Wix.com (WIX) Q4 2018 Earnings Conference Call Transcript

WIX earnings call for the period ending December 31, 2018.

Motley Fool Transcribing
Motley Fool Transcribing
Feb 20, 2019 at 5:41PM
Technology and Telecom
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Wix.com (NASDAQ:WIX)
Q4 2018 Earnings Conference Call
Feb. 20, 2019 8:30 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Wix.com 2018 fourth-quarter and full-year financial results conference call. [Operator instructions] Please note, this event is being recorded. At this time, I'd like to turn the conference over to Maggie O'Donnell, director of investor relations. Please go ahead.

Maggie O'Donnell -- Director of Investor Relations

Good morning, everyone, and welcome to Wix's fourth-quarter and full-year 2018 earnings call. Joining me today to discuss our results are Avishai Abrahami, CEO and co-founder; Nir Zohar, president and COO; and Lior Shemesh, CFO. During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent Form 20-F that could cause our actual results to differ materially from these forward-looking statements.

We do not undertake any obligation to update these forward-looking statements. In addition, we will comment on non-GAAP financial results. You can find all reconciliations between our GAAP and non-GAAP results in our press release, presentation slides, shareholder update and our Interactive Analyst Center on the Investor Relations section of our website, investors.wix.com. Now I will hand it over to Avishai Abrahami, who is going to say a couple of quick words about the quarter.

Avishai Abrahami -- Chief Executive Officer and Co-Founder

Thank you, Maggie, and good morning, everyone. Thanks for joining us today. We had an unbelievable year of strong execution and product innovation at Wix. The full year -- for the full year, revenues grew 42% year over year.

This is the fifth year in a row since our IPO of revenue growth of more than 40%. Collection for the year grew 36% year over year. And as we expanded profitability by gaining leverage in marketing and R&D, this is particularly impressive, given our pace of product launches through the year. I'm very proud of everything we accomplished in 2018.

As we kick off 2019, I want to talk a bit about the evolution of Wix. Since the beginning, the vision of Wix has been to enable everyone to create their dreams online. Over the years, our products have evolved quite significant. We have made building stunning websites easier and faster with Wix ADI.

We introduced Wix Code to enable users to develop and build their own highly functional content-rich website and applications on Wix. Our vertical applications such as Wix Stores, Wix Bookings and Wix Events give users an ERP system for their business, and we have moved beyond website building with products like Ascend, Wix Payments, Wix Answers, and Wix Logo Maker among others. All of these products significantly increase the value we are offering to our users, and we will continue to expand what we deliver to users. While this product evolution show our continued focus on DIY market, we are also expanding into the professional market.

Our full platform of products, including Wix Code, allow us to deliver to this audience a complete solution to build website and application online that no other competitor has. In this evolution, I talked about at our Analyst and Investor Day last June, entering new markets and offering more products to enable users to build their dreams online. In 2019, we will invest more in the beginning in -- we'll invest more in bringing more products to more users, and we expect this will contribute to sustainable growth for the years to come. I am absolutely thrilled with the progress we have made in -- giving our users even more tools to create without limits.

This makes me more excited than ever heading into 2019. With that, I'm going to turn it over to Nir, who will talk about how this natural evolution of our company changes how we measure the success of our business. Nir?

Nir Zohar -- President and Chief Operating Officer

Thank you, Avishai, and hello, everyone. As Avishai mentioned, we believe our -- that our product offering and brand has evolved significantly, increasing the overall value we are able to deliver to our users. As our company evolves, we must also evolve how we measure the success of our business. As we've spoken about in the past, our primary focus has been to increase the conversion of registered users to premium subscription to drive growth.

To show this, we often refer to our cohort chart, which is Slide 9 in our earnings deck this quarter. This chart shows the growth and consistent behavior of our user cohorts. We expect that our user cohorts will continue to show this consistent behavior, and we will continue to drive increases in conversion. However, the evolution of our product has allowed us to increase prices and deliver new monetization opportunities, driving higher value to our users.

Therefore, the growth of collections per subscription is becoming a more meaningful driver of our growth. We are seeing this happening now. Already in Q1, collections per new annual full-price subscription in the U.S. is up by approximately 25% year over year.

