wix with revenue up an absolutely stunning 34% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $12.2 million in Q2, compared to $21.5 million in Q1 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 24.5% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Wix's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 61.6% in Q2.

Wix Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.61 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.

Key Takeaways from Wix's Q2 Results

Sporting a market capitalisation of $14.6 billion, more than $713.8 million in cash and with positive free cash flow over the last twelve months, we're confident that Wix has the resources it needs to pursue a high growth business strategy.

It was good to see Wix deliver strong revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue guidance for the full year was downgraded. Overall, this quarter's results could have been better. The company is up 0.79% on the results and currently trades at $261.5 per share.

Wix may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our full report which you can read here, it's free.

One way how to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.