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Bull of the Day: Ltd. (WIX)

Read MoreHide Full Article Ltd. ((WIX - Free Report) ) is bolstering its website-building offerings to help it carve out more market share among professional site designers. Wix has posted blowout bottom-line results over the last year, including a big Q2 beat. Wall Street and developers are also gravitating toward its AI efforts and other new features.

The website builder’s earnings outlook keeps getting better in an industry that isn’t going out of style. In fact, Wix’s push to focus on the bottom line helped it report its first-ever quarter of positive GAAP operating income in company history in Q2.

Wix is also trading above some key technical levels right now. On top of that, Wix stock still trades 70% below its peaks.

Expanding Beyond DIY

Wix started helping small businesses and really anyone else design and maintain a website back in 2006. The company offers extremely intuitive and user-friendly tools to help its customers essentially DIY (do-it-yourself)-style build their website through Wix’s array of offerings.

The company over the last handful of years has raced to introduce far more features to help it attract professional website builders. For instance, Wix in early 2020 launched Editor X, a platform made specifically for designers and agencies. Since then, Wix has rolled out an AI Text Creator and tons of other features. Wix also has partnerships with the likes of Meta, Google, and many others.

Wix in July announced its plans to launch its new AI Site Generator, along with a suite of AI-powered capabilities. Even more recently, on August 1, the firm announced its new Wix Studio, which features a “newly-designed development and creation editor with code capabilities, multi-site management workspaces, and access to new monetization opportunities, all helping to drive efficiency.”

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All of these efforts are part of Wix’s ongoing push to expand beyond DIY to help it tap into new growth areas to help it jumpstart its recently slowing sales.

For example, its Partners revenue surged 36% YoY in the second quarter vs. 13% total revenue growth. Wix defines a partner as any agencies and freelancers that build sites or applications for other users as well as revenue generated through B2B partnerships, such as LegalZoom or Vistaprint, and enterprise partners.

Growth, Improving Profitability, and Outlook

The company grew its revenue by an average of 50% between 2014 and 2018, following its late 2013 IPO. Wix’s top-line expansion slowed alongside its sheer size and as it faced more competition and increased saturation in some key markets.

Still, Wix posted 28% average sales growth between 2019 and 2021. Wall Street then got worried as its growth slowed in 2022 to the tune of 9% revenue expansion.

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Image Source: Zacks Investment Research

The slowing YoY growth is somewhat natural as the company grew from around $200 million in sales in FY15 to $1.39 billion last year. The fading top-line expansion, mixed with the end of ultra-low interest rates, forced Wix to start cutting back on costs and focusing on the bottom line and profitable expansion. The company looked to streamline its business, including layoffs that were prevalent throughout the tech industry.

Wix said earlier this year that it plans to achieve the ‘Rule of 40’ in 2025. The idea here is that Wix’s combined growth rate and profit margin should exceed 40%.

Some of Wix’s profitability efforts were spurred by activist investor Starboard, which also pushed Salesforce ((CRM - Free Report) ) and others to change course amid the rising interest rate environment, where growth at all costs was no longer valued.

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Wix crushed our Q2 earnings estimates by 133% in early August, marking its fourth-straight triple-digit beat. More impressively and crucially, Wix last quarter reported its first ever period of positive GAAP operating income in company history.

Looking ahead, Zacks estimates call for Wix to swing from an adjusted loss of -$0.17 a share to +$3.35 per share in 2023 on the back of 12% higher sales to see it pull in $1.55 billion. The company is then projected to expand its sales by another 12% next year to help boost its bottom line by over 5%.

Wix’s adjusted earnings outlook had surged since its early August release, up 55% for Q3, 45% for FY23, and 17% for FY24. The recent positivity is part of a long-term upward trend that began at the start of 2022. Its upward earnings revisions help it land a Zacks Rank #1 (Strong Buy).

Price, Valuation, and More

Wix shares have climbed 450% since its market debut roughly 10 years ago to blow away the Zacks Tech sector’s 245%. Despite the run, Wix is now down 14% in the last five years to trade around its Covid-19 selloff lows and roughly 70% beneath its highs.

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Thankfully, Wix has been on the comeback trail, up 30% over the last 12 months to match Tech. At roughly $95 a share, Wix trades 8% below its early-August highs and 26% under its average Zacks price target.

On the technical front, Wix trades above its 50-week moving average again. On top of that, Wix is trading above its 50-day and its 200-day, having completed the golden cross, where the shorted dated trendline climbs back above the long-term trend, near the end of August.

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Image Source: Zacks Investment Research

On the valuation front, Wix is trading at 3.2X forward 12-month sales. This marks a solid discount to the Zacks Tech sector and 44% value vs. its own historic median. Meanwhile, it is trading at 27.9X forward 12-month earnings to roughly match its industry.

Bottom Line

Wix appears to be taking a ton of the necessary steps to help it run a profitable, growth-minded business for years and years to come.

Some of its recent platform rollouts, from AI and beyond, seem to offer substantial near-term and long-term upside. Plus, Wall Street is rather higher on Wix, with 11 of the 15 brokerage recommendations Zacks has coming in at “Strong Buys” or “Buys.” 

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