Wix.com (WIX) (the company's formal name is Wixpress Ltd.) operates a cloud-based platform that enables all comers to create websites or web applications globally. The company offers platforms such as Wix Editor, Wix ADI, Wix Logo Maker, Wix Arena, Wix Payments, and several others.
Although the substantial hosting costs undertaken by WIX to exploit a surge in demand for web building could deliver earnings growth in the long run, the costs might pressure WIX’s bottom line in the near term. WIX has been investing heavily in customer care to serve its increasing users. The company added 7.8 million new users in the last reported quarter versus 9.3 million new users in the second quarter.
Strategic collaborations and digital expansions have helped the stock gain 78.2% over the past year, but stiff competition from its peers and uncertainty related to its short-term growth have nevertheless led our proprietary rating system to rate WIX as “Neutral.”
Here is how our proprietary POWR Ratings system evaluates WIX:
Trade Grade: C
WIX is currently trading lower than its 50-day moving average of $256.05, but higher than its 200-day moving average of $243.64. Moreover, WIX has lost 5.6% over the past three months, indicating short-term bearishness.
WIX’s revenue has increased 29.2% year-over-year to $254.18 million in the third quarter ended September 30, 2020. Its gross profit rose 21.5% from the year-ago value to $174.34 million, while creative subscriptions ARR grew 24% year-over-year to $840.50 million. The company reported a net loss of $56.84 million over this period. It also reported an EPS loss of $1.03, representing a significant decline from the year-ago loss of $0.34. In fact, WIX’s cash and cash equivalents balance declined 44% year-over-year to $158.46 million.
On November 12, WIX announced the appointment of Ferran Soriano to its board of directors. His deep expertise in building businesses and brands across multiple international markets could help the company drive growth across its increasingly broadening platform.
In October, the company announced a partnership with Vodafone to benefit its business customers in the U.K. via the Vodafone Business Marketplace platform. This is a key milestone for the newly launched Wix Channels initiative, which expands WIX’s global growth by enabling international service providers to sell its website subscriptions and business solutions directly to their customers.
Buy & Hold Grade: C
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , WIX’s positioning is unimpressive. The stock is currently trading 21.9% below its 52-week high of $319.34, which it hit on July 6 last year.
The company’s revenue has grown at a CAGR of 32.5% over the past three years, while its total assets increased at a CAGR of 80.1% over the period. This can be attributed to its growing brand awareness and continued product development.
Peer Grade: D
WIX is currently ranked #26 of 45 stocks in the Internet - Services industry. Other popular stocks in this industry are Covetrus, Inc. (CVET), OptimizeRx Corporation (OPRX) and Prosus N.V. (PROSY).
While CVET and OPRX beat WIX by gaining 154.4% and 339.1%, respectively, over the past year, PROSY returned 58.9% over the period.
Industry Rank: A
The Internet - Services industry is ranked #14 of 123 StockNews.com industries. The companies in this industry are engaged in a variety of online business services, internet-focused products and services.
The adoption of digital technologies has increased substantially over the past year thanks to the remote working and learnings culture ushered in by the effects of the COVID-19 pandemic. Though analysts expect mass vaccinations to drive a solid economic recovery this year, the products and services offered by industry participants are expected to remain in in demand because pandemic-driven trends are not expected to reverse anytime soon.
Overall POWR Rating: C (Neutral)
Despite strong pandemic-driven demand, WIX is rated “Neutral” due to stiff competition and concerns over its financials in the near term, as determined by the four components of our overall POWR Rating.
Bottom Line
Even though demand for its online services remains highs, WIX’s increasing marketing spending, higher hosting costs, and declining user base could depress its short-term earnings and suppress its cash flow. In fact, the consensus EPS estimate for the quarter ending December 31, 2020 represents a 128.2% decline year-over-year. However, given the cloud computing industry’s unparalleled growth potential, we think WIX could witness better earnings and reviews over the long run.
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WIX shares were trading at $254.38 per share on Monday morning, up $4.89 (+1.96%). Year-to-date, WIX has gained 1.77%, versus a 2.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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