Wix.com Ltd.’s WIX fourth-quarter 2019 non-GAAP earnings of 42 cents per share beat the Zacks Consensus Estimate by 44.5% but declined 7.1% on a year-over-year basis.
Although total revenues rose 24.6% year over year to $204.6 million, the same lagged the Zacks Consensus Estimate of $206 million. However, the top line beat the lower end of management’s guided range of $204-$206 million.
Region wise, North America, Europe, Asia and others and Latin America accounted for 55%, 26%, 13% and 6% of fourth-quarter revenues, respectively. Moreover, revenues from North America, Europe, Asia and others and Latin America increased 31%, 21%, 18% and 11% year over year, respectively.
For increased transparency, beginning the fourth quarter, Wix reported revenues, collections and cost of revenues under two segments: Creative Subscriptions and Business Solutions.
Creative Subscriptions revenues (75.6% of revenues) increased 19.3% year over year to $171.4 million. Business Solutions (14.7% of revenues) jumped 61.5% to $33.2 million.
The company also started providing Annualized Recurring Revenue (ARR) as the primary KPI for growth of its Creative Subscriptions segment. As of Dec 31, 2019, ARR was $707.2 million, up 21% year over year.
Key Metrics in Q4
Collections came in at $226.7 million, up 28.8% year over year and better than Wix’s projection of $222-$225 million.
Creative Subscriptions (84.2% of collections) increased 22.6% year over year to $190.8 million. Business Solutions (14.7% of collections) soared 76% to $35.9 million.
The company witnessed better-than-expected conversion and retention in user cohorts. Wix added a total of 89K net premium subscriptions in the reported quarter, up 13% year over year, to reach 4.5 million as of Dec 31, 2019.
Wix added 5.8 million registered users during the reported quarter. Registered users as of Dec 31, 2019 were 165 million, up 16% year over year.
During the reported quarter, average revenue per subscription (ARPS) improved 6.5% year over year to $179.
Moreover, Wix anticipates future collections (over next eight years) from all existing cohorts to be $6.8 billion, up 33% year over year.
In February 2020, Wix introduced Editor X, a new website creation platform that offers advanced design and layouting capabilities, specifically targeting designers and web agencies. This wide, flexible new canvas allows the use of modern CSS technologies, including Flexbox and Grid, all with precise drag and drop features.
Moreover, Wix opened an expanded office space in New York City.
Non-GAAP gross profit increased 14.9% from the year-ago quarter to $150.5 million. Nonetheless, non-GAAP gross margin contracted 800 basis points (bps) to 66.4%.
Creative Subscriptions gross margin shrank 320 bps on a year-over-year basis to 81.3%. Business Solutions gross margin declined from the year-ago figure of 47% to 33.7% in the reported quarter.
Research and development expenses of $66.6 million increased 22.1% year over year. Selling and marketing expenses came in at $74.8 million, up 22.5% year over year. General and administrative expenses surged 45.2% on a year-over-year basis to $23.6 million.
Wix reported non-GAAP operating income of $17.2 million, down 8.7% year over year. Moreover, non-GAAP operating margin contracted 310 bps on a year-over-year basis to 7.6%.
Balance Sheet & Cash Flow
As of Dec 31, 2019, Wix had cash and cash equivalents of $331.1 million compared with $283.2 million as of Sep 30.
Cash flow from operations came in at $41.2 million during the fourth quarter compared with $336.1 million reported in the previous quarter.
Free cash flow was $37.5 million compared with $29.2 million reported in the prior quarter.
For the first quarter of 2020, Collections are projected to be in the range of $247-$249 million, indicating an improvement of 23-24% from the year-ago reported figure.
Moreover, revenues are expected between $215 million and $217 million, indicating growth of 23-25% from the prior-year reported number. The Zacks Consensus Estimate for first-quarter revenues is currently pegged at $219.5 million, suggesting growth of 25.9% from the year-ago reported figure.
For 2020, Wix anticipates revenues in the range of $946-$956 million, suggesting an improvement of 24-26% from the year-earlier reported figure. The Zacks Consensus Estimate for revenues stands at $958.6 million, suggesting growth of 25.8% from the year-ago reported number.
Collections are projected to be in the $1.02-$1.04 billion band, implying growth of 23-24% from the year-ago reported figure.
Moreover, the company anticipates free cash flow within $155-$162 million, hinting at 22-27% improvement from the prior-year reported number.
Zacks Rank and Key Picks
Wix carries a Zacks Rank #2 (Buy).
Virtusa Corp. VRTU, Microsoft MSFT and SAP SE SAP are some better-ranked stocks in the broader computer & technology sector. All three sport a Zacks Rank #1 (Strong Buy) You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Virtusa, Microsoft and SAP is currently pegged at 18%, 13.2% and 9.6%, respectively.
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