Website design and e-commerce platform provider Wix.com (NASDAQ:WIX) announced better-than-expected results in the Q3 FY2021 quarter, with revenue up 26.2% year on year to $320.7 million. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $328.5 million at the midpoint, or 0.24% below analyst estimates. Wix made a GAAP profit of $16.6 million, improving on its loss of $56.8 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) Q3 FY2021 Highlights:
- Revenue: $320.7 million vs analyst estimates of $315.1 million (1.77% beat)
- EPS (non-GAAP): -$0.21 vs analyst estimates of -$0.41
- Revenue guidance for Q4 2021 is $328.5 million at the midpoint, narrowly missing what analysts were expecting
- Free cash flow was negative $14.7 million, down from positive free cash flow of $14.7 million in previous quarter
- Gross Margin (GAAP): 61.8%, down from 68.5% same quarter last year
"Our business outperformed our expectations this quarter as we saw improvements in the business environment. Our users are still navigating a great deal of uncertainty, but we believe the impacts have lessened. Despite this volatility, we delivered outstanding results."
Founded in 2006 in Tel Aviv, Wix.com (NASDAQ:WIX) 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 $254.1 million, to $320.7 million.
This quarter, Wix's quarterly revenue was once again up a very solid 26.2% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $4.39 million in Q3, compared to $12.2 million in Q2 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 17.7% over the next twelve months, although estimates are likely to change post earnings.
There are others doing even better than Wix. 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, licenses, technical support and other necessary running expenses was at 61.8% in Q3.
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 Q3 Results
With a market capitalization of $11.2 billion, more than $704.3 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.
Wix delivered solid 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, although it was just by a small amount. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying more or less on target. The company is up 1.54% on the results and currently trades at $201.48 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.