Wix.com Stock Is a Buy

Website-development platform Wix.com (WIX -2.00%) started 2019 on solid footing. First-quarter results topped the company's own expectations, and management raised its full-year outlook accordingly. In spite of the beat, however, the stock hasn't budged much since the report was given.

Part of the reason for the lukewarm reception is no doubt because shares are already up 54% this year, as of this writing. That's a massive return in a short period of time, but there's good reason to believe Wix's run is far from over.

The Q1 numbers

Wix is coming off of a great 2018. Revenues grew 42%, free cash flow (money left over after basic operations and capital expenditures are paid for) was up 44%, and the company entered full-year profitability territory. The double-digit trend continued in the first quarter, with both revenue and collections (the amount of money made per subscription) surpassing the top end of guidance by $1.3 million and $3.4 million, respectively.

Data source: Wix.com's first-quarter earnings release. YOY = year over year.

Additionally, management gave a small bump to full-year revenue expectations -- partially because of more favorable currency-exchange rates than a few months ago, as well as growth in the customer solutions segment of the business. Sales are now expected to be $758 million to $763 million as compared to $755 million to $761 million before. Free cash flow for 2019 is getting reduced to $122 million to $126 million (20% to 24% year-over-year growth), but this lowered outlook is due to a planned $15 million investment into the aforementioned customer solutions business.

Image source: Wix.com.

To buy or not to buy?

Let's dig deeper into the numbers. Wix still has plenty of steam to keep propelling operations forward. Total users on the web platform grew 19% year over year, to 148 million, the same rate reported at the end of 2018. Premium subscriptions rose to 4.16 million, a 21% rise over the year prior.

Wix has a lot more going for it than just adding new aspiring web entrepreneurs, though. The company continues to promote new services like Wix Logo Maker and Wix Payments. As it does, the average dollar spent per user keeps expanding. During the first quarter, average revenue per user (ARPU) was up 9%.

ARPU could be a driving force for some time. Referring to the $15 million investment in customer solutions, CEO Avishai Abrahami had this to say on the conference call:

Our analysis showed that the conversion of users, when engaged with our personalized support, was multiple times higher than a regular conversion on Wix. This is so compelling that we have decided to invest an additional $15 million in 2019 to build our infrastructure and increase our customer solution organization globally. We believe this is a huge opportunity that will provide additional year-over-year growth of at least 5% in collections in 2019 and in 2020, which is an estimated 3x return on this investment. And I believe it can yield even better returns for years to come.

There was one more reason for investors to cheer the quarterly report: Wix filed for approval to repurchase $100 million worth of its shares. That should help offset the annualized run rate of stock-based compensation ($24.9 million in the first quarter) and boost earnings per share going forward.

Nevertheless, Wix stock isn't cheap, priced at 65.7 times trailing-12-month free cash flow. But with the top and bottom line expanding at a fast rate as the company reinvests into itself to foster that expansion, there's a lot here for investors to like.