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Can Keep Up the Momentum in 2021?

By Brett Schafer - Feb 23, 2021 at 10:16AM

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The cloud-based web development services company did quite well in 2020. (WIX -6.33%), a cloud-based platform that allows businesses and individuals to easily build websites, released its full-year 2020 results on Feb. 17. The company got a nice boost in demand from the accelerated digital transition brought on by the COVID-19 pandemic, as it was prepared to bring an online presence to all types of businesses.

The stock price was up 8% the day of the release, bringing its total gains over the past 12 months to more than 100%, beating the S&P 500 by a wide margin during the same time span. Can Wix keep the momentum rolling in 2021 and beyond? Let's investigate.

2020 earnings numbers were impressive

All of Wix's headline numbers were solid. Total revenue in 2020 grew 30% to $989 million with cash generated by operating activities of $148 million. The ability to generate cash while also growing quickly and investing in numerous new product offerings is impressive and a testament to Wix's asset-light subscription model. 

An animation of multiple people putting stuff on a web page.

Image source: Getty Images.

Wix's fastest-growing segment is what it calls business solutions. This segment grew sales 76% in 2020, driven by tremendous growth from its Wix Payments product. Gross payment volume (GPV), which is the total dollars flowing through Wix Payments, grew 126% to $5.4 billion in 2020. The company expects to hit $10 billion in GPV in 2021. The growth in payments was due to increased demand for Wix's e-commerce solutions for small businesses and shows that it can grow even with large, well-capitalized companies like Square and Shopify competing for customers.

Another positive in the report was the increase in what Wix calls "future collections," which is the dollar amount Wix expects to bring in from its current customers over the next 10 years, assuming churn levels stay the same. At the end of 2020, estimated future collections stood at $12.9 billion, showing how reliable Wix's subscriptions are.

What's next for Wix

With the consistency of Wix's backlog and low customer churn, the company has the ability to reinvest into its platform without needing to raise debt or equity to fund growth. Wix Payments is one of these new products and, as mentioned above, is seeing tremendous adoption. Wix also recently launched a Facebook ads integration that allows Wix customers to advertise their products on Facebook or Instagram through the Wix platform. The key value for small businesses is the ability to keep everything streamlined within the Wix ecosystem, simplifying all the processes that go into running a business.

Even with the growth in e-commerce and payments, Wix's most important new product might be Editor X. It has been around for a while, but just came out of beta testing on Feb. 4. Editor X is an advanced web design platform that gives users tons of flexibility when creating websites. Essentially, it is the opposite of a cookie-cutter product you might get with WordPress or Squarespace, and it is meant for people who need their websites looking top-notch. The platform already has 200,000 users (what percentage are paying is unclear) and costs between $22 and $45 a month to use with a custom domain name.

Take the long view on Wix

It's easy to get excited about Wix's business prospects. But as investors, we can't predict what the stock will do in the short term. The company currently trades at a price-to-sales ratio (P/S) north of 16, a premium multiple relative to its software competitors, leaving it liable to potential short-term price swings. However, if you can look three to five years into the future or longer and think the company can continue growing sales at a double-digit rate, a trailing P/S of 16 doesn't look crazy. Don't fool yourself into thinking the stock is a bargain, though.

Wix had a phenomenal 2020, driven by new product launches and the demand for a digital presence from businesses worldwide. This has driven the stock's valuation to record highs, which may lead investors to think they've missed the boat on the company. However, with Wix payments, Editor X, and other features continually launching, plus a steadily growing addressable market, there's reason to believe can grow its sales and profits for years to come. 

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