Website design and e-commerce platform provider Wix.com (NASDAQ:WIX) reported Q2 FY2023 results beating Wall Street analysts' expectations, with revenue up 13% year on year to $390 million. Guidance for next quarter's revenue was also better than expected $388.5 million at the midpoint, 1.03% above analysts' estimates. Wix made a GAAP profit of $33.6 million, improving from its loss of $111.2 million in the same quarter last year.
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Wix (WIX) Q2 FY2023 Highlights:
- Revenue: $390 million vs analyst estimates of $382.6 million (1.92% beat)
- EPS (non-GAAP): $1.26 vs analyst estimates of $0.60 (111% beat)
- Revenue Guidance for Q3 2023 is $388.5 million at the midpoint, above analyst estimates of $384.5 million
- The company lifted revenue guidance for the full year from $1.53 billion to $1.55 billion at the midpoint, a 1.17% increase
- Free Cash Flow of $32 million, up 27.9% from the previous quarter
- Gross Margin (GAAP): 67.2%, up from 61% in the same quarter last year
"It has been an incredible past six months at Wix on many fronts as we generated accelerating profitable growth through execution excellence and focused operational discipline. As a result, Q2 again performed above expectations and exceeded our revenue growth and FCF margin guides. In addition to this outperformance, we also made remarkable strides in our product evolution with the introduction of our new cornerstone Partner product, Wix Studio," said Avishai Abrahami, Wix Co-founder and CEO.
Founded in 2006 in Tel Aviv, Wix.com (NASDAQ:WIX) offers a free and easy to operate website building platform.
While e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.
Sales Growth
As you can see below, Wix's revenue growth has been steady over the last two years, growing from $316.4 million in Q2 FY2021 to $390 million this quarter.
This quarter, Wix's quarterly revenue was once again up 13% year on year. However, its growth did slow down a little compared to last quarter as the company increased revenue by $15.9 million in Q2 compared to $19 million in Q1 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Wix is expecting revenue to grow 12.3% year on year to $388.5 million, improving on the 7.8% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 10.3% over the next 12 months.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. 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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 67.2% in Q2.
That means that for every $1 in revenue the company had $0.67 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Wix's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.
Key Takeaways from Wix's Q2 Results
Sporting a market capitalization of $5.03 billion, Wix is among smaller companies, but its more than $468 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
It was great to see Wix improve its gross margin this quarter. We were also happy that its revenue growth outperformed Wall Street's expectations, even if just narrowly. Improvement in free cash flow was also a good sign. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is flat after reporting and currently trades at $88.6 per share.
So should you invest in Wix right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.