In order to show the combined benefits of increases in conversion, the ongoing consistent behavior of our cohorts and the acceleration in collections per subscription, we are sharing a new chart that shows cumulative collections by Q1 user cohorts. This new chart can be found in the earnings slides on Page 10. We believe this new chart is the best way to understand the evolution of our business as it highlights all of the factors that will drive our future growth. With that, Lior is going to share a few highlights regarding our financial outlook for 2019.

Lior?

Lior Shemesh -- Chief Financial Officer

Thanks, Nir. I just want to say a few things about our outlook for 2019. As Avishai mentioned, we have introduced several new products in the last year. These products provide our user with significant more value, and they will provide us with additional levels of collections and revenue to drive future growth in our business.

We are introducing our 2019 collections guidance of 24% to 26%, a year-over-year growth and revenue guidance of 25% to 26% year-over-year growth. The vast majority of our top-line growth in 2019 will be driven by our website subscription business. However, since some of these new products are already being sold such as Ascend and Wix Payments, we have included what we know into our guidance. We continue to optimize all of these new products and expect them to accelerate and grow throughout the year.

Other layers of collection and revenue that we have little-to-no data on yet, we are -- are not included in our guidance, and we expect these trends would begin to continue -- to contribute in the second half of the year. I have spoken in the past about our desire to invest in growth opportunities, and we plan additional investments this year to launch many of our new initiatives. Our free cash flow guidance reflect these additional investments of approximately $15 million to $20 million, which we will put out building a dedicated team and increase advertising efforts focused on professionals. I want to point out that most of the benefits we believe we will get from this investment is not incorporated into our current top-line guidance.

Further, even with this additional investments, we still anticipate expanding our free cash flow margin this year. We are very proud that we are in a position to continue to drive significant top-line growth, invest in new business, and expand our cash flow margins. This will show the strength of Wix. With that, I will hand it back to Maggie.

Maggie O'Donnell -- Director of Investor Relations

Thanks. Now we can turn to questions. 


Related Articles

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question today will come from Jason Helfstein of Oppenheimer. Please go ahead with your question.

Jason Helfstein -- Oppenheimer -- Analyst

Hey. Thanks, guys. I'm going to ask two. So, the first, I think when people look at the numbers, they see the big slowdown in premium sub implied in 20 -- in the first quarter as well as for the full year.

So first, just talk about what's the impact of removing the lowest priced plan on both the first quarter 2019 and the full year solved. And then secondly, you're obviously putting new investments. If I think about it for a long time, you were a consistent beaten raised company. As the business is maturing, obviously, there's a lot of large numbers works.

It's harder to beat as the base gets bigger but you're investing ultimately to drive growth and while you're talking about 2019, presumably the benefits of those investments will come in 2020 and beyond. And I just want to then kind of focus on that new chart that you're showing, which basically implied that it takes about, if I understand correctly, about four years to reach peak monetization of a cohort. And I think it was that 2014 cohort, which had the highest monetization rate in that new chart. So, maybe just help us enter thing about why should investors kind of give you credit or be confident in your ability to kind of invest and ultimately potentially wreak salary growth in 2020 and beyond, or am I thinking about it wrong? Thanks.

Lior Shemesh -- Chief Financial Officer

Hey, Jason. This is Lior. So, first of all, I will relate to the first question about the [Inaudible]. Look, first of all, it's something that we actually elected in design.

It was -- it's not something that took us by surprise. This is exactly what we expected and I will try to elaborate about it. It's not just by removing the iconic domain package but it's also changing the prices, changing how the pricing page should look like, how we approach our products. So, there's a lot of changes that that's all part of the overall evolution that is part of our business about the evolution of the product.

And right now, the product is -- provides much more capabilities and feature to our customers. The evolution of our brand -- the brand is much much stronger than what it used to be. So I think that with that and with those new products, and also the way that we look at our business strategically, it came into our mind that we need to do change and also to evolve the way that we look at our model. And this is why we've made many testing and many tests in the last few months to try to understand what would increase the value of a cohort, not just based on the number of premium, but based on how much we are able to collect in term of the cohort and what will increase and optimize the value of it, and those are the overall changes.

There was quite a bit of changes that we've made in order to get to this point. We are very happy to see that, and this is why we provided the chart about the overall output for newcomers, so you can actually see that quite in a few way what was happening to the new users and for what they are paying us. It's like more value. Think about it as, like, they're paying for another cappuccino at Starbucks every month, but this is true.

