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This New Product From Wix Could Drive Growth Internationally

By Jon Quast, Jason Hall, and Deidre Woollard – Oct 25, 2021 at 8:37AM

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More people own phones than own computers, making mobile apps such an important part of building an online presence.

On Aug. 10, (WIX 4.06%) announced a brand new product called Branded App by Wix. The company has long been known for making it easy to create a website. But now it hopes to bring the same user-friendly features to building a mobile app.

Launching new products isn't something new for Wix; the company is consistently creating new products and features. However, in this video from Motley Fool Backstage Pass, recorded on Oct. 8, Fool contributor Jason Hall and Millionacres editor Deidre Woollard discuss how important an app-building product could be for Wix in international markets.

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Jason Hall: I want to share, I'm trying to find the slide right now. They have this really interesting cadence of, I don't want to say this runs counter to what we were talking about earlier, but the bottom line is that when you get out of the free model and get into its premium offerings, Wix has a ton of tools and it is regularly, consistently adding to those tools. I think this is one of the things that gets to the stickiness, and if you look at its revenues, how much of it comes from creative revenues, that's the vast majority of its revenues. It's because you start off, and then you want a little bit more and you add a module. You want a little bit more, and you add more and more and you grow your relationship. Again, we talked about that net revenue retention rate was up, I think it was 113%, so there's 13% increase essentially in comps if you were to use a retail term, 13% growth in revenue from organic revenues is a great number. A big part of that is that as its customers move to that premium model, they begin to steadily add more capabilities, and Wix has made that a point. This is a company that spends a tremendous amount of money on R&D.

There's another slide that I wanted to show, let me try and find it. It's about its cost structure, and I think it's really interesting to share because it talks about how they try to leverage their cash flows in different ways. I'm going to do this backwards, I'm going to start here on the right. Less than 10% of their revenues are needed to cover general and administrative expenses, so that's just like their basic baseline operations. Then in the middle, this is sales and marketing, which is ranged from as high as 43% to as low as 33% over the past three or four years, happens that those happen to be the second quarter of this year, and the second quarter of last year.

You see last year, there was a clear decision made to spend more on sales and marketing in the second quarter of 2020. They were able to leverage up their marketing dollars at an obvious point in time where people were going to be building more websites in the middle of the pandemic lockdowns. You see this year, that number is the lowest that it's been for a full fiscal period and since before 2017. There's evidence that they're able to lever that up and down. Again, you see they spend between 21% and 25% on R&D. That's a really important area to spend in that prior tab that I showed with all of the different modules that they've built and they've expanded over time. That's where they spend at least a fifth of their operating expenses as a percentage of revenue, are going into R&D, and I think that's really important. That you see this isn't a number that's shrinking at a high rate, it's a number that's staying pretty high. Deidre.

Deidre Woollard: Talking about some of the things that they're doing, one of the things I find really interesting is they're doing their mobile app for Dine by Wix, which is the restaurant app. You think about things like Toast that are having their IPO. If you have a Wix website, you already have some of that functionality built in.

Another thing I think that's really interesting, is they are rolling out their app creation. They have this branded app by Wix thing. It's not going to be the most amazing bells and whistles app you ever saw in your life, but the idea that you can stand up your own native mobile app in a relatively short period of time, that's going to satisfy the need for a wide, wide variety of businesses. You think about all the small businesses in the United States, they don't necessarily have a lot of money to build out their web presence and build out an app presence, but if they need something quick, relatively easy to stand up, this is it. I think that's pretty appealing.

Hall: Internationally, this could be huge. There are hundreds of thousands, if not millions of entrepreneurs around the world, that their only computing device is a mobile device, it's a smartphone. They are having the ability to stand up a website and build it out and do all your integrations from a mobile platform is very, very powerful. Again, they're not going to be the only one doing this, but doing it is huge.

Jon Quast owns shares of The Motley Fool owns shares of and recommends The Motley Fool has a disclosure policy.

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