Is Wix Stock a Good Long-Term Investment?

Wix.com (NASDAQ: WIX), known for giving individuals and small businesses the ability to build websites without technical expertise, saw its stock take a hit after the release of second quarter results on August 10. After hovering around $ 300 per share in the weeks leading up to results, the share price fell to a 52-week low at $ 171.37 on October 6.

The price drop follows the company’s announcement that it was lowering its guidance for year 2021. Does the drop in the stock price signal a buying opportunity or is Wix a business to avoid ?

To answer this question, let’s look at the current performance of the company and its outlook. Then we can determine if Wix is ​​a worthwhile long-term investment.

Image source: Getty Images.

The State of Wix Today

Wix generates revenue using a software as a service (SaaS) model, where customers pay a monthly subscription for its products and services. These offers range from website building to email marketing. The SaaS approach provides reliable recurring revenue.

The business benefited from the pandemic’s stay-at-home demands, which forced many small businesses to focus on online sales. Wix saw its revenue in 2020 jump to $ 988.8 million from $ 761.1 million in 2019. But even before the pandemic, its revenue had steadily increased for years.

WIX Revenue Graph (Quarterly)

Data by YCharts.

This is why the downgrading of Wix guidance is a worrying sign. It generated sales of $ 316 million in the second quarter. In the third quarter, the company expects revenue to be between $ 311 million and $ 317 million, roughly the same as in the second quarter.

CFO Lior Shemesh explained the lower forecast, saying, “We faced more headwinds than expected in the second half of the quarter” due to a slowdown in the number of people joining Wix in the second quarter. The company attributed the slowdown to customer uncertainty about the progression of the pandemic.

It will take time to see if the slowdown in user growth continues. But even with a reduced forecast, the third quarter revenue forecast will be a double-digit increase from last year’s $ 254.2 million. And Wix expects annual revenue of at least $ 1.255 billion in 2021, a big increase from $ 988.8 million in 2020.

The potential of Wix

Understandably, the collapsed tips raise questions about the future of Wix. Are the years of steady growth of the company finally drawing to a close?

If its basic freemium model (where customers can build a free website and then switch to a subscription plan for more features) begins to show reduced customer growth, Wix has several opportunities to continue expanding its business. his income.

At the end of 2020, North America generated nearly 60% of its turnover. This strong focus on the domestic market allows Wix to accelerate revenue growth by expanding into other geographies.

Another area of ​​growth is payment processing. Wix doesn’t just offer e-commerce functionality on its websites. The company also offers offline point-of-sale functionality to those with physical locations, making Wix a holistic solution for small businesses. Everything is under the umbrella of Payments by Wix.

The company does not break down revenue for payments through Wix. Instead, it falls under its Business Solutions segment, where second-quarter revenue grew 75% year-over-year. During the company’s second quarter earnings call, CEO Avishai Abrahami said, “E-commerce as a percentage of our business has grown. Business solutions only represent 25% of total second quarter revenue, up from 19% last year.

The company is also looking for partnerships to expand its reach. He signed an agreement with Vistaprint, a Cimpress (NASDAQ: CMPR), in August. Vistaprint will offer the Wix platform to its more than 17 million customers, giving Wix access to a large base of established customers.

Wix Action: To Buy or Not to Buy?

The decline in the company’s forecast may seem worrisome on the surface, but it makes sense in the context of Wix’s adjustment to the continued uncertainty injected by the ongoing pandemic. This uncertainty will pass over time.

It should be noted that Wix recorded a net loss of $ 22.9 million through the first half of 2021, but this is an improvement over the net loss of $ 96.9 million from the last year. Additionally, many tech companies operate at a loss for years to finance their growth before they become profitable.

The company’s balance sheet is solid. Its total assets of $ 2.1 billion exceed total liabilities by $ 1.8 billion. Wix also generates constant free cash flow. It had free cash flow of $ 14.7 million in the second quarter and $ 14.6 million in the first. The company ended 2020 with $ 129.2 million in free cash flow, up from $ 127.5 million in 2019.

Wix is ​​doing well financially today. Even with reduced guidance, management expects at least 27% year-over-year growth in 2021. In addition, the company has many areas to fuel continued growth. These factors make it a profitable investment with upside potential for years to come.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Virginia Ahn

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