After seeing its share price fall recently on fears that the company was liable to be hurt by the development of artificial intelligence (AI), website building platform Wix (Nasdaq: WIX) posted better than expected results for the first quarter of this year, and its share price rose 1.33% yesterday to $82.53, giving it a market cap of $4.85 billion.
"The financials speak for themselves, both in terms of growth, which was better than expected, and in terms of profitability, which made good progress. We are happy with the direction and hope to continue in it," said Wix president Nir Zohar at a virtual press conference. At the end of the quarter, Wix had 5,006 employees, after laying off 370 in February, most of them in support roles. Zohar said that there were no plans for a further round of layoffs.
The company’s first quarter revenue grew by 9.5% to $374 million, which is higher than the estimates. On a GAAP basis, Wix narrowed its operating loss by 71% to $33.3 million, and its net loss by 95% to $10.4 million. On a non-GAAP basis, excluding stock-based compensation and other accounting items, Wix’s gross profit margin improved from 62% to 67%, and the company switched from a loss to a net profit of $51.1 million, or $0.91 per share, above estimates. Free cash flow in the quarter was $25 million, and at the end of it Wix had over $1.3 billion cash, and $567 million long-term debt to holders of its convertible bonds.
For the second quarter, Wix expects growth of 10-12% in comparison with the corresponding quarter to $380-385 million, and it has slightly raised its annual revenue guidance to $1.522-1.543 billion, representing growth of 10-11% over 2022. The company sees improvement in profitability, and has also raised its guidance for annual free cash flow (excluding the cost of building its headquarters) to $172-180 million. Zohar says that the environment is still volatile and uncertain, and that Wix is therefore being cautious in its guidance.
After a positive trend in the early part of the year, Wix’s share price fell by 6% in the first half of May because of fears on the market that AI, which is developing rapidly, will change the world of website creation and hurt Wix’s business. Wix CEO Avishai Abrahami tried to reassure investors when he recently wrote on social network LinkedIn that AI was of great value in building websites but that it did not represent an alternative to software to manage businesses’ entire web activity.
"It began with a report to the stock exchange by Chegg, a US company that deals in digital content for students, to the effect that generative AI could put part of its business at risk. Market players tried to make a list of companies at risk, and put Wix on it," says Zohar. "I definitely think that since Wix is not a content creation company but provides software services for very complex things, with a depth of business functions within the website, we do not belong on this list. But that is part of the reality of being a public company, and our task is to persuade people of the reasons that there is nothing to fear. Our shareholders understand, but there’s noise on the market.
"We have had an AI department for nearly a decade and we launched ADI (an AI-based website building platform, S. H-W.) in 2016. There’s a huge opportunity in AI models, such as in services that simplify many of the operations for our customers, and there are things that AI can’t do, because a business wants, for example, pictures and content that it produces itself. There are still many opportunities particularly for us, who have been involved in this field for many years now, to advance our platform even further."
More generally, Zohar says, "As far as growth potential and the size of Wix’s market are concerned, we still perceive ourselves as small. In the post-Covid period and the economic slowdown, the Internet is growing more slowly, but it is not going backwards, and we are growing together with it."
When Wix published its previous financials in February, at a time when the battle over the judicial overhaul in Israel was at its height, and the headlines were about companies moving their cash out of Israel, Zohar spoke of a rise in Israel’s risk profile. Asked what he sees in that context today, he responded, "In the nature of things, we have had no conversations with investors since the end of the quarter, and the substantial conversations were in March, which in the context of events in Israel is epochs ