In late March, the drag-and-drop website-building platform Wix.com (WIX -2.50%) announced a new integration with e-commerce giant Amazon (AMZN -1.35%). Though Wix already has hundreds of partnerships across its app marketplace, this particular offering should have big implications on Wix's presence in the e-commerce space. Let's see why.
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What are the details of the partnership?
With this new partnership, merchants using Wix in the United States will have the ability to integrate Amazon's multichannel fulfillment app into their checkout process. This easy integration allows merchants to leverage Amazon's shipping expertise and get products to their customers faster.
Amazon's unparalleled scale makes this a valuable addition for Wix. With more than 200 fulfillment centers around the globe, Amazon can deliver packages within as little as one day and boasts a 97% on-time delivery rate. A look at spending suggests that fulfillment centers are central to Amazon's strategy and that these capabilities will only get better. This year, Amazon spent more than $60 billion on purchases of property equipment, with about 30% of that dedicated to expanding fulfillment capacity.
Wix merchants who utilize Amazon's fulfillment app will have the option to customize shipping prices, meaning they can pay the fees themselves to offer buyers discounted shipping or pass through these costs to customers. Merchants will also get clear visibility into package tracking so that they can share a timeline and delivery progress with customers along the way.
Why does this help Wix?
By offering merchants access to Amazon's massive logistical footprint, Wix is able to avoid the costs of building out its own fulfillment network and can instead focus on its core competency -- providing the tools required for businesses to build and grow online.
Over recent years, Wix has begun to expand beyond simply being a website design platform and is striving to become a complete digital operating system for businesses. Almost any type of business can complete day-to-day functions using Wix's comprehensive suite of solutions. These include scheduling, shipping, order intake, payments, and plenty more.
With Amazon's fulfillment capabilities now added to the mix, Wix is an even more compelling destination for merchants who want to mix the speed and convenience of Amazon shipping with the ease and customizability of Wix's digital platform. By attracting new merchants, Wix will generate greater recurring subscription revenue and can also cross-sell its other business solutions, like Wix Payments.
What does this mean for shareholders?
Between its best-in-class website creation platform and expanding set of digital business tools, Wix is becoming one of the best platforms to use when setting up an online shop, and it's only the beginning for the content management system (CMS). Wix's market share among all CMS platforms has increased more than five-fold over the past five years, from 0.6% in 2017 to 3.4% in 2022.
Additionally, as businesses integrate Wix functions with more of their day-to-day operations, the cost of switching to another platform becomes increasingly burdensome, which gives Wix the ability to raise prices. This year, investors got a glimpse at this growing pricing power as the average revenue per subscription increased 12% compared to a year ago.
While this partnership may not have an immediate financial impact, the addition of Amazon's fulfillment services to the Wix platform is likely to attract more merchants in the long run. However, for investors trying to assess Wix as an investment today, the valuation can appear fairly expensive at first glance due to the company prioritizing growth.
Even though Wix has demonstrated the ability to generate a high free cash flow margin in the past, the company has seen these margins decrease over the last year as it's invested most of excess cash into further expanding available business solutions. Management addressed this during the company's most recent quarterly conference call when Chief Financial Officer Lior Shemesh stated that the company should be able to get back to its previous profitability levels again, only this time from a much higher revenue base. If the CFO is correct, and Wix is able to maintain just 10% revenue growth over the next five years (it grew by more than 30% over the last five), it's quite possible that Wix could be generating at least $400 million in free cash flow per year. That's more than a 10x increase from its 2021 figure.
Assuming Wix's stock is valued by that point at around the market average of at least 20 times free cash flow, investors would reap double-digit returns from here. For investors with a long-term focus, this seems like a great entry point.
