An underappreciated beneficiary from the COVID-19 pandemic was Wix.com (WIX -0.30%). The Israeli-based website creation platform has seen tremendous customer growth since March 2020, driving the stock up over 100% in the past 12 months alone. Management recently announced it has hit 200 million registered users, a big milestone for the company, growing from around 197 million at year-end.
But is Wix stock a buy at these prices?
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2020 was a banner year
With restrictions put on in-person businesses throughout 2020, many individuals and company owners turned to platforms like Wix to quickly build an online presence. This accelerated its growth from prior years -- the company added 31 million registered users and one million paying subscribers in 2020 versus 23 million registered users and around half a million paying subscribers the previous year. User growth led to a record $1.1 billion in collections (the total money actually "collected" by Wix over a time period and a better measure of sales than its reported revenue), up 32% from 2019.
Even with this accelerated growth and all of the upfront expenses that come with it, Wix still generated $129 million in free cash flow last year. Looking ahead, management now expects to collect $12.9 billion from current customers over the next 10 years. That is an impressive number, showcasing the predictability of the company's subscription business. But remember that it is only a prediction, one that relies on Wix keeping customer churn at the same levels it has been historically, which is not guaranteed.
Where future growth lies
Wix started out as a website builder with easy-to-use, customizable tools that were perfect for individuals and small businesses looking to get their brands online. Over the past few years, the company has added more and more tools to the platform. Business Solutions, which is an expanded set of tools specifically for businesses, grew collections 75% in 2020 and 95% in the fourth quarter. Growth mainly came from e-commerce solutions and Wix Payments, the company's in-house payments solution that customers can embed on their sites.
Wix Payments hit $5.4 billion in gross payment volume (GPV) in 2020 and management expects it to hit $10 billion this year. For reference, Shopify had $54 billion in GPV in 2020. As Wix increases its take rate on payments -- the money from GPV that it actually keeps as revenue -- and assuming GPV continues to grow at impressive rates, the segment will drive meaningful sales growth over the next few years.
If these numbers weren't impressive enough, Wix just announced it was acquiring SpeedETab, a mobile ordering solution that Wix will be plugging into its restaurant solutions. This acquisition is another clue to investors that the future of Wix lies with payments and e-commerce.
Valuation
Like other high-growth tech stocks, shares of Wix have pulled back recently. With a market cap of $16 billion as of this writing, the company now trades at a trailing price-to-sales (P/S) ratio of 16.3, in line with its average level for much of 2020. Management is guiding for collections to grow approximately 32% in 2021 to $1.445 billion (at the midpoint). If Wix is able to hit this target, the stock would trade at 11.2 times collections based on the current share price. That's still a premium valuation but much more reasonable for a high-margin subscription business like this one.
Crossing the 200 million user mark is a major achievement for Wix and proof of the momentum it has built over the last 12 months. And recurring revenue, low churn, and high margins, plus new products to diversify its revenue streams, mean investors can and should have confidence that Wix can grow for many years to come.
