Drag-and-drop website building platform Wix.com (WIX 2.04%) has reported a GAAP operating loss every single quarter since coming public in 2013. This quarter, that changed. For the first time in its public history, Wix reported $13 million of positive operating income during its recent second-quarter financial report. Let's see what this shift in profits means for investors.
NASDAQ: WIX
Key Data Points
Wix's business
Before jumping into what's changed with the financials, it's probably best to take a look at the actual underlying business improvement going on at Wix.
Wix.com is a website-building company that's grown over the last decade, thanks primarily to the success of its do-it-yourself (DIY) platform. With its intuitive website-making software, any person or business can quickly and easily establish the internet presence they desire without needing to know how to code. Today, despite seeing slower growth coming out of the pandemic, Wix's revenue from this self-creator segment still makes up the majority of the top line at more than 60% of its subscription revenue.
But the DIY business isn't the only segment Wix is focused on. The company has been eating market share among professional website builders as well, thanks to the rollout of several new products. Three years ago, Wix introduced Editor X, its first platform designed specifically for website-building agencies and designers which included the advanced capabilities that professionals need. The launch of Editor X has helped Wix more than triple its revenue from professionals in the last three years alone.
With the strong momentum Wix is seeing from this segment, the company decided to double down this quarter with the launch of Wix Studio. In describing the new product, Wix CEO Avishai Abrahami said: "The Wix Studio workplace includes a powerful dashboard to manage clients, projects, and teams." From more advanced editing features to new business management tools, Wix should continue to see strong growth from its partners business.
Q2 by the numbers
Less than a month ago, Wix reported its Q2 2023 earnings, outperforming analysts' expectations. The company delivered just under $400 million in bookings for the quarter, which was up 12% versus the year prior and officially turned the corner to positive operating income.
While much of the improvement in profitability is attributable to the continued success of both Wix's self-creator and partners businesses, the company is also seeing the direct benefits of its cost-reduction initiatives, including two rounds of workforce restructurings and lower marketing spending. In fact, driven by 20% less spending on sales and marketing, Wix's operating expenses as a percentage of revenue decreased from 83% in Q2 of last year to 64% in its most recent quarter.
WIX Operating Income (Quarterly) data by YCharts
Is it time to add shares?
In Wix's 2022 fourth-quarter letter to shareholders, the management team stated that it was hoping to exit 2023 with 12% to 13% free cash flow margins (free cash flow as a percentage of revenue). Fast forward just two quarters, and Wix has already surpassed those estimates and is now upgrading that guidance to 15% by the end of the year. Needless to say, it looks like management even surprised themselves with how profitable the business can truly be.
During its recent analyst day, Wix's CFO Lior Shemesh stated that he believes Wix can generate more than $7.50 in free cash flow per share in fiscal year 2025. At current prices, that means the stock trades at just 12 times management's expected free cash flow estimates. For a business that has grown its revenue by 25% annually since 2017 and looks poised to continue growing thanks to the success of its partners business, that valuation doesn't seem too commanding.
For long-term investors, this looks like a good opportunity to pick up some shares.
