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Is it still worth owning $WIX?
For the September Idea Competition, I pitched Wix.com. At the time the stock traded at ~$76 per share.
The thesis I laid out was fairly straightforward:
- Wix provides one of the easiest-to-use website building platforms which will help them continue to slowly eat share in the CMS market.
- Revenue will grow at a 10%+ CAGR over the next 4 years. Likely to be driven by premium subscriptions and average revenue per premium subscription both growing in the mid-single digit percentage range.
- Free cash flow margins reach 15%-20% thanks to recent cost reduction initiatives.
Now not to toot my own horn, but it looks like these predictions are quickly proving to be correct. 1) Market share has continued to expand. 2) Creative subscriptions revenue grew 8% in an overall down year for the website building market (rev growth mostly driven by price increases). 3) And cost reductions are working. They are expecting to exit next year with 12%-13% FCF margins, increasing the year after.
However, the stock price has now responded accordingly, up roughly 25% since I posted the pitch.
Truth be told, I've never been a big fan of the management team at Wix. They've been too promotional of the stock in the past, the CEO owns more of Monday.com than he does of Wix, and they consistently give out SBC like it's candy. On top of that, the business solutions segment (think Wix Pay, Wix Scheduling, and other business services) has seen growth completely stall out despite big investments into it.
Considering that, the math doesn't make quite as much sense here. In fact, here's what it would take to get at least a 10% return. By 2025:
- Revenue would need to compound at 13% annually (looks like it would almost all have to come from creative subscriptions).
- Free cash flow margin would have to go from -2% over the last 12 months to 18% in 2025.
- Share count stays flat (this assumes cash flow is used to buy back stock given how much they issue)
- And the market values them at 20x FCF.
You can maneuver those numbers how you want, but essentially that means I'm betting on well above average performance for just over market returns. Feels like the juice is no longer worth the squeeze here.
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