On Aug. 11, website builder and online business platform Wix (WIX -0.42%) reported its second-quarter earnings results. The numbers looked solid with revenue growing 34% year over year and a major new partnership signed in the quarter.
However, due to uncertainty around the COVID-19 delta variant, management slightly lowered its guidance for the full year. The market didn't like this news, pushing the stock down as much 25% in the week following the report.
Shares are still down over 15% as of this writing, and this sell-off could be an opportunity for anyone looking to start a long-term position in Wix. Here's why I'm bullish on the stock after its latest quarterly results.
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Steady growth
In the second quarter, revenue grew 34% year over year to $316.4 million. Collections, the total amount of money collected by Wix (not all of which can be recognized as revenue at once), in the quarter grew 29% year over year to $342.9 million. A lot of this growth is being driven by the business solutions segment, which encompasses the company's e-commerce offerings -- similar to Shopify.
In the quarter, business solutions revenue grew 75% year over year to $80.5 million and is becoming a larger part of the business each quarter. Management noted e-commerce accounted for 35% of total collections in the second quarter, up from 33% in the previous period.
Currently, business solutions have a low gross margin of 22% as Wix tries to scale the segment. Over time, margins should expand and will likely get close to what Shopify reports -- 55% in the latest quarter -- since the services are similar.
Since Wix's business is so reliable, it's able to predict how much money current customers will bring in, assuming its churn level stays the same. At the end of the second quarter, management estimated that over the next 10 years, it will collect $15 billion from its current customers. If Wix continues growing its customer base, that number should only expand over the next few years, creating a large, predictable revenue stream for the business.
Vistaprint and an app builder
In the second quarter, Wix made numerous announcements about partnerships and new product lines. First, in conjunction with the earnings release, management announced a new partnership with Vistaprint, an online platform that helps small businesses make promotional products like logos, business cards, and flyers.
Vistaprint customers will now use Wix exclusively to build an online presence and will also have access to the company's e-commerce tools. The integration will roll out in 2022, and Wix management expects it to add hundreds of thousands of subscriptions within the next five years.
The company also made a big product announcement this quarter with the launch of Branded App by Wix, a no-code app builder that costs $200 a month. The high price tag for this service means it might not be for every subscriber on the Wix platform, but the features look like a great value add for smaller companies that don't have the funds to pay for a full-time mobile developer.
The app builder requires no coding, lets you automatically migrate features from your existing Wix website, and automatically provides updates to keep it compatible with iOS and Android. Branded App by Wix may not be a big revenue driver in the near term, but it shows how the company continues to invest in new products to serve its customers.
Valuation looks reasonable
After the sharp drop in the stock, Wix now trades at a market cap of just under $12 billion. And with the company's fast-growing business, the valuation looks a lot more reasonable than it did at other points in the past year. The company is guiding for $1.255 billion in full-year revenue at the low end of its range. If it can hit that target, the stock trades at a forward price-to-sales (P/S) ratio of 9.5.
Considering the company's high gross margin of 62% -- which should only improve as business solutions scale -- and its reliable customer base projected to bring in $15 billion in collections over the next decade, a market cap of $12 billion should look like a bargain just three to five years from now. If you believe Wix can continue growing at a rapid pace over the next few years, now is the time to start a position in the website builder.
