Please ensure Javascript is enabled for purposes of website accessibility

Why Stock Looks Sick This Morning

By Rich Smith – Aug 11, 2021 at 11:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This isn't how earnings beats usually work.

What happened

Shares of website builder (WIX 1.77%) are crashing -- down 14.5% as of 10:15 a.m. EDT -- despite the company reporting an earnings and revenue beat late last night.

Heading into Q2, Wall Street had forecast that Wix would lose $0.37 per share (pro forma) on $311.7 million in revenue. In fact, the company lost only $0.28 per share, and its revenue was $316.4 million -- clear wins on both counts.  

Sick computer icon with words 404 ERROR PAGE NOT FOUND

Image source: Getty Images.

So what

Moreover, the loss that Wall Street predicted for Wix -- and the smaller loss that Wix reported -- were both pro forma numbers. The company's actual net income when calculated according to generally accepted accounting principles (GAAP), however, was an even more impressive positive $0.66 per share.

Sales for the quarter climbed 34% year over year, with Wix observing that "more businesses continue to use Wix to create, manage and grow their online presence, with an increasing number depending on us as their full operating system." Why, Wix even reported positive free cash flow for the quarter of $14.7 million!

Now what

And yet, the stock is down today. Why is that?

Valuation is certainly one concern. Even with $73 million in trailing free cash flow, Wix trades for more than 200 times its cash profits for the past year.

Guidance -- and what it portends for Wix's growth rate -- is another concern. Wix predicted that Q3 sales will range from $311 million to $317 million, which implies as much as 25% year over year growth. Wall Street, however, was expecting Wix to do more than $325 million in sales in the third quarter, so the company's forecast amounts to a promise to "miss" in Q3. Similarly, management says full-year sales will not exceed $1.27 billion, short of analysts' desired $1.29 billion.

In short, Wix is growing briskly -- just not as briskly as investors had hoped.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned Stock Quote
$86.36 (1.77%) $1.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.