Wix's (NASDAQ:WIX) Q3 Sales Top Estimates, Next Quarter Growth Looks Optimistic
Website design and e-commerce platform provider Wix.com (NASDAQ:WIX) reported Q3 FY2023 results topping analysts' expectations , with revenue up 13.9% year on year to $393.8 million. The company also expects next quarter's revenue to be around $402.5 million, in line with analysts' estimates. Turning to EPS, Wix made a non-GAAP profit of $1.10 per share, improving from its profit of $0.06 per share in the same quarter last year.
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Wix (WIX) Q3 FY2023 Highlights:
Revenue: $393.8 million vs analyst estimates of $389.7 million (1.1% beat)
EPS (non-GAAP): $1.10 vs analyst estimates of $0.71 (55.7% beat)
Revenue Guidance for Q4 2023 is $402.5 million at the midpoint, above analyst estimates of $399.3 million
Free Cash Flow of $44.77 million, up 39.9% from the previous quarter
Gross Margin (GAAP): 67.2%, up from 63% in the same quarter last year
"Wix's performance in the third quarter exceeded both growth and profitability expectations for another consecutive quarter, as we successfully executed on our strategic priorities while remaining diligent with managing expenses," said Avishai Abrahami, Wix Co-founder and CEO.
Founded in 2006 in Tel Aviv, Wix.com (NASDAQ:WIX) offers a free and easy to operate website building platform.
E-commerce Software
While e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.
Sales Growth
As you can see below, Wix's revenue growth has been unremarkable over the last two years, growing from $320.8 million in Q3 FY2021 to $393.8 million this quarter.
This quarter, Wix's quarterly revenue was once again up 13.9% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $3.86 million in Q3 compared to $7.95 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Wix is expecting revenue to grow 13.4% year on year to $402.5 million, improving on the 8.1% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 11.1% over the next 12 months before the earnings results announcement.
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Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Wix's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 67.2% in Q3.
That means that for every $1 in revenue the company had $0.67 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite trending up over the last year, Wix's gross margin is poor for a SaaS business. We have no doubt that shareholders would like to see its improvements continue.
Key Takeaways from Wix's Q3 Results
With a market capitalization of $5.14 billion, Wix is among smaller companies, but its $504.8 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
It was an impressive "beat and raise" quarter. It was encouraging to see Wix slightly beat analysts' revenue guidance expectations. The company raised the full year revenue guidance which also came in ahead of Consensus estimates. Zooming out, we think this was a decent quarter, showing that the company is staying on target. The stock is up 2.8% after reporting and currently trades at $92.39 per share.
So should you invest in Wix right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
