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Why Is Wix.com (WIX) Down 0.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Wix.com (WIX - Free Report) . Shares have lost about 0.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wix.com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Wix.com Tops Q3 Earnings & Revenues, Raises View

Wix.com Ltd. delivered non-GAAP earnings of 39 cents per share in the third quarter of 2018, beating the Zacks Consensus Estimate of 25 cents. The figure was also higher than the year-ago quarter’s earnings of 1 cent per share.

The company has adopted a new Accounting Standards Codification ("ASC") 606 using full retrospective method.

Quarter Details

Total revenues increased 40.1% year over year to $155.6 million, surpassing the Zacks Consensus Estimate of $153 million. Collections during the reported quarter came in at $162.8 million, up 36% year over year, attributable to expansion of new products and enhancement of existing products.

The company witnessed better-than-expected conversion and retention in its user cohorts. The company added a total of 177,000 net premium subscriptions in the quarter, which came in at 3.8 million as of Sep 30, 2018 (up 26% year over year).

Wix.com added 5.5 million registered users during the quarter. Registered users as of Sep 30, 2018 came in at 137 million, up 20% year over year.

During the reported quarter, average revenue per subscription (ARPS) increased 11% year over year. The surge can primarily be attributed to favorable mix of higher priced subscription packages.

The company released new features, consequently enhancing its Wix Code capabilities. Recently, the company unveiled Wix Video Maker. The latest product has improved functionality by enabling small businesses in facing challenges in creating engaging video content for advertisements. This in turn aids them in competing with larger businesses online.

The company also unveiled Wix Payments. The latest product is a complete payments platform designed to aid small businesses manage their financial flow addressing significant business challenge and helping them to grow. We believe that these product innovations bode well for Wix.com.

Operating Results

Non-GAAP gross profit advanced 32.1% from the year-ago quarter to $123.9 million. Nonetheless, non-GAAP gross margin contracted 400 basis points (bps) to 80%, primarily due to the “change from net (agent) to gross (principal) accounting related to the amended terms of our partnership agreement with Google announced earlier this year.”

The company’s non-GAAP operating income for the reported quarter came in at $16.3 million compared with $3.4 million reported in the year-ago quarter. As a percentage of revenues non-GAAP operating income came in at 10.4% compared with 3.1% recorded in the year-ago period.

Non-GAAP net income during the quarter came in at $18.8 million as compared with $0.353 million reported in the prior-year quarter.

Balance Sheet

As on Sep 30, 2018, Wix.com had cash and cash equivalents of $319.9 million, down from $354.3 million in the previous quarter.

Cash flow from operations came in at $27.6 million during the quarter compared with $27.3 million reported in the previous quarter. Free cash flow was $23.7 million during the third quarter. The company has authorized a share repurchase program of up to $100 million.

Guidance

For the fourth quarter, the company expects revenues in the range of $161-$162 million, representing year-over-year growth of 36-37%. Collections are projected to be in the range of $176-$178 million, representing year-over-year growth of 33-35%.

The company updated fiscal 2018 guidance. Management now expects fiscal 2018 revenues in the range of $601-$602 million (up from the previous guidance of $594-$599 million). This reflects year-over-year growth of 41%.

Collections are now projected to be in the range of $658-$660 million (up from the previous guidance of $656 million to $660 million), displaying year-over-year growth of 36%.

The company continues to expect free cash in the range of $101-$103 million, representing year-over-year growth of 43-46%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -31.43% due to these changes.

VGM Scores

At this time, Wix.com has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Wix.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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