What happened
Wix.Com (WIX +9.41%) reported better-than-expected first-quarter earnings results before the market opened Wednesday. The stock was quite volatile, jumping by as much as 8% in pre-market trading before falling sharply to a decline of 4% in the first half-hour of the session. As of 2:16 p.m. ET, it was essentially flat for the day.
Revenue exceeded expectations while the business swung to a profit. Despite macroeconomic uncertainty, management also guided for more growth and higher margins in 2023 than it had previously forecast.
NASDAQ: WIX
Key Data Points
So what
A lot of new customers used Wix's services to create websites in the early phases of the pandemic, which sent the stock soaring, but it's been downhill since then. The stock has fallen 78% from its mid-2021 peak, and is down by about 33% from where it began 2020. However, the stock has delivered a return of 400% over the last 10 years, and management sees more growth opportunities ahead.
Following a strong start to 2023, with revenue up 10% year over year, management touted investments in artificial intelligence that it believes could increase the value of the platform and the size of its market opportunity.
For now, investors appear mostly encouraged about Wix's improving profitability. The company achieved its highest adjusted operating profit in history, driven by a large reduction in operating expenses.
Most surprising was that Wix still saw an increase in bookings from new customers even as it cut its marketing budget nearly in half. That indicates a healthy amount of demand in the marketplace, not to mention support for Wix as a leading brand for businesses wanting to set up an online presence.
Now what
After reporting just $32 million in free cash flow last year, management forecast that free cash flow would improve to as much as $180 million in 2023 -- between 11% and 12% of revenue.
Profitability has been a key issue with expensive growth stocks over the past year. But Wix is demonstrating that it can return to profitable growth, at least on a free-cash-flow basis, despite a challenging business environment.
Still, with a market cap of $4.6 billion, the stock looks expensive relative to guidance, which also explains why Wix couldn't hold onto its initial share price gains following its positive quarterly report.
