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Wix.com (WIX) Incurs Loss in Q3, Revenues Increase Y/Y

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Zacks Equity Research
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Wix.com Ltd. WIX reported third-quarter 2020 non-GAAP loss of 14 cents per share. Notably, the company had reported earnings of 41 cents in the year-ago quarter. The Zacks Consensus Estimate for third-quarter bottom line was pegged at a loss of 11 cents.

However, total revenues improved 29% year over year to $254.2 million. The Zacks Consensus Estimate for third-quarter revenues was pegged at $249.9 million.



Notably, the company’s stock has returned 120.4% on a year-to-date basis, compared with the industry’s rally of 32.3%.

Quarter in Detail

For increased transparency, beginning fourth-quarter 2019, Wix reports revenues, collections and cost of revenues under two segments: Creative Subscriptions and Business Solutions.

Creative Subscriptions revenues (80% of revenues) improved 23% year over year to $203 million, driven by increase in Creative Subscriptions Annualized Recurring Revenue (ARR), which is the primary KPI for growth of its segment. As of Sep 30, 2020, Creative Subscriptions ARR was $840.5 million, up 24% year over year.

Business Solutions (20% of revenues) surged 60% to $51.2 million, driven by robust adoption of G-Suite and Ascend applications and Wix Payments, and momentum in GMV processed through Wix Payments. Notably, new Ascend subscriptions soared more than 100% on a year-over-year basis.

Region wise, North America, Europe, Asia and others and Latin America accounted for 57%, 25%, 12% and 6% of third-quarter revenues, respectively. Moreover, revenues from North America, Europe, Asia and others and Latin America increased 35%, 25%, 23% and 7% year over year, respectively.

Key Metrics in Q3

Collections were $280.9 million, up 36% year over year. Creative Subscriptions (81.3% of collections) increased 32% year over year to $228.3 million. Business Solutions (18.7% of collections) climbed 63% to $52.6 million.

The company witnessed better-than-expected conversion and retention in user cohorts. Wix added a total of 302K net premium subscriptions in the reported quarter, up 164% year over year, to reach 5.3 million as of Sep 30, 2020.

Wix added 7.8 million registered users during the reported quarter. Registered users as of Sep 30, 2020 were 189 million, up 19% year over year.

Operating Results

Non-GAAP gross margin contracted 400 basis points (bps) to 70%, due to increasing investments in Customer Care domain and increase in hosting costs, both aimed at addressing higher demand.

Creative Subscriptions gross margin contracted 200 bps on a year-over-year basis to 80%, due to the investment in expansion of Customer Care organization. Business Solutions gross margin shrunk 200 bps to 31% in the reported quarter, on account of uptick in Wix Payments adoption — a product that carries a lower overall gross margin.

Research and development expenses as a percentage of collections contracted 200 bps year over year to 22%. Selling and marketing expenses as a percentage of revenues expanded 400 bps year over year to 38%.

Wix.com Ltd. Price, Consensus and EPS Surprise

Wix.com Ltd. Price, Consensus and EPS Surprise
Wix.com Ltd. Price, Consensus and EPS Surprise

Wix.com Ltd. price-consensus-eps-surprise-chart | Wix.com Ltd. Quote

Wix reported non-GAAP operating loss of $8.5 million, against operating income of $12.3 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2020, Wix had $1.5 billion in cash, compared with $1 billion as of Jun 30, 2020. As of Sep 30, 2020, long-term debt was reported at $824 million, compared with $371 million as of Jun 30, 2020.

Cash flow from operations amounted to $24.5 million during the third quarter compared with $50 million in the previous quarter.

Free cash flow was $19.4 million compared with $46.7 million in the prior quarter.

Guidance

For fourth-quarter 2020, Collections are projected to be $295-$305 million, indicating an improvement of 30-35% from the year-ago reported figure.

Moreover, revenues are expected between $266 million and $271 million, suggesting growth of 30-32% from the prior-year reported figure. The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $265.7 million, indicating an improvement of 29.9% from the year-ago reported figure.

Notably, the company anticipates free cash flow in the range of $16 million to $21 million.

Based on fourth-quarter 2020 guidance, management provided full year 2020 outlook. Collections are projected to be $1.09-$1.10 billion, indicating an improvement of 31-32% from the prior-year quarter.

Moreover, revenues are expected between $972 million and $977 million, indicating growth of 28% from the prior year reported figure. The Zacks Consensus Estimate for 2020 revenues is currently pegged at $967.7 million, suggesting growth of 27.2% from the year-ago reported figure.

Notably, the company anticipates free cash flow in the range of $122 million to $127 million.

Wrapping Up

Wix gained from growing user and premium subscription base in the third quarter. Moreover, it anticipates solid uptick in Wix Stores, Wix Restaurants, Wix Bookings and Ascend by Wix in the fourth quarter.

Robust online selling activity amid coronavirus crisis-induced Internet demand and digitization of businesses, is expected to drive collection and boost the company’s top line.

Also, the company provided encouraging guidance for fourth-quarter and full-year 2020 revenues.

However, increasing investments in expansion of Customer Care organization is weighing on profitability, and consequently impacting the bottom line.

Zacks Rank & Stocks to Consider

Currently, Wix carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are Jabil JBL, Cadence Design Systems CDNS and NVIDIA NVDA. While Jabil sports a Zacks Rank #1 (Strong Buy), Cadence and NVIDIA carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Jabil, Cadence and NVIDIA is currently 12%, 15.4%, and 20.1%, respectively.

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