They are paying more and they are willing to pay more because they are getting much more. So basically, we gave up the -- those customers. For example, the one that used to use the connect domain that was we collect value for us, churn faster than the other customers, and this is why we were able to increase the overall value of the cohort. Now with regard to the additional investment and future growth, you're absolutely right.

When we usually provide the guidance, we do that based on what we know. We never provide guidance on estimations. So, you're right that there is a potential upside of those investments even in 2019, but we cannot take it into consideration right now as part of our guidance.

Jason Helfstein -- Oppenheimer -- Analyst

OK. Thank you.

Maggie O'Donnell -- Director of Investor Relations

[Inaudible] Can we have the next question, please.

Operator

Certainly. Thank you. Our next question will come from Deepak Mathivanan of Barclays. Please go ahead.

Deepak Mathivanan -- Barclays -- Analyst

Hey, guys. Thanks for taking the questions. Two questions from me as well. So, first, we noticed that the recently you've been experimenting with some base price increases over the last few weeks.

Is that incorporated into the guide? I mean, is the outlook you provided for premium shelves for 2019 reflecting that? And then second one, you mentioned in the letter that you haven't included any contribution from sales to agencies of professionals in the guidance, but can you talk about what the pricing plan you are thinking about to capture these, and do you have a timeline that we can expect this? Thank you so much

Lior Shemesh -- Chief Financial Officer

So, I will start with the first question, Deepak, this is Lior. With regard to testing -- ongoing testing, you're right. There are still ongoing testing. It will always be ongoing testing.

We test many things everyday, and testing by nature are not part of the guidance because it might change. It takes time until statistically, a test can be -- can be validated, so they are not part of the guidance. With regard to the other question about agencies, I will hand to Nir.

Nir Zohar -- President and Chief Operating Officer

Hey, it's Nir. How are you doing? So, in terms of the agencies, this is actually something we started piloting throughout 2018. We had a small team of account managers that had been contacting agencies and just trying to understand what are their needs, how can we help them, and how can we make them more successful. The fact is that we didn't have to go out to find them.

They are already on our platform. Obviously, these are -- they are considered customers with a much higher value simply because they build many, many websites. Tens and even hundreds of websites a year, and this pilot has been very successful. And the goal in 2019 is to ramp it up, so we can contact more and handhold more and help more with the intention of just helping them become more successful.

This has to do with solving issues around product, which they need -- things that are unique, things around how they deal their customers, which can be unique, and generally, understanding their needs better and supporting that. Whether there's going to be a separate pricing that is incorporated into how we work with agencies, this is something we're still trying to best understand with them. And obviously, once -- if it becomes something that's incorporating to our model, then we'll let you guys know. But that being said, I think our belief is that the work with agencies has been a great success in '18 and should be something we ramp up in '19.

Maggie O'Donnell -- Director of Investor Relations

Great. Thanks, Deepak. Can we have the next question question, please.

Operator

The next question will come from Mark Mahaney of RBC Capital Markets. Please go ahead.

Zachary Schwartzman -- RBC Capital Markets -- Analyst

Hey, guys. It's Zachary Schwartzman on for Mark. In your guidance, why would 2019 collections be faster than Q1 growth? What would cause the acceleration through the year, excluding the potential upside from these new investments?

Lior Shemesh -- Chief Financial Officer

Sure. So, what is happening this year, which, by the way, it's a bit different than last year, 2018 was an amazing year for us in terms of number of -- it was a record actually year for us in terms of a new product that we are that we launched and introduced to the market. Some of them like Wix Payments, like Ascend, started to contribute to Q1 not in a full way, meaning that it was not fully in during the first quarter. So, this is why you see that next quarter actually are more like embedded with those revenue going forward.

So that -- so this is, like, this is the main reason.

Zachary Schwartzman -- RBC Capital Markets -- Analyst

Thank you, and one quick follow-up. I know it's still early, but can you please help us range the potential collections and revenue impact from the $15 million to $20 million new investment initiatives? Thanks.

Lior Shemesh -- Chief Financial Officer

Obviously, we have a model and estimation but it's not something that we are willing to share, either to commit. We do believe that we feel great potential from those initiatives, not just in 2019, but also in 2020 and beyond but it's not something that we can share at this point of time. Obviously, when it will be more relevant, we will -- certainly we'll do that.

