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Small Business Growth Continues to Boost Results at Wix.com

By Nicholas Rossolillo - Feb 21, 2020 at 7:05AM

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The downmarket e-commerce solutions site was on another roll in 2019.

Wix.com (WIX -3.35%) just finished off another year of strong performance. The website and e-commerce software company notched 25% year-over-year revenue growth during the final quarter of 2019, and generated 15% more free cash flow (what's left after basic operating and capital expenses) even though it continues to dump money back into the business to promote growth.  

Wix isn't the same type of massive success story that Shopify (SHOP -4.27%) has become in recent years, but the growth of the global digital economy is nonetheless providing a strong tailwind for the smaller cloud-based web development platform. The company is a key component in helping small start-ups and entrepreneurs around the globe promote an online presence. There's a lot to like and a lot to root for at Wix, shareholder or not.

Three office workers gathered around a computer monitor in an office.

Image source: Getty Images.

Building a base of healthy small businesses

2019 was a great year for Wix, although the fourth-quarter headline numbers were a slight slowdown from the pace set earlier in the year. Nevertheless, management said that activity was picking up pace again in the last quarter and expects its momentum to carry over into 2020. The outlook for the new year called for another 24% to 26% rise in revenue over the 2019 numbers, and a 22% to 27% rise in free cash flow.  

Metric

Full-Year 2019

Full-Year 2018

Change

Revenue

$761 million

$604 million

26%

Free cash flow

$127 million

$102 million

25%

Data source: Wix.com.  

One of the primary drivers of Wix's success has been the addition of new users (many of them free, which Wix generates sales from via web advertising) and paying premium subscribers to its platform. That run isn't over. Plus, as those small businesses and entrepreneurs grow and the company adds new capabilities to its software suite, Wix has been able to increase the revenue it generates per subscriber -- although the fees collected are still quite reasonable and have plenty of room for further growth.

Metric

Q4 2017

Q4 2018

Q4 2019

Registered users

119 million

142 million

165 million

Premium subscriptions

3.2 million

4.0 million

4.5 million

Average annual revenue per subscription

$150

$168

$179

Data source: Wix.com.

Pricey but not unreasonably so

After the final report card for 2019 was turned in and 2020 guidance provided, Wix stock trades for 7.5 times one-year forward expected sales and 45 times one-year forward expected free cash flow generation (based on a current market cap of $7.18 billion, and revenue and free cash flow of $951 million and $158.5 million, respectively, at the midpoint of management's 2020 outlook). Those are premium price tags, but not totally unreasonable, either.

For the sake of comparison, Shopify -- which also targets small businesses and entrepreneurs, although it's also increasing its know-how for larger companies and business-to-business sales -- is going for 29 times one-year forward sales and currently generates a negligible amount of free cash. Granted, revenue is expected to grow at least 35% in 2020 to Wix's mid-20% growth target, and the bottom line is near nonexistent because Shopify is investing heavily in new operations, but it nevertheless illustrates the relative value that Wix provides for those looking to invest in small biz e-commerce and web development.  

Thus, after a solid showing and rosy outlook at the onset of a new decade, Wix is back on my list of stocks to buy in the near future.

Nicholas Rossolillo and his clients own shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Wix.com. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wix.com Stock Quote
Wix.com
WIX
$72.40 (-3.35%) $-2.51
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$37.89 (-4.27%) $-1.69

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