Website design and e-commerce platform provider Wix.com (NASDAQ:WIX) beat analyst expectations in Q1 FY2023 quarter, with revenue up 9.51% year on year to $374.1 million. Guidance for next quarter's revenue was $382.5 million at the midpoint, which is 1.3% above the analyst consensus. Wix made a GAAP loss of $10.4 million, improving on its loss of $227.3 million, in the same quarter last year.
Wix (WIX) Q1 FY2023 Highlights:
- Revenue: $374.1 million vs analyst estimates of $369.3 million (1.28% beat)
- EPS (non-GAAP): $0.91 vs analyst estimates of $0.16 (474% beat)
- Revenue guidance for Q2 2023 is $382.5 million at the midpoint, above analyst estimates of $377.6 million
- The company reconfirmed revenue guidance for the full year, at $1.53 billion at the midpoint
- Free cash flow of $25 million, down 35.1% from previous quarter
- Gross Margin (GAAP): 65.4%, up from 60.6% same quarter last year
Founded in 2006 in Tel Aviv, Wix.com (NASDAQ:WIX) offers a free and easy to operate website building platform.
Brothers Avishai and Nadav Abrahami founded Wix.com with their friend Giora Kaplan. The founders wanted to build a website for a new start up, but were frustrated with how needlessly difficult it was to do that. At that time, Wix found a ready market because many businesses were building their first websites. Since then, millions have used Wix to build and manage the websites they need.
Today, businesses can use Wix.com to build just about any kind of website they need, whether it requires appointment scheduling, membership levels or even the sale of digital content like videos. Wix Business Solutions, which includes payment processing, gives Wix an opportunity to grow revenue as its customers grow revenue, by taking a small cut. Wix is essentially trying to become a one stop shop for businesses from hairdressers to hotels to set up their online presence.
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.
Because you can do so much with Wix.com, it could be said to compete with e-commerce companies like Shopify (NYSE:SHOP), as well as website building platforms like Squarespace, Wordpress and Webflow.
Sales Growth
As you can see below, Wix's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $304.1 million in Q1 FY2021, to $374.1 million.
Wix's quarterly revenue was only up 9.51% year on year, which might disappoint some shareholders. We can see that the company increased revenue by $19 million quarter on quarter re-accelerating up on $9.24 million in Q4 2022.
Guidance for the next quarter indicates Wix is expecting revenue to grow 10.8% year on year to $382.5 million, improving on the 9.11% 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 9.92% over the next twelve months.
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 65.4% in Q1.
That means that for every $1 in revenue the company had $0.65 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.
Cash Is King
If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Wix's free cash flow came in at $25 million in Q1, turning positive year on year.
Wix has generated $25.1 million in free cash flow over the last twelve months, 1.77% of revenues. This FCF margin is a result of Wix asset lite business model, and provides it with at least some cash to invest in the business without depending on capital markets.
Key Takeaways from Wix's Q1 Results
With a market capitalization of $4.31 billion Wix is among smaller companies, but its more than $624.6 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
It was good to see Wix improve their gross margin this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $83.9 per share.
Is Now The Time?
When considering Wix, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Wix we will be cheering from the sidelines. Its revenue growth has been weak, and analysts expect growth rates to deteriorate from there. And on top of that, unfortunately its gross margins show its business model is much less lucrative than the best software businesses.
Wix's price to sales ratio based on the next twelve months is 2.9x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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