Maggie O'Donnell -- Director of Investor Relations

Great. Thanks, Zach. Can we have the next question, please.

Operator

The next question will come from Ron Josey of JMP Securities. Please go ahead.

Ron Josey -- JMP Securities -- Analyst

Great. Thanks for taking the question. I wanted to maybe key in on a few of the comments made during the call. Just specifically, on the value of the portfolio and increasing product.

And with pricing up, I think 24% year to date in 1Q, can you just remind us maybe how pricing is going up? And then to that maybe, Lior, on the guidance, I think you mentioned that you have some preliminary data on Ascend and Payments included, but historically you don't do that. So, any insight on how Ascend and Payments are doing would be helpful. And I think you even said Ascend and Payments should be accelerating growth in the back half maybe to Zach's questions just there. And then lastly, you talked about adding sales and account management to quote, was that something you had already -- always plan to do or something that that you think was absolutely needed in order just to accelerate the growth there? So one's on pricing, two is on newer products, and three is on quote.

Thank you.

Avishai Abrahami -- Chief Executive Officer and Co-Founder

This is Avishai. I want to say that in terms of the value of products, the biggest thing that we did is that we removed the cheapest package we used to have in Wix, right. So the cheapest package that we used to have in Wix was called Connect Domain, and we removed it. We kind of realized that it made less -- long-term, it made less sense for us to focus continuously on serving the full range of customer.

And we really wanted, as we deliver more and more value in the product, we feel that it should reflect that in the pricing. So basically, people that used to buy the Connect Domain now have a choice to either go with entry package that we have. And as Lior said, the difference in price is like -- per month is one cappuccino at Starbucks. It's not a big thing, and that was the reason also for the bit of a decline in premium subscription.

The overall results of that was actually an increase in the value of the cohort output, so we're actually seeing that it -- most of our customers have really supported that move. And again, they're getting a lot more per dollar as why we delivered in the product has dramatically increased. In terms of the --

Lior Shemesh -- Chief Financial Officer

Yes. In terms of what you asked about the preliminary results, you are right. We never take into account something that we assume, but I have results. Let's take the Ascend, for example.

We already started to sell it. I know what is the volume on a daily basis, and it's quite solid. So this is what I'm taking into account. But I'm not taking into account optimization, where there's a lot of optimization that we need to do there because it just started and it's a new product.

So I believe that there -- for every product that we introduce, we see the results, they are solid, but we always are able to optimize it because this is the nature of our business. So I'm taking just what I know as of the date of the guidance, but I hope to be able to optimize and get some more upside from those products in the future. I hope that it answers your question.

Maggie O'Donnell -- Director of Investor Relations

OK. Thanks, Ron.

Avishai Abrahami -- Chief Executive Officer and Co-Founder

[Inaudible]

Maggie O'Donnell -- Director of Investor Relations

Address the third question.

Avishai Abrahami -- Chief Executive Officer and Co-Founder

What was your third question?

Nir Zohar -- President and Chief Operating Officer

So the third question about -- was [Inaudible] about Code and account management. So, Ron, actually account management was into the agencies more. You want to elaborate more on Code, Avi?

Avishai Abrahami -- Chief Executive Officer and Co-Founder

Yes. Well, we actually have currently no account managers for Code. We do see that the results for Code will continue to be solid. We moved from 100,000, what we call, highly engaged users to 140,000 highly engaged users.

Overall, on users using Wix Code from 550,000 to 680,000, which users are using Wix Code. So it is -- the way we -- we consider that to be a massive success. It's a very technical product and we can see that our users are picking it up, learning how to use it, and actually having a lot of value coming out of it. So...

Nir Zohar -- President and Chief Operating Officer

There one other thing, Ron, which is worth mentioning, I think, is that we do see with -- while working with the agencies, we see that they are getting a huge amount of value from working with Code, simply because they're able to be -- to create and build websites for their clients that are much more sophisticated or based on the database, which raises the price point they can deliver to our -- to their customers. So obviously, they are very happy with that. And that's -- they are very happy, they're selling more. We gain a lot of value from that.

And regarding, I think -- we spoke about it in the past, whether we're going to actually monetize separately for Code for specific kind of users, that is something that we're still considering. There's a very good chance it's going to happen, but later in the year.

