Wix

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

Wix is a global, cloud-based web development platform, offering tools for individuals and businesses to create, manage, and grow their online presence through an intuitive, fully integrated digital experience.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Wix’s core business revolves around creative subscriptions, encompassing website design and hosting solutions, as well as business solutions, which are mainly related to online sales, marketing, etc, and that provides an AI-based platform, allowing users to set up their websites quickly. The company generates revenue through these avenues by offering a variety of premium subscription plans for website solutions and by offering business solutions. They also generate revenue through ad-hoc services provided to registered users (like domain registration) and through payments fees processed using their payments platform.

Revenue Distribution

In 2023, Wix’s total revenues were $1.387 billion, showing a mix of Creative Subscriptions (75%), and Business Solutions (25%). Breaking down the revenues by geography, the company generates the bulk of revenue from North America (59%), while the Europe region generates 26%, Asia and other regions are 12%. This geographical revenue shows that company still has a lot of room to grow in new geographical locations.

The web development and e-commerce solutions market is experiencing a steady growth, driven by the increasing need for businesses to establish a robust online presence. The shift towards digitization and the increasing adoption of e-commerce platforms are key growth drivers. Competition is intensifying in the market, as a result companies are under pressure to maintain competitive pricing and continuously innovate their services, and implement new technologies. This dynamic landscape requires companies to be technologically innovative, and provide a consistent user-experience to attract new users and retain existing ones. The use of AI has been instrumental in shaping the web development landscape, with many players using the technology to offer better experiences and simplify the development process, that provides good opportunities but also potential disruptions.

Competitive Landscape

Wix’s key competitors include companies that provide website building platforms, such as Squarespace, Weebly, and Shopify. Additionally, there are large tech companies like Microsoft and Google that offer similar services, as well as countless smaller players. Each competitor has its own niche and strategy. However, many competitors provide more traditional website builder platforms, rather than having all-in-one integrated approach such as Wix.

What Makes Wix Different

Wix distinguishes itself through its comprehensive all-in-one platform, which offers a high-quality code and drag-and-drop website builder, various web applications, and a large portfolio of business solutions. The company also relies heavily on AI to improve user experience and provide more value to users by adding functionalities like AI website builder. These all aim to create better products for different types of users and differentiate from rivals.

Financial Analysis

  • Revenues: Wix has shown a consistent revenue growth over the last few years, with revenues reaching $1.387 Billion in 2023, representing a 9% year-over-year growth. Notably, there was a strong increase in business solutions revenue with growth of more than 17%.
  • Profitability: Wix is currently operating at a loss as a result of several factors, but there are improvements. Gross profit was at 62.1%, an increase of 2% YoY. Operating losses improved by about 5%, and the net loss improved by 64%.
  • Cash flow: The company reported positive cash flow from operating activities, at around $250 million. However, their free cash flow is still negative at -$31 million, as they keep on investing in the platform.
  • Share Based Compensation: Share-based compensation has decreased from $221.4 million to $224.6 million from 2021 to 2023, even though the percentage of share-based compensation in terms of revenue has decreased from 18% to 16%.
  • Convertible Notes: In terms of financial stability, it is important to note they have significant amount of convertible debt, with $575 million principal amount on the 2023 notes, and $447.8 million on 2025 notes. Conversion of these bonds at such large numbers might cause a risk for existing shareholders as they might dilute their ownership if converted to common stock.

Recent Concerns/Controversies/Problems

Wix’s business and operations were impacted by the war in Ukraine, as their Ukraine team was impacted. Also, they have incurred higher costs by providing additional support to their Israeli employees due to Israel’s war, but these are expected to have a small effect on their overall financials. They are also facing competition in the form of a new wave of companies using AI to provide web-creation capabilities. However, Wix’s management believes they are on the forefront of the AI race, and they also provide a more comprehensive suite of tools than their competitors.

Moat Analysis: 3/5

Wix’s moat is mainly based on the following factors:

  1. Switching Costs: The platform is highly integrated and comprehensive, which creates some sort of stickiness as users face switching costs when changing platforms. This is more prevalent for their premium and business users, while the user base of free plans can easily switch.
  2. Network effects: A large number of businesses using the platform attracts developers, freelance designers and other users of their app market, creating a two-sided market. This network has yet to fully play out its effects, and is still relatively nascent.
  3. Intangible Assets: The company’s core brand is recognizable, and it’s also a leader when it comes to user experience, but they don’t currently have a moat in terms of the technology they’re offering, because other competitors have created good website-creation tools and also implemented AI to make it better and faster. However, their patents related to AI may create a moat in the future if it makes it harder for competitors to produce similar products.

Moat Rating: 3/5

Wix has a narrow moat. It is not a strong moat, but it is still one that is likely to be beneficial for shareholders in the long term. While Wix has created a brand and is a well-known platform, its strength mostly relies on its integrated platform and high switching costs from users. Since they are a software company, its user base is very susceptible to switching to a better technology. Because of that, they will need to continue developing and integrating new technologies, as well as continue to expand their business solutions offering in order to keep users inside their ecosystem.

Balance Sheet Health: 4/5

Wix’s balance sheet is reasonably healthy, but with some things to keep in mind:

  1. Liquidity: The company has a solid cash position and marketable securities, allowing them to cover short term financial obligations.
  2. Debt: The company has a large amount of convertible notes which may pose a problem if interest rates increase further. Since the bondholders have a choice of converting to shares, or getting repaid, that is a risk for shareholders as the increase in shares would cause dilution. The current bond position of the company makes it hard for them to acquire other companies by leveraging up even more, as their borrowing level is high.
  3. Overall: Wix has a mixed, but overall positive financial outlook. They are generating good cash from operations, and also have significant cash reserves that make their financial position safe. However, the company’s profitability needs to improve, and they need to pay down their debt to get to an even more stable position.

Understandability: 3/5

Wix’s business model is relatively easy to grasp, however, its financials are more intricate and require a good understanding of accounting. The key is understanding the company’s business operations and the different revenue streams. You also need to know how certain operations affect profitability and cash flows. While their target market is not difficult to grasp, their business strategy is not as transparent as others. This makes Wix a 3/5 on the understandability scale, with 1 being very easy and 5 being highly complicated to understand.

Other Notes

  • The company has made several changes to its management recently, and it remains to be seen if those changes will lead to increased profitability for the company.
  • The increasing competition from AI-enabled websites means their current moat might be under threat.
  • It’s important to monitor the company’s future profitability because while revenue has shown a good increase, the profit is still negative. If they don’t improve their profitability and increase cash flow, then the company’s value may be severely hampered.
  • The company has laid off workers to improve profitability, but this process is ongoing, so it remains to be seen if it can significantly improve their profitability.