The second half of 2019 has been far from a breeze for many cloud-based software stocks. Years of strong business growth and skyrocketing share performance took a step back in the late summer and early autumn. Wix.com (NASDAQ:WIX) has been no exception. As of this writing, shares are down over 20% from their all-time highs.  

The website and e-commerce management provider is nevertheless still putting up solid numbers and is laying the groundwork for years of continued expansion. Third-quarter 2019 results bear that out with another round of double-digit top- and bottom-line growth, providing a nice counterpoint to the stratospheric valuations of peers like Shopify. This makes Wix a must-watch for growth investors.

The good times keep rolling

Registered users on the Wix platform grew 17% year over year to 159.5 million, providing a better base from which to generate advertising revenue. Even better, though, was the 15% increase in paying subscribers to 4.41 million from a year ago. All told, it equated to a 26% increase in revenue to $196.8 million and a 23% increase in free cash flow to $29.2 million. Paired with the results from the first half of 2019, Wix.com is putting up another year of impressive growth.  

Metric

9 Months Ending Sept. 30, 2019

9 Months Ending Sept. 30, 2018

Change

Revenue

$557 million

$440 million

27%

Operating expenses

$479 million

$376 million

27%

Adjusted earnings per share

$0.78

$0.64

22%

Free cash flow

$90 million

$69 million

30%

Data source: Wix.com.  

After opening up offices in Japan during the second quarter, the company had its fair share of highlights in Q3 as well. CEO Avishai Abrahami said on the earnings call that his company launched Wix Fitness to help businesses and entrepreneurs in the fast-expanding health and wellness space manage their online presence.

The web development tool Corvid also continues to grow among web professionals, helping elevate the brand and get Wix involved with bigger enterprises. And payment processing services are gaining traction, providing a new source of subscription revenue and offering big long-term potential as the world continues to adopt digital payment methods.

A small shopping cart full of boxes sitting on top of a laptop keyboard

Image source: Getty Images.

Not without some blemishes

As good as Q3 was, though, it wasn't perfect. For one, foreign currency exchange rates exacted a hefty toll. Changes since the Q2 update have led management to otherwise reduce its full-year revenue and free cash flow expectations.  

In spite of exchange rates going against Wix, though, revenue is still expected to notch a 26% increase over 2018, and free cash flow a 22% to 24% increase. Based on those projections, Wix stock trades for 8.5 times expected 2019 sales and 52 times free cash flow. That's none too cheap, but it's far from the massive 25.3 times 12-month sales at Shopify -- which also, incidentally, doesn't generate any free cash flow, although that is by design to keep its growth rate of near 50% going.

In short, Wix.com is putting up impressive numbers but trading at a relative discount to the biggest names in the business. Valuation is still high and hinges on management delivering another similar growth trajectory next year, so I'm not preaching a strong buy. But after a solid Q3 2019 outing, Wix is at least worth a look.