Wix.com (WIX) Down 31.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Wix.com (WIX). Shares have lost about 31.4% 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 its most recent earnings report in order to get a better handle on the important drivers.

Wix.com Q4 Earnings Beat Estimates, Revenues Rise Y/Y

Wix.com Ltd.’s 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.

Operating Results

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.

Guidance

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.

For 2020, Wix anticipates revenues in the range of $946-$956 million, suggesting an improvement of 24-26% from the year-earlier reported figure.

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.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Wix.com has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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