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Wix's (NASDAQ:WIX) Q1 Earnings Results: Revenue In Line With Expectations, Stock Soars


Full Report / May 20, 2024

Website design and e-commerce platform provider Wix.com (NASDAQ:WIX) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 12.2% year on year to $419.8 million. On the other hand, the company expects next quarter's revenue to be around $433 million, slightly below analysts' estimates. It made a non-GAAP profit of $1.29 per share, improving from its loss of $0.15 per share in the same quarter last year.

Wix (WIX) Q1 CY2024 Highlights:

  • Revenue: $419.8 million vs analyst estimates of $417.8 million (small beat)
  • Bookings: $457.3 million vs analyst estimates of $451.4 million (1.3% beat)
  • Operating income (non-GAAP): $69.4 million vs analyst estimates of $62.0 million (12.0% beat)
  • EPS (non-GAAP): $1.29 vs analyst estimates of $1.04 (23.6% beat)
  • The company raised its revenue guidance for the full year of $1.75 billion at the midpoint ("The midpoint of this updated outlook is ~$8 million higher than the midpoint of our previous outlook of $1,726 - $1,757 million as a result of better visibility in our business and higher bookings expectations")
  • Gross Margin (GAAP): 67.3%, up from 65.6% in the same quarter last year
  • Free Cash Flow of $105.7 million, up 31.5% from the previous quarter
  • Market Capitalization: $7.59 billion

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.

E-commerce Software

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 three years, growing from $300.8 million in Q1 2021 to $419.8 million this quarter.

Wix Total Revenue

This quarter, Wix's quarterly revenue was once again up 12.2% year on year. We can see that Wix's revenue increased by $16.01 million quarter on quarter, which is a solid improvement from the $9.93 million increase in Q4 CY2023. Shareholders should applaud the re-acceleration of growth.

Next quarter's guidance suggests that Wix is expecting revenue to grow 11% year on year to $433 million, slowing down from the 13% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 12.5% over the next 12 months before the earnings results announcement.

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 67.3% in Q1.

Wix Gross Margin (GAAP)

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. Wix's gross margin is poor for a SaaS business and it's dropped significantly since the previous quarter. This is probably the exact opposite of what shareholders would like to see.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Wix's free cash flow came in at $105.7 million in Q1, up 322% year on year.

Wix Free Cash Flow

Wix has generated $262.9 million in free cash flow over the last 12 months, a solid 16.4% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.

Key Takeaways from Wix's Q1 Results

The company reported a small beat on revenue but a more convincing one on bookings. Wix also beat handily on the operating income line and raised full year revenue guidance, saying that it has more visibility on bookings today than it did last time it gave guidance, which is encouraging. Overall, the results were solid. The stock is up 7.4% after reporting and currently trades at $146 per share.

Is Now The Time?

When considering an investment in Wix, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

Although Wix isn't a bad business, it probably wouldn't be one of our picks. Its revenue growth has been uninspiring over the last three years, and analysts expect growth to deteriorate from here. And while its strong free cash flow generation gives it re-investment options, unfortunately, its gross margins aren't as good as other tech businesses we look at.

Wix's price-to-sales ratio based on the next 12 months is 4.4x, suggesting the market has lower expectations for the business relative to the hottest tech stocks. We can find things to like about Wix, and there's no doubt it's a bit of a market darling, at least for some. However, we think there are better opportunities elsewhere right now.

Wall Street analysts covering the company had a one-year price target of $157.05 right before these results (compared to the current share price of $146).

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