Maggie O'Donnell -- Director of Investor Relations

Great. Thanks Ron. Can we move to the next question, please.

Operator

The next question will come from Nat Schindler of Bank of America. Please go ahead.

Nat Schindler -- Bank of America Merrill Lynch -- Analyst

Yes. Hi. Maybe I missed it, but this is -- you're talking a lot about $15 million to $20 million investment over the next year. What is this investment in? Are you talking product R&D development or incremental products R&D, or is it sales and marketing? Can you just help me understand a little bit what that is? And then on -- a secondary question is you continue to grow fastest in the U.S.

despite your highest penetration in the U.S., is this, you believe, due to some sort of virality in U.S.? Or is there -- is it just easier to figure out the market in here? And finally, this is an obligatory question. Wix Code, obviously, it's still in beta. When should we expect to see a developed business model for the Wix Code?

Avishai Abrahami -- Chief Executive Officer and Co-Founder

I will start with the first question about this investment. First of all, very important to mention that this investment is not part of the -- like the regular business, the regular do-it-yourself business that we have and discontinue with the same model, with the same TROI, so there is no change to that. This investment is specifically for dedicated teams to take care of the go-to-market activities, mainly on agencies. So there are -- there's a few things that we are doing over there and we recognize that we have a window of opportunity to capture this market.

And this is what we are doing and we are investing in go to market. So it's not R&D per se. I will hand it to Nir -- I will pass it to Nir for the second question.

Nir Zohar -- President and Chief Operating Officer

So in terms of the second question about growth in the U.S. Yes, I agree that it's a highly penetrated market but the TROI is what's driving us, and obviously it's working. It's growing -- it's working very strong in the U.S. in our ability to bring to bring more more more users and subs.

You also have to remember that I think that it's it's probably the most sophisticated or one of the most sophisticated markets in terms of small businesses, understanding their need to move to move online. So that's -- obviously is something that helps us out as well. And I think that in terms of -- if you look at the Western world, still our brand in the U.S. is probably the strongest place -- space for our brand, although again we're seeing a lot of growth in various other geographies.

In terms of the last question, which is the about the Code business model timing, I would say again I think that it's already delivering a lot of value. In terms, as I mentioned before, in terms of a separate monetization, that would probably be somewhere toward the the second half of the year.

Maggie O'Donnell -- Director of Investor Relations

Great. Thanks. Can we have the next question, please.

Operator

And the next question will come from Brent Thill of Jefferies. Please go ahead.

Brent Thill -- Jefferies -- Analyst

Thanks. Question around the guidance. I think a number of investors are still trying to reconcile this. So I just want to make sure I laid this out correctly.

You had a pretty material price hike. You have Ascend and Code coming, yet you're guiding the organic business down about 1,000 basis points. If you take the Google contribution out, you grew mid-30s and the guide is in the mid-20s. And so, I think there's just a lot of questions around your guidance.

Is there something different you're doing? Or are you not reflecting some of these initiatives? I think -- if you could just clarify. And I just want to make sure too that that's accurate. Ex Google, you would've been mid-30% growth last year? Thank you.

Lior Shemesh -- Chief Financial Officer

OK. So obviously, the guidance that we provided -- and I want to clarify something that we said also in the past. Every time that we launch a new product, the benefit -- though the immediate benefit that we see on our top line is quite limited because when we start a year, about 80% of our collection come in from previous cohort. So even if the product is doing amazingly good, the benefit to the top line is quite limited.

It doesn't mean that we are not going to see upside from it, but when we provide the forecast at the beginning of the year, obviously, we take into consideration that fact. So you're right, it's mid-20. It's mid-20 on a much larger number, but -- and we hope and we do everything as always, and we have a very good track record of delivering and make sure that we get positive ROI on our investments. And obviously, every positive ROI is going to be part of our top line in the future.

Brent Thill -- Jefferies -- Analyst

Thanks.

Maggie O'Donnell -- Director of Investor Relations

Great. Thanks, Brent. Can we have the next question, please.

Operator

And our next question will come from Mark Grant of Goldman Sachs. Please go ahead.

Mark Grant -- Goldman Sachs -- Analyst

Hey. Thanks for taking a question. Just wanted to dive in a little bit more on Wix Code. It's been up for a while now.

You mentioned last quarter that you're expected to see, I think you said, massive returns from Wix Code in 2019 and specifically, that you expected it to be strong early in 2019. It seems like the impact is expected to be a bit more back half weighted now based on the commentary and the guidance. Was there anything in the timing of your investments around there on marketing or anything like that? Or anything you're seeing in the funnel that makes that more of a second-half impact now?

Nir Zohar -- President and Chief Operating Officer

So I think -- hey, it's Nir, and Lior will jump in in a second. But I think that there's -- there are two -- to the commentary, there are two parts. So for the agencies and the impact we see, that's -- on agencies, that's something we already see now. And I would say that probably this pilot and the expansion of the work we've done with the agencies would have been very limited had we not had Wix Code in order to support their ability to build professional websites for their customers.

In terms of creating a separate monetization, which is something which is probably a more high-end usage of Wix Code, that is something that indeed we believe that would be kind of a more for second half of the year. Lior?

Lior Shemesh -- Chief Financial Officer

Yes, with regard -- look, with regard to the guidance that we provided, Wix is a company that generate growth based on technology and product. That was the case in the last few years, where we managed to generate most of our growth, obviously, not just from the ongoing from the Code business. Like it's the same thing was with the ADI, with the new editor and for the different verticals and so on. And again, as I mentioned before, it's mostly impact the new cohort for the newcomers and therefore, you can see the impact all the time.

With regard to the -- specifically, with regard to the Wix Code, we do see improvement in conversion, and it's keeping on increasing, getting better and better. And as Nir mentioned before, we believe that the agency is going to be a major part of contribution to -- and one of our major growth driver in the near, medium, and future.

Mark Grant -- Goldman Sachs -- Analyst

Great. Thank you.

Maggie O'Donnell -- Director of Investor Relations

Thanks, Mark. Can we have the next question, please.

Operator

And our next question will come from Monika Garg of KeyBanc. Please go ahead.

Monika Garg -- KeyBanc Capital Markets -- Analyst

Hi. Thanks for taking my question. It seems like you are shifting your model to get high growth from pricing, like high-average annual collections than from net sub-adds because you're guiding to about 550,000 net sub-adds for '19, whereas you had, like, 760,000 in '18 year over year. So maybe could you walk through what gives the confidence that you would be able to achieve this is to drive this model shift to drive 2019 growth target and beyond that?

Lior Shemesh -- Chief Financial Officer

Sure Let me, first of all, let you -- or give you some of the testing that we did. It was quite simple. Taking cohort without any change in pricing, taking the cohort with the change in pricing, and the different packages and then simply to try to measure what will be the overall value of this cohort over time. You are right about -- we basically gave up some number of premiums, which I believe that the results of the fact that we're having a better value for our cohort is because we have -- most of our high-valued customers, high-quality, high-intent customers are obviously still with us, and they are willing to pay more for the different features and capabilities that we provide them.

So from one hand, we actually gave up for some number of premiums, but on the other hand, we managed to increase prices and basically to charge for that. We can see that in a very, very clear way, and this is why we provided this graph on part of our shareholders' update, where you can see that in just four months, we have managed to increase the ARPU of newcomers. And right now, we give the example in the U.S., but we managed to increase it from $178 to $216, which reflects about 24% growth just in four months when we started to do this change, which you can say that it's actually set off against the reduction in the number of premiums. But even more than that because you have a much future growth coming in -- well, because the cohort keep on generating more and more revenue.

It's in a rate change also the mix of our customers because of that, and I believe that the $216 will continue to increase throughout the year, take into account that the full effect of Ascend is not there, the full effect of Payments is not there. So all the services will contribute to the increase in the ARPU, and this is exactly what we are thinking about.

Maggie O'Donnell -- Director of Investor Relations

Great. Thanks, Monica. Can we have the next question, please.

Operator

The next question will come from Sterling Auty of JP Morgan. Please go ahead.

Sterling Auty -- J.P. Morgan -- Analyst

Hey, guys. So I'm wondering -- I understand the strategy change, but I'm -- I want to better understand the motivation on the timing. So was the decision to move up the value chain in terms of the values, users, and subscribers driven by a desire to improve churn? Or was there anything in the growth dynamics in that lower-end Connect Domain and lower end users that you thought maybe some of the growth dynamics were changing there? So, just curious why the timing on the decision?

