Wix's (NASDAQ:WIX) Q3 Earnings Results: Revenue In Line With Expectations, Gross Margin Improves

Jabin Bastian /
2022/11/10 2:44 am EST

Website design and e-commerce platform provider Wix.com (NASDAQ:WIX) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 7.79% year on year to $345.8 million. The company expects that next quarter's revenue would be around $351.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Wix made a GAAP loss of $47.3 million, down on its profit of $16.6 million, in the same quarter last year.

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Wix (WIX) Q3 FY2022 Highlights:

  • Revenue: $345.8 million vs analyst estimates of $343.4 million (small beat)
  • EPS (non-GAAP): $0.06 vs analyst estimates of -$0.10 ($0.16 beat)
  • Revenue guidance for Q4 2022 is $351.5 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow was negative $22.6 million, compared to negative free cash flow of $15.9 million in previous quarter
  • Gross Margin (GAAP): 63%, up from 61.8% same quarter last year

"Wix continues to be the preferred platform for millions globally. Demand for building, maintaining, and growing an online presence remains healthy, driving strong business fundamentals for Wix this quarter," 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 strong over the last two years, growing from quarterly revenue of $254.1 million in Q3 FY2020, to $345.8 million.

Wix Total Revenue

Wix's quarterly revenue was only up 7.79% year on year, which might disappoint some shareholders. But the growth did slow down compared to last quarter, as the revenue increased by just $581 thousand in Q3, compared to $3.62 million in Q2 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 7.05% year on year to $351.5 million, slowing down from the 18% 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 9.25% over the next twelve months.

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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 63% in Q3.

Wix Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.63 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from Wix's Q3 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 $4.08 billion and more than $816.7 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We enjoyed seeing Wix’s improve their gross margin materially this quarter. That feature of these results really stood out as a positive. On the other hand, revenue growth is slow these days and cash burn is increasing. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is down 0.73% in the premarket and currently trades at $69.01 per share.

Should you invest in Wix 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.

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