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Why Wix Stock Dropped and Then Rallied Today

By Joe Tenebruso – Aug 6, 2020 at 4:55PM

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The website builder is ramping up its growth investments.

What happened 

Shares of (WIX 3.98%) fell as much as 14.4% before closing the day down only 0.5% on Thursday, following the website development platform's second-quarter results. 

So what 

Wix's revenue climbed 27% year over year to $236.1 million. The gains were fueled in part by a 62% surge in business solutions revenue, or sales of additional features and applications that are complementary to Wix's core creative subscriptions.

Notably, Wix's premium subscriptions increased by 17% to 5 million, while its total registered user base expanded by 18% to 182 million. "Our business has seen an immense uplift in demand in recent months, driven by the rapidly increasing importance of having an online presence," CFO Lior Shemesh said in a press release.

Website design tools displayed on a desktop computer, laptop, and mobile phone.

More people are turning to Wix to build their online presence. Image source: Getty Images.

But investors appeared to initially focus on Wix's losses. It generated an adjusted net loss of $14.2 million, or $0.26 per share, compared with adjusted net income of $17 million, or $0.34 per share, in the year-ago quarter. That was an unwelcome surprise to Wall Street; analysts had expected an adjusted profit of $0.24. 

Now what

Wix's second-quarter losses were largely due to the investments the company made in its customer care operations, as well as increased marketing expenses related to strong demand for its online business tools. Meanwhile, Wix's operating and free cash flow climbed 34% and 52%, respectively, to $50 million and $46.7 million. Perhaps that helps to explain why Wix's shares ultimately rallied back to essentially flat on the day.

Looking ahead, Wix is well positioned to benefit as more businesses prioritize their online operations. "The need for business owners to move online quickly, communicate with customers, and deliver goods and services has never been more imminent, and the Wix platform continues to provide millions of users with the ability to thrive during these unprecedented times," CEO Avishai Abrahami said.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Motley Fool has a disclosure policy.

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