Wix.com (WIX -1.34%) is the world's largest drag-and-drop website building and hosting platform. Headquartered in Israel, the company doesn't get quite as much coverage as many of the internet companies here in the U.S. -- though it certainly should.
Despite consistent growth year after year, Wix stock is down roughly 40% from its all-time high. Let's see why it deserves a spot in investors' portfolios.
The business model
With Wix, businesses or individuals of any type can quickly and easily create the digital presence they desire. By using the company's intuitive creation canvas, users assemble their website and pay Wix a monthly or annual subscription to have it published.
This easy-to-use, no-code model has helped Wix attract more than 210 million total registered users and over 5.5 million premium subscriptions. Within that user base, the use cases for Wix vary widely. Photographers, fitness studios, restaurants, bloggers, and many more can access digital solutions tailored to their industry or field.
To help grow the number of businesses it serves, Wix announced an official partnership with Vistaprint, which is home to more than 17 million small businesses looking for design, marketing, and printing solutions. As those same small businesses seek to build their internet presence, Vistaprint will push them to the Wix platform, and the latter estimates this new partnership should "deliver hundreds of thousands of new subscriptions to Wix within five years."
And thanks to the sticky nature of Wix's platform, the company is able to easily forecast its future revenue from existing customers. In fact, management estimates the company will collect roughly $15 billion over the next 10 years from its existing customers alone.
New sources of growth
But Wix's customer value proposition extends well beyond just the website design phase. As Wix has discovered the many use cases for its platform, the company has also rolled out dozens of additional solutions that it either acquired or developed in-house. These tools include scheduling, shipping, logistics, tax calculations, Wix payments, and more.
As businesses make use of these extra features, the revenue collected from them gets grouped into what Wix calls its "business solutions revenue." Unlike Wix's core platform, business solutions revenue isn't quite as predictable due to its non-recurring nature. However, this segment is growing much faster at the moment.
In the second quarter of 2019, business solutions revenue made up just 15% of Wix's top line. Fast-forward two years to the same quarter of 2021, and this revenue has almost tripled with business solutions making up 26% of the business. As the segment continues to grow, management expects gross payment volume on its platform to reach $10 billion in full-year 2021 -- an 85% increase from last year.
With Wix now offering a comprehensive suite of tools for any business, management seems to be quite convinced the company will gain market share. CEO Avishai Abrahami even stated that he believes "in the next five to seven years, 50% of anything new built on the internet will be done on Wix."
Wix by the numbers
While the CEO's projections might seem a little audacious, it's hard to ignore the company's remarkable financial results. Over the last five years, Wix's trailing-12-month revenue has grown at a compound annual rate of 37%.
Although it looks like the company is taking steps to sustain that growth, investors shouldn't be willing to pay any price. And fortunately, they don't have to. Wix currently trades at a trailing price-to-sales multiple of 10.5. While valuing Wix based on earnings isn't possible given its current rate of reinvestment, the company does trade at a significant discount to its larger rival Shopify, which trades at almost 47 times sales. Though the comparison isn't quite apples to apples, and Shopify has generated a consistently higher growth rate, both businesses possess similar profit margins and aim to help their customers establish a digital presence.
If investors aren't certain whether or not the stock is undervalued, Wix's management team has made its view quite clear. With more than $1 billion in cash, short-term deposits, and marketable securities on its balance sheet, the company just announced that it completed a $200 million share repurchase program, buying back 1.6% of outstanding shares.
While some investors might view this move as too conservative given the company's ambitious goals, Wix has already proven it can be cash-flow positive while simultaneously investing for growth. With the excess cash on the balance sheet, this should give investors some additional confidence.