It has been about a month since the last earnings report for Wix.com (WIX). Shares have lost about 16.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Wix.com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Wix.com Q2 Earnings Lag Estimates, Revenues Top
Wix.com Ltd. reported second-quarter 2020 non-GAAP loss of 26 cents per share, wider than the Zacks Consensus Estimate of a loss of 23 cents. Notably, the company had reported earnings of 34 cents in the year-ago quarter.
However, total revenues rose 27% year over year (up 28% at constant currency or cc) to $236.1 million and surpassed the Zacks Consensus Estimate by 1.4%.
Quarter in Detail
For increased transparency, beginning the fourth quarter, Wix reports revenues, collections and cost of revenues under two segments: Creative Subscriptions and Business Solutions.
Creative Subscriptions revenues (80.6% of revenues) improved 21% year over year to $190.2 million, driven by increase in Creative Subscriptions Annualized Recurring Revenue (ARR), which is the primary KPI for growth of its segment. As of Jun 30, 2020, Creative Subscriptions ARR was $790.9 million, up 22% year over year.
Business Solutions (19.4% of revenues) surged 62% to $45.9 million, driven by robust adoption of G-Suite and Ascend applications and Wix Payments, and momentum in GMV processed through Wix Payments.
Region wise, North America, Europe, Asia and others and Latin America accounted for 57%, 25%, 13% and 5% of second-quarter revenues, respectively. Moreover, revenues from North America, Europe, Asia and others and Latin America increased 35%, 26%, 21% and 3% year over year, respectively.
Key Metrics in Q2
Collections came in at $265.9 million, up 33% year over year. Collections in North America and Europe increased 39% and 37%, respectively, on a cc basis. Creative Subscriptions (81.9% of collections) increased 28% year over year to $217.7 million. Business Solutions (18.1% of collections) climbed 66% to $48.2 million.
The company witnessed better-than-expected conversion and retention in user cohorts. Wix added a total of 346K net premium subscriptions in the reported quarter, up 17% year over year, to reach 5 million as of Jun 30, 2020. Wix added 9.3 million registered users during the reported quarter. Registered users as of Jun 30, 2020 were 182 million, up 18% year over year.
Non-GAAP gross margin contracted 500 basis points (bps) to 71%, owing to increasing investments in Customer Care domain. Creative Subscriptions gross margin contracted 100 bps on a year-over-year basis to 81%, due to the investment in expansion of Customer Care organization. Business Solutions gross margin contracted 800 bps to 32% in the reported quarter, owing to uptick in Wix Payments adoption, a product that carries a lower overall gross margin, and expansion of Customer Care organization.
Research and development expenses as a percentage of collections contracted 300 bps year over year to 21%. Selling and marketing expenses as a percentage of revenues expanded from 33% in the year-ago quarter to 43%.
Wix reported non-GAAP operating loss of $17 million, against operating income of $14.2 million in the year-ago quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2020, Wix had $1 billion in cash, compared with $937 million as of Mar 31, 2020. As of Jun 30, 2020, long-term debt was reported at $371 million, compared with $365 million as of Mar 31, 2020.
Cash flow from operations came in at $50 million during the second quarter compared with $35.1 million in the previous quarter. Free cash flow was $46.7 million compared with $40 million in the prior quarter.
For third-quarter 2020, Collections are projected in the range of $270-$275 million, indicating an improvement of 31-34% from the year-ago reported figure. Moreover, revenues are expected between $247 million and $250 million, indicating growth of 26-27% from the prior-year reported figure. Notably, the company anticipates free cash flow in the range of $14-$15 million, indicating a decline of 42-49% from the prior-year quarter.
However, the company has refrained from providing guidance for 2020, citing coronavirus crisis-induced uncertainty and drastic changes in consumer preferences.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -133.16% due to these changes.
Currently, Wix.com has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Wix.com has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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