Avishai Abrahami -- Chief Executive Officer and Co-Founder

I think -- so, Sterling, this is Avishai. The actual reason, so we started to think about it and to test it, came actually from branding, right. The Connect Domain package, this banner that said that build with Wix, get your free website today, on the bottom, right, on official website. And the more that we -- what we thought about realized that this was moving upward, right, in the value chain.

And this actually hurt our brand and, in many ways, affects our customers' brand as we [Inaudible] them. And we were thinking about it for a while. An example, [Inaudible] this is causing more damage than benefit. And we also came to the belief that -- and that today Wix products are so much better than they used to be two years ago, three years ago, right, that it makes well sense for us to continue to skew pricing toward the lowest point and not to a way it should be now.

And as a result, we felt very comfortable with removing the Connect Domain and then having the ability to actually charge a bit more for products that give a lot more. So that was the thinking behind it. One of the interesting things that we see is that, if you look statistically, the customers that would normally buy the Connect Domain package are still active within Wix. So there is a chance that they at some point that they are still just waiting for us to change pricing or something.

We don't know yet but we didn't get any negative feedback from our customers in it. So this is -- we felt very strongly that this is the right thing to do and the timing is here. Also, we really do believe that it brings tremendous more amount of value today than we used to before. It will have some impact on churn probably, but I don't see that it's a massive thing.

It is a positive, right, -- positive impact on churn, but I don't think that's going to be significant, meaning, we'll probably going to have less churn because the users that were more sensitive to the difference, which is a couple of dollars, right, were more likely to churn.

Sterling Auty -- J.P. Morgan -- Analyst

Yes, that makes sense. And just kind of a follow-up to that is so yes, I would expect a positive impact on churn. You're showing the investments, so maybe this user group to professionals, the agencies, maybe a little bit more expensive on a cost of customer acquisition. Any early read on what you think the LTV to CAC or the unit economics in this segment of the market would look like versus the segment of the market that you're moving away from?

Avishai Abrahami -- Chief Executive Officer and Co-Founder

Yes, so I think that we always look at it right in TROI, which is pretty much as same as to what you're asking. We think it's going to be stable. We actually know that for now the marketing effort that we have are working very well, and we're staying with the same frame of return on marketing investment. So again, we have the ability -- because prices are a bit higher, we have the ability to spend a bit more on marketing, right.

But all of which is going to come back within seven to eight months, so we feel very confident that we can continue with the same overall marketing strategy.

Lior Shemesh -- Chief Financial Officer

With regard to the LTV, I think that from what we are -- what we see an LTV of agency and the type of customer that we are serving is much higher than what we have right now.

Maggie O'Donnell -- Director of Investor Relations

Great. Thank you. Can we have the next question, please.

Operator

And our next question will come from Naved Khan of SunTrust. Please go ahead.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Yes, thanks a lot. I've got a couple of questions. Maybe can you guys just comment on the -- on how you see the market for Code between freelancers, who are web professionals, and the agencies? How big is the freelancer market versus agency? And just in terms of your ability to monetize Code, do you see monetization happening first with the freelancer base or with the agency base? And then, there's a follow-up I have.

Avishai Abrahami -- Chief Executive Officer and Co-Founder

I think the first question is how big is the market for Code, right? And I think that the -- overall, there are about 8 million relevant developers now currently on the planet that are relevant for Wix Code. I think we can see that we are having engagement from that community and that we are able to grow faster and faster. There -- a lot of them are working in agencies. Those agencies, of course, make more than one website, so even one each.

Every agency that joins Wix are actually going to end up in multiple websites. Most of them with higher value than -- higher ARPU than the normal websites because they consume most of the functionality we have to offer. And monetization for Code will probably -- well, it's already happening to some of them, right, because we are able to get those agencies and experts that we couldn't before. We do plan, at some point later this year, to launch pricing -- different pricing for heavier Wix Code users, OK.

And we've been working on that, testing that and brainstorming with agencies and developers and how it should look, and we're going to see that probably as we continue during this year.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Got it. And just on that, and so where does the DeviantArt fit into into the scheme of things?

Avishai Abrahami -- Chief Executive Officer and Co-Founder

So DeviantArt is aimed to support a huge amount of artists that we have, right. That's the first thing. And allow them to publish their work and making their work more available for everybody to find. And we think that DeviantArt, in that case, is actually an excellent way for us to deliver that.

