Wix.com (WIX 85.66, -5.65, -6.19%) is trading lower today despite reporting
upside Q3 results and providing in-line guidance. The company, based in Israel,
offers a web development software platform enabling small business owners,
free-lancers, and entrepreneurs to develop online outposts for their businesses.
WIX offers some free products (available for registered users) with the hope that
satisfied users will eventually upgrade to paid subscriptions in order to
benefit from the platform’s fuller offering of features, such as increased
storage and bandwidth or free domains. Wix currently has over 137 mln
registered users worldwide.
The company’s core product is the Wix Editor, a drag-and-drop website editing platform that provides a range of templates, graphics, image galleries, and fonts to employ in website construction. Via this product, users create websites that can be viewed across all major browsers and mobile devices. WIX has created page templates designed to support several verticals (retail/online stores, hotel and property management, musician and artist pages, restaurants, etc.) that can be set up with ease and without the need to write code.
Its other major offering is its App Market, which allows users to install 250+ free and purchasable apps, from social plug-ins to CRM management tools to contact forms to payment processing services. These apps add additional functionality and are easily integrated into WIX websites with one click and, again, without any coding. Another offering, Wix ADI, combines website design and content creation with artificial intelligence to enable a complete, custom website suited to its owner’s needs to be created in a matter of minutes. In December 2017, Wix officially launched Wix Code to all users, providing users with the support necessary to simply build sophisticated features. Wix Code greatly expands Wix's addressable market by bringing a cloud-hosted platform to creators and designers that allows them to take advantage of a serverless development environment to build SEO-compatible web applications and other interactive features.
Turning to the Q3 results, non-GAAP EPS jumped to $0.39 from just $0.01 last year, which was much better than market expectations. Revenue rose 40.2% year/year to $155.6 mln, above prior guidance of $152-153 mln. For Q4, WIX expects revenue of $161-162 mln, which is roughly in-line with expectations. The company also announced a $100 mln share repurchase plan.
What stands out to us about these operating metrics is that registered users grew 20% year/year to 137 mln. That's a lot of growth off of such a large base. It's easy to post huge growth numbers when a platform is small, but 20% growth is quite robust for a 100+ mln registered user pool. Also, Wix says that accelerating monetization drove results as average revenue per subscription increased 11% year/year and conversion increased.
Also worth noting is that Wix.com has entered the payments game with its recently launched platform Wix Payments. Designed to help owners manage and grow their businesses, Wix Payments allows users to set up and accept payments without necessary integration of third-party payment providers. Wix Payments also enables small businesses to efficiently manage their entire financial flow, from sales to payouts, in a single place. Wix Payments is available now in Brazil and will be available in the U.S. and Europe in early 2019.
Another positive is that though Wix Code has not even been
out for a year, it's really seeing good momentum as new functionalities have
enabled users to create more complex websites. Wix is penetrating the
professional market quicker than the company had expected. Users of Wix Code
who have purchased subscriptions are purchasing multiple subscriptions at a
rate of more than 4x non-Wix Code users.
It's not entirely clear why the stock is trading lower despite the upside results. Potentially the action is connected to the report that Wix saw a dip in non-GAAP gross margin to 80% from 84% last year, although this appears to be more of an accounting change issue. Also, perhaps investors wanted to see some upside guidance for Q4. Despite the stock reaction, this looks like another good quarter for Wix.