Website design and e-commerce platform provider Wix.com (NASDAQ:WIX) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 9.1% year on year to $345.2 million. However, guidance for the next quarter was less impressive, coming in at $343 million at the midpoint, being 3.52% below analyst estimates. Wix made a GAAP loss of $111.2 million, down on its profit of $37.9 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 FY2022 Highlights:
- Revenue: $345.2 million vs analyst estimates of $344.3 million (small beat)
- EPS (non-GAAP): -$0.14 vs analyst estimates of -$0.33
- Revenue guidance for Q3 2022 is $343 million at the midpoint, below analyst estimates of $355.5 million
- Free cash flow was negative $15.9 million, compared to negative free cash flow of $33.5 million in previous quarter
- Gross Margin (GAAP): 60.9%, down from 61.6% same quarter last year
"We are pleased with our fundamental business improvement this quarter as Wix continues to be the go-to platform for any type of user and any type of business globally," 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.
As you can see below, Wix's revenue growth has been mediocre over the last year, growing from quarterly revenue of $316.4 million, to $345.2 million.
Wix's quarterly revenue was only up 9.1% year on year, which might disappoint some shareholders. And the growth did slow down compared to last quarter, as the revenue increased by just $3.62 million in Q2, compared to $13.2 million in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates Wix is expecting revenue to grow 6.92% year on year to $343 million, slowing down from the 26.2% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 13.3% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
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, licenses, technical support and other necessary running expenses was at 60.9% in Q2.
That means that for every $1 in revenue the company had $0.60 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 we would like to see it start improving.
Key Takeaways from Wix's Q2 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Wix’s balance sheet, but we note that with a market capitalization of $3.91 billion and more than $1.16 billion in cash, the company has the capacity to continue to prioritise growth over profitability.
We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Wix. The company is up 1.48% on the results and currently trades at $69.79 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 actionable report which you can read here, it's free.
One way 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.