The other part of DeviantArt is that DeviantArt is the largest community on the planet for graphic artists, designers and artists, all of which belong to the category, right, that -- people that build more than one website normally and as such are our base customers. And we expect to continue working on DeviantArt this year and to start enjoying some of the values this year.

Maggie O'Donnell -- Director of Investor Relations

Grat. Thanks, Naved. Unfortunately, I think we only have time for one more question. Can we have the last question, please.

Operator

The next question is from Lloyd Walmsley of Deutsche Bank. Please go ahead.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thanks. I have two. First, just looking at the 1Q guidance, maybe some conservatism there, but it doesn't seem you imply a lot of ARPU growth even if you don't add a lot of new users from where you ended the year. So just wondering how to think about net adds versus ARPU, specific to 1Q, and I guess how this jibes with that comments in the shareholder letter on collections per new account growth being so strong in the U.S.

And then taking a step back, I guess, why shouldn't we be concerned that the pivot to focus on higher value plans is essentially an indication that the market opportunity is just smaller than we thought on the low end? Why can't you attack the higher-value customers without continuing to offer some of the lower-price plans and kind of attack both? Thanks.

Lior Shemesh -- Chief Financial Officer

Yes. So, I will start about the guidance. Look, I don't want to call it conservative guidance. I think that what I want to call it is guidance that, again, we don't want to provide based on assumptions.

Yes, there is many upside to those guidance but we don't want to provide them yet, and this is how we used to do that and we will continue to do this in the future as well. I think that with regard to the ARPU, Lloyd, I think that we need to distinguish or to understand the difference between those, the number that I provided for the U.S. for newcomers then the regular ARPU. The regular ARPU is based on revenue.

The increase in ARPU for newcomers, it will take time until it actually impact the overall cohort and for the overall ARPU based on revenue because newcomers account for about 20% of our collection when we start a year so there is a limited benefit that we see in the year. That said, it's a great indication of how the future value of our cohorts are going to look like. And this is why it's making so exciting because think about it this way, where we already embedded in the first quarter 25% growth on our cohort starting next year. Some of it, obviously, are going to be this year but this is what is so exciting about it.

With regard to the second question, I will pass it to Avishai. Yes.

Avishai Abrahami -- Chief Executive Officer and Co-Founder

So why -- the question was, why we can't get more advanced user while keeping with lower pricing point? So the thing is that it's all about -- the way we look at it is about branding, right. The base of the lower pricing point was adding the banners on the -- on our users' websites and which was the reason that -- that was the differentiator between that to the current pricing point. And what we feel is that our branding message has evolved, right. Five years ago, it would be about build a free website or easily build a free website, OK.

What we're evolving the brand toward today that build the best website, right, build stunning website that looks great and work fantastically well. And in this kind of branding, having websites of Wix with banners on top of them that make them looks a lot less stunning, right, just didn't fit. So we felt that it's OK for us to come to a place and say no, the product now and the messaging behind it and the brand messaging behind it should change, and are changing and in fact, we did work and changed it in the last year. And the actual results, the websites, which is what our customer built and this is the best showcase of what Wix can do should also reflect that.

So we kind of arrived to a place that if you want to have a consistent brand identity to where we are today, we really have to remove those kind of plans and so this is where we are today.

Maggie O'Donnell -- Director of Investor Relations

Great. Thank you, Lloyd, and thanks, everyone, for joining today.

Operator

[Operator signoff]

Duration: 51 minutes

Call Participants:

Maggie O'Donnell -- Director of Investor Relations

Avishai Abrahami -- Chief Executive Officer and Co-Founder

Nir Zohar -- President and Chief Operating Officer

Lior Shemesh -- Chief Financial Officer

Jason Helfstein -- Oppenheimer -- Analyst

Deepak Mathivanan -- Barclays -- Analyst

Zachary Schwartzman -- RBC Capital Markets -- Analyst

Ron Josey -- JMP Securities -- Analyst

Nat Schindler -- Bank of America Merrill Lynch -- Analyst

Brent Thill -- Jefferies -- Analyst

Mark Grant -- Goldman Sachs -- Analyst

Monika Garg -- KeyBanc Capital Markets -- Analyst

Sterling Auty -- J.P. Morgan -- Analyst

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Lloyd Walmsley -- Deutsche Bank -- Analyst

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