Shares of Wix (WIX 8.75%) fell an astonishing 24.9% in May, according to data from S&P Global Market Intelligence. While the rest of the market is soaring, Wix has been left in the dust because of a recent earnings report with a double whammy of soaring costs due to artificial intelligence (AI) use cases and a narrative around its core website-building platform becoming an AI loser.
Now, the stock is trading near its lowest level in 10 years. Here's why investors are bearish on Wix, and whether the stock is a good buy right now.
NASDAQ: WIX
Key Data Points
Fast growth, hefty AI losses
As a website-building platform, investors are very worried that AI is coming for Wix's lunch. The theory goes that if potential customers can use a chatbot to spin up a fully functional website, there is no need for Wix's templates.
The data is mixed so far on this potential threat. Wix's revenue grew 14% year over year last quarter, but much of that was due to the addition of the no-code application builder Base44, acquired about a year ago. Base44 now has annual recurring revenue (ARR) of $150 million. Management would argue that Base44's growth proves that Wix is an AI winner, but it may be at the expense of its legacy website-building templates.
Wix is trying to revamp its core website-building tools with Wix Harmony, a chatbot-based tool that matches the output of AI research labs. However, the company did state that AI may be causing some of its professional development customers to slow their spending with Wix, which investors did not like. When you combine the fact that Wix's expenses are rising due to AI development costs and the recent layoff of 20% of its workforce, it is no surprise that the stock went into the gutter in May.
Image source: Getty Images.
Time to buy the dip?
Today, Wix is trading at its cheapest levels in years. Management executed a massive buyback earlier this year, reducing its shares outstanding from 55 million to approximately 42 million as of its latest update. Compared to a stock price of $57, Wix now has a market cap of $2.38 billion.
Over the last twelve months, the business generated $2 billion in revenue. Right now, the business does not look profitable because of its AI build-out costs, rising employee wages, and earn-out bonuses for its Base44 acquisition. This does not mean the software stock cannot generate strong earnings in the years ahead once it exits this dynamic operating environment.
Wix is a good bet if you believe the website builder will survive the AI onslaught in the software market.
