Tuesday, December 1, 2020

An International Equity holding: Wix.com Ltd. (NASDAQ: WIX, $249.05): “Fast Burning WIX” by: Dan Dunn, AIM Student at Marquette University

 Wix.com Ltd. (NASDAQ: WIX, $249.05): “Fast Burning WIX”

By: Dan Dunn, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


• Wix.com LTD is a cloud-based service that provides website building tools for a variety of customer segments, appealing to both experienced coders as well as the beginner builders. Their software takes the customer through simple steps to customize the website, and both free and premium subscriptions are offered.

• Even as pandemic mentality began to slow down, the initial positive effect of COVID continued to build eCommerce growth through Q3. Revenue is up 29% YoY.

• A new partnership with Vodafone provides the ability to sell-off of Vodafone’s Business Marketplace platform and will continue to expand international exposure.

• The final stages of development of Editor X are now taking place with beta tests. When completed, the new tool should bring significant sales growth to WIX.

• WIX payments and other built-in complementary services will continue to build revenue as newer merchants find the ease of implementation outweighs their small fees.  

Key points: COVID-19 drove WIX to have a fantastic Q3, even with the apparent end of the pandemic on the near horizon. The company beat its highest range of estimates for revenue, bringing in $4.6M more than analysts expected. FCF also exceeded expectations, coming in at $19.4M. Collections numbers were also better than expected. 

The increase of world-wide digitalization due to the pandemic appears to have added to the company’s success, with the demand for website building and hosting increasing. A lot of this growth has come from brick-and-mortars that are moving online. However, the company has also been able to continue to develop its product portfolio and innovate to meet customer needs. Management is expected to take a hit in FCF in the next few months to continue to push the success of these added products through continued aggressive marketing and sales. 

Editor X is expected to debut this year and is currently in beta. The company has stated that they are not currently marketing it aggressively but are expected to do so once they are confident in its finished form. Editor X is a tool designed for professional website designers who can manipulate code to further customize website structure. WIX management has stated they have seen a significantly quick adoption of it by their agencies participating in the beta.

VIX has emphasized and invested into the importance of cybersecurity, and it is expected to pay-off in the long haul. Competitors like WordPress are continuing to see struggles through breaches of their websites, and WIX is expecting many professionals and customers to continue to switch based on these security breaches. The combination of Editor X and tight cybersecurity could be the final tipping point for many professionals who use WordPress to develop websites for their clients.

eCommerce is expected to continue to increase and drive growth. WIX Payments is a large part of this. 80% of the website’s new eCommerce customers are adapting WIX Payments, which is designed to be a streamlined payment process that a consumer visiting a WIX website would be using to pay the merchant. WIX takes a small fee for every transaction using this technology implemented into the merchant’s website. 

What has the stock done lately?

After the announcement of Q3 earnings on Friday, shares were initially down $8.67 after trading closed on Friday, despite the positive sentiment from the earnings call. Shares have risen back to 249.05. In the last three months, shares have fluctuated with the volatility in the market, and have ultimately been down -11.90%, from about $282 in mid August. P/S preliminary for Q3 is reported at 15.5, down slightly from June’s 16.4.

Past Year Performance: WIX shares have increased 103.51% in value YTD. Since the purchase of the shares in late April of 2020, the AIM international portfolio has seen WIX shares grow by slightly more than 100%. Its YTD high is $309.59 and its low traded at $81.50. Compared to the benchmark, Russell 2000, it is significantly outperforming small cap equity, which is up 12.24% in the last full year, while WIX is up 91.03%.

Source: FactSet

My Takeaway

While COVID-19 has had a significant impact on the company’s earnings, a lot of this growth would have come eventually with the growing importance of the online marketplace. The pandemic did little more to WIX than speed up the process at which this was going to happen. Editor X should begin to draw professionals to WIX in the next year, and the company will continue to capitalize on its cybersecurity. The AIM International Fund should continue to hold WIX as long as it continues to innovate and maintain its lead in the website development sector. More consistent and steady growth should occur as the impact of the pandemic winds down in 2021.

Source: FactSet