Often overlooked because of its larger and higher-growth peer Shopify, e-commerce enabler Wix.com (NASDAQ:WIX) had a great first quarter of 2020. Even as the economy took a nosedive into recession as efforts to combat the coronavirus took hold, Wix reported surging demand for its web page creation and management tools that offset cancellations in service.  

The immediate-term prospects for the global economy only worsened after the first quarter ended, but the trend that lifted it to kick off 2020 has thus far remained intact: Physical interaction is on the wane, while the digital economy is waxing favorable.

How momentum is building

As for the headline numbers, Wix's results were in line with management's expectations outlined at the beginning of 2020. Revenue grew 24% to $216 million, driven by a 17% increase in "Creative Subscriptions" (the basic cloud-based web designer platform) to $177 million, and a 72% increase in business solutions to $39.4 million. Free cash flow (revenue less cash operating and capital expenses) was 33% higher at $40.0 million -- also in line with expectations.

A laptop, smartphone, and cup of coffee sitting on a table in front of a window

Image source: Getty Images.

While management said the COVID-19 response has led to many customers canceling service, the surge in new users has more than offset the losses. In the first quarter, 6.9 million users were added, bringing Wix's grand total to 172 million (a 16% year-over-year increase). There were 162,000 net new premium subscribers, bringing the total to 4.7 million (a 12% increase). However, as the crisis deepened, Wix said it had 3.2 million new users register in the month of April alone.  

Since Wix fills its sales pipeline by adding users on its free-to-use platform, most of those will not convert into a highly profitable premium subscription. However, the company is seeing a sharp acceleration in its premium marketplace and said that net premium adds were 207% higher in April than last year.

Still, it's been a mixed bag for Wix as certain categories like hotels and events are performing poorly. But a wave of stores and restaurants have migrated to digital-based operations with shelter-in-place the current reality, and Wix's services geared toward those industries (like the all-in-one web menu, ordering, and reservation system Wix Restaurant) have been doing very well. Thus, in spite of headwinds, the company is expecting second-quarter financial results to accelerate. Revenue is expected to increase at least 25% and free cash flow to go up 33% to 40%. Collections -- money collected but for which service has not been rendered yet -- is expected to increase 28% to 30% in Q2, indicating this recent bump in revenue could last through the end of 2020 as those new premium subscriptions get rolling.

A profitable play on continued growth of e-commerce

Wix is among those companies championing small businesses and entrepreneurship during the COVID-19 crisis. While small businesses have been some of the hardest-hit by the economic lockdown, Wix and its peers like Shopify and Etsy have been bucking expectations as they help even more small outfits make the move online and more aspiring biz owners launch their own ventures. 

Of course, it's unlikely to be totally smooth sailing from this point forward. The world was already moving to one based on digital systems, and the sharp shove further down that road is going to be disruptive. It's likely that the global economy will be reeling from the aftermath of coronavirus for years. But Wix is doing its part to keep its customers thinking of ways to adapt, as surging unemployment is leading many to look for ways to use the internet to make money.

Investment into new capabilities is thus ongoing. Besides expanding its premium web templates and payment processing services, Wix Marketplace was recently relaunched to help connect users in need of help building and marketing their websites with developers. Zoom Video Communications was also added as an integrated Wix app to help owners integrate meetings and appointments on their websites. And Editor X is still on track to launch this summer as well, geared toward agencies building websites and online marketing for larger enterprises.  

These are all good things, and should business stumble even for a quarter or two, this cloud-based e-commerce platform is in good shape. It's free cash flow positive and able to continue plowing money back into operations to promote growth. Cash, equivalents, and marketable investments added up to over $900 million at the end of March, and debt (in the form of long-term notes that can be converted into stock) was just $359 million. Net of debt, Wix has enough liquidity on hand to cover nearly a year's worth of cash operating expenses.  

At 12.6 times trailing 12-month sales and 65.8 times free cash flow, this isn't exactly a cheap stock. But the world is looking like it will emerge from this recession more reliant on the internet than ever before. That bodes well for Wix and its e-commerce development platform.