Wix.com (NASDAQ: WIX), a global leader in codeless website development, has seen its share price cut in half since reaching an all-time high in February. Although the company slightly revised its full-year revenue and cash flow forecast during the second quarter, the ongoing sale could represent a great potential buying opportunity for investors. Let’s see why.
The Wix Business Model at a Glance
Unlike the popular ecommerce website builder platform Shopify, Wix has chosen to take a horizontal approach to increase its share of the web development market. Not taking anything away from Shopify, but the company is clearly focused on serving e-commerce customers. Wix, on the other hand, has much broader ambitions.
With Wix, entrepreneurs and businesses of almost all types can use the company’s intuitive drag-and-drop platform to easily create the Internet presence they want. Whether the user is a photographer, fitness influencer, event planner, restaurateur, or just about any other profession, Wix has a solution to suit their needs. To make this website building process easier, Wix offers over 900 designer templates as a starting point for its customers.
Once one of the more than 210 million registered Wix users has completed the website design phase, they can select the URL and subscription length they want in order to officially publish the site. And if users run into issues along the way, Wix offers 24/7 customer support to help resolve potential issues.
More than website design
Without a doubt, Wix’s basic subscription platform looks pretty appealing on its own. In the past 12 months, “Creative Subscription” revenue was $ 879 million, up 25% year-over-year. But there’s a lot more going on under the hood.
Through several acquisitions and internal development of additional features, Wix becomes a more complete digital operating system for its business customers. Whether it’s planning, email marketing, online ordering, loyalty programs, or more, the company has a suite of core tools that businesses can use to strengthen their business. operations. Wix records any money raised through these features as “enterprise solutions revenue,” and this segment was quickly adopted as well. In fact, over the past 12 months, business solutions revenue has grown by 86%.
But it’s not just the sheer revenue growth in this category that should get investors excited. These additional features also help retain customers, as the company announced a 113% net revenue retention rate in 2020. As Wix continues to expand its business tools, customers who use them should have a harder time switch to competing services.
Growth at a reasonable price
Currently, Wix is trading at an enterprise value (market cap minus net cash) of $ 10.2 billion. This seems like a reasonable price given that management expects to receive $ 15 billion in collections from its existing customers over the next 10 years. As additional background, Wix has an enterprise value over expected revenue of 8.1 times.
While it is difficult to assess Wix on the basis of cash flow or earnings metrics given that it continues to invest heavily in the business, Wix’s digital model and the low costs required to retain employees. customers should bode well for profitability as the business evolves. In fact, Wix has provided insight into its profit potential in the past.
In 2019, Wix generated an operating cash flow margin of approximately 20%. However, over the past year and a half, Wix has retreated on profit-raising to donate money to meet the increased demand spurred by the pandemic. If investors need further confirmation that its recent decline in equities presents a good long-term opportunity, Wix itself has repurchased $ 200 million of shares at a 20% premium over the current price to the market. the last few months.
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