Still without an annual profit, Wix worth $4.5b

Wix Photo: PR

The Israeli website building platform's share price is nearing $100; its 2013 IPO was at $16.50.

There's no stopping Wix. After rising 66% so far this year, its share price is nearing $100. Yesterday, it closed at a record $95.8, giving the Israeli Internet company a market cap of some $4.5 billion.

Since the company's IPO four and a half years ago, the stock has produced a return of 480%, even though Wix has yet to post an annual profit, thanks to impressive growth in the company's revenue line and in its subscriber base.

Wix has developed a platform that makes setting up an Internet site easy for small businesses and private individuals. In the past few years it has expanded the range of solutions it offers, and branched out into allied products such as Wix Code for professional developers; ADI, a product that combines website design with artificial intelligence, allowing websites to be built fast and automatically; Wix Answers, a solution for managing online customer support; and products aimed at specific sectors, such as a special platform for restaurants.

The company made its IPO on Nasdaq in late 2013 at $16.5 per share. The share price rose in the subsequent months, reaching a peak of $31 in February 2014. It then fell back, and for a long period the share was traded in the $18-25 range. In 2016, the dam broke, and the share price started to climb steeply, recording a peak of $82 in 2017. In the second half of last year, however, sentiment towards the stock turned negative, and it dropped to around $50. Then the trend changed again, and since December last year it has been upwards.

US institutions the biggest gainers

The biggest gainers from the rise in Wix's share price are US investment institutions, the company's main shareholders. The largest shareholder is asset management firm T. Rowe Price from Baltimore, which holds a 14.1% stake, currently worth some $635 million. Other prominent US institutional shareholders are Steadfast, with an 8.5% stake worth $382 million, and Fidelity, with 5.5%, worth $248 million. Scottish asset management firm Baillie Gifford holds Wix shares worth $231 million.

A veteran Wix shareholder is Mangrove Capital Partners, which holds 9.7% of the company, worth $435 million (making it the second largest shareholder). The European fund first invested in Wix before the Wall Street IPO, and has generated considerable value form its investment. Wix CEO Avishai Abrahami holds shares worth $156 million, and has made a paper gain of $62.3 million so far this year.

Most analysts who cover the stock are currently positive about it, but the share price seems to have run away from some of them, because the analysts' average price target for Wix is $92.4, which is now below market. According to Reuters, sixteen analysts cover the stock, of whom thirteen maintain positive ratings ("Buy" or "Outperform"), while three are neutral. No analyst recommends selling.

Growth in paying subscribers

Wix operates a freemium model: basic services are offered free but more complex services and advanced features require payment. At the end of the first quarter, Wix had 125 million registered users, of whom 3.5 million were paying customers. After its IPO in 2013, Wix had 42 million registered users, of whom just 800 thousand paid.

This week, Wix held an investor day in New York, in which CEO Abrahami (one of the company's founders), chairman Mark Tluszcz, president and CTO Nir Zohar and CFO Lior Shemesh took part. According to the company's presentation, it currently has 130 million subscribers, with no fewer than two million joining every month.

The presentation also declares Wix to be the strongest brand in the field, among other things thanks to investment in brand building in recent years, for example through advertising during the Super Bowl in the US and agreements with the New York Yankees baseball team and football teams Manchester City in the English Premier League and FC Flamengo in Brazil.

Wix presented figures according to which every 100,000 new users should generate $165 million collected in the following eight months, with a gross profit margin of 80%. The company added that the Wix Code product, launched in 2017, expanded its addressable market tenfold. It estimates the website building market at $300 billion.

The growth in the number of paying subscribers translates into substantial revenue growth over the past few years. Revenue has grown by more than 40% in each of the past three years, and 2018 too is expected to see 40% growth, and revenue of $594-597 million. Free cash flow has also grown in the past three years, although less uniformly than revenue, from $15 million in 2015 to $71 million in 2017, with $100-102 million projected for the current year.

Oppenheimer raises price target

Despite the impressive growth, Wix still teeters between profit and loss in its quarterly results, on a non-GAAP basis. In the first quarter of 2018, it posted a net loss of $2.1 million, whereas in the fourth quarter of 2017 it posted a 7.2 million net profit, and a $0.3 million net profit in the third quarter. In 2017 as a whole, Wix was almost at breakeven, with a net loss of some $500 thousand. On a GAAP basis, the loss was $56.3 million.

At the end of the first quarter this year, Wix had $266 million cash, after generating $24.8 million in the quarter from regular activity. Just to be safe, the company submitted a procedural court application to allow it to buy back its own shares, although it is not expected to go ahead with such a move at this stage.

Following the investor day, Oppenheimer raised its price target for Wix by $15, from $90 to $105, about 10% above the current market price. Oppenheimer's recommendation remains at "Outperform". Analyst Jason Helfstein writes “While there was little new information presented at WIX’s analyst day, we walked away increasingly comfortable that legacy cohorts will drive material long-term FCF, with declining risk." (Cohort is Wix's term for new users in a given period.)

Published by Globes [online], Israel business news - www.globes-online.com - on June 7, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Wix Photo: PR
Wix Photo: PR
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