Wix.com (WIX) Q1 Earnings & Revenues Top Estimates, Stock Up

Shares of Wix.com Ltd. WIX gained 14.1% following better-than-expected first-quarter 2020 results on May 14. The company reported first-quarter 2020 non-GAAP loss of 1 cent per share, narrower than the Zacks Consensus Estimate of a loss of 2 cents. Notably, the company had reported earnings of 3 cents in the year-ago quarter.

Total revenues rose 24% year over year to $216 million and surpassed the Zacks Consensus Estimate by 0.1%.

Notably, the company’s stock has returned 54.9% in the year-to-date period against the industry’s decline of 9.3%.

Quarter in Detail

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

Creative Subscriptions revenues (81.7% of revenues) improved 17% year over year to $176.5 million, driven by increase in Creative Subscriptions Annualized Recurring Revenue (ARR), which is the primary KPI for growth of its segment. As of Mar 31, 2020, Creative Subscriptions ARR was $739.5 million, up 19% year over year.

Business Solutions (18.3% of revenues) soared 72% to $39.4 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 56%, 25%, 13% and 6% of first-quarter revenues, respectively. Moreover, revenues from North America, Europe, Asia and others and Latin America increased 30%, 22%, 19% and 6% year over year, respectively.

Key Metrics in Q4

Collections came in at $248.9 million, up 24% year over year.

Creative Subscriptions (83.9% of collections) increased 18% year over year to $208.8 million. Business Solutions (16.1% of collections) soared 71% to $40.1 million.

The company witnessed better-than-expected conversion and retention in user cohorts. Wix added a total of 162K net premium subscriptions in the reported quarter, up 12% year over year, to reach 4.7 million as of Mar 31, 2020.

Wix added 6.9 million registered users during the reported quarter. Registered users as of Mar 31, 2020 were 172 million, up 16% year over year.

Operating Results

Non-GAAP gross profit increased 14.3% from the year-ago quarter to $155.5 million. Nonetheless, non-GAAP gross margin contracted 600 basis points (bps) to 72%.

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

Creative Subscriptions gross margin contracted 200 bps on a year-over-year basis to 81%, due to the investment in expansion of Customer Care organization. Business Solutions gross margin declined from the year-ago figure of 44% to 33% in the reported quarter, due to uptick in Wix Payments adoption, a product which carries a lower overall gross margin.

Research and development expenses as a percentage of revenues contracted 100 bps year over year to 25%. Selling and marketing expenses as a percentage of revenues contracted 400 bps year over year to 42%. General and administrative expenses as a percentage of revenues, remained flat on a year-over-year basis at 7%.

Wix reported non-GAAP operating loss of $4.2 million, compared with operating loss of $2.2 million in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2020, Wix had cash and cash equivalents of $937 million compared with $950 million as of Dec 31, 2019. As of Mar 31, 2020, long-term debt was reported at $365 million, compared with $360 million as of Dec 31, 2019.

Cash flow from operations came in at $35.1 million during the first quarter compared with $41.2 million reported in the previous quarter.

Free cash flow was $40 million compared with $37.5 million reported in the prior quarter.

Guidance

For second-quarter 2020, Collections are projected in the range of $255-$260 million, indicating an improvement of 28-30% from the year-ago reported figure.

Moreover, revenues are expected between $231 million and $233 million, indicating growth of 25-26% from the prior year reported figure. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $227 million, suggesting growth of 22.4% from the year-ago reported figure.

Moreover, the company anticipates free cash flow within $41-$43 million, indicating an improvement of 33-40% from the prior-year quarter.

However, this Zacks Rank #3 (Hold) player has withdrawn guidance for 2020, citing coronavirus crisis-induced uncertainty and drastic changes in consumer preferences. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wrapping Up

Wix gained from growing user and premium subscription base in the first quarter. Moreover, it anticipates solid uptick in Wix by Ascend, in the second quarter. The company noted that new purchases of Ascend by Wix increased 136% year over year in April 2020. Further, management is banking on strong growth in selling activity of businesses with gross merchandise value (GMV) transacted on Wix - across all payment methods in April - surging 110% year over year.

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

Notably, GoDaddy GDDY, a peer of Wix, reported solid first-quarter revenues driven by higher subscriptions to Websites and Marketing, and managed WordPress offerings. For the second quarter, management expects revenue growth to be in high single digits in Domains, mid-single digits in Hosting and presence, and mid-teens in Business Applications.

Meanwhile, eBay’s EBAY first quarter results reflect strong momentum across its managed payments offerings which contributed well to the gross merchandise volume. eBay remains optimistic about its initiatives toward enhancing seller experience by offering innovative seller tools and delivering better buyer experience by utilizing structured data.

Shopify SHOP, another peer of Wix, first-quarter results gained from robust performance of Shopify Shipping, Shopify Payments and Shopify Capital, and expanding merchant base. However, Shopify reaffirmed the suspension of its guidance for 2020. On Apr 1, the company had suspended its guidance for the year due to COVID-19 induced uncertainties prevailing in the market. Citing the same, the company refrained from providing second-quarter guidance as well.

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