The tech sell-off has deepened lately and some of the best performers from the past two years have now become big decliners as investors adjust to the reopening of the economy and the rising interest rate environment.
While investors should keep an eye on recent developments, they should not lose sight of the longer term. In fact, it would be a mistake for investors to sell off good companies that have solid prospects just because of some short-term noise. Wix.com (WIX -0.30%), an up-and-rising tech company, is one of these wrongly written-off gems, down 45% so far this year.
Wix has a top-notch execution track record
Wix was the brainchild of three founders who decided to build a platform that simplifies website creation. Their idea was to empower anyone to build a website with no coding or design skills. And the idea caught on as Wix quickly reached a million users by 2009, three years after its founding. Fast-forward to 2022 and the platform now has 222 million registered users.
Wix's impressive success can be attributed to its meticulous execution over the years. It started mainly by offering pre-built websites for customers, but has since evolved to provide a wider range of tools. Wix customers can now build e-commerce stores, manage online payments and business workflows, create professional videos, develop a more sophisticated and customized website, and more.
As Wix has grown its suite of products, its financials have also skyrocketed. Revenue rose from $290 million in 2016 to $1.3 billion in 2021 -- a compound annual growth rate (CAGR) of 34%. Premium subscriptions grew to 6 million, more than double the 2.5 million from 2016.
Image source: Getty Images.
Wix has a proven model to sustain growth
Wix has benefited enormously from the wave of digitalization of small businesses. The good news is that the tailwind is ongoing and should power the company's growth for years to come.
Wix's freemium business model -- which offers a basic level for free and charges for more advanced features -- is well suited to sustain the growth trajectory. As a start, the website builder can easily acquire new users to its free basic service. And then customers can move up to a level that suits them, including $14 per month for a lower-tier package and $39 per month for the VIP website service.
Besides acquiring new users, Wix has an existing pool of 222 million users -- of which only 6 million are paying users -- who could one day become premium users. Conversion usually happens after users get more familiar with Wix's platform or when their needs evolve. While the current conversion rate is only 2.7%, it has improved from the 1.9% conversion rate when Wix went public in 2013. Moreover, Wix could increase the average spending of its premium users as it adds new tools and services. Just last year, Wix launched its point of sale service (Wix POS) to help merchants better manage omnichannel sales and also acquired Modalyst to help merchants better find products to sell online. As long as it can continue to offer value-adding tools, customers will be willing to spend more.
Wix is riding on a massive tailwind of small businesses going digital. If the tech company can continue to attract and delight its customers, it can continue to grow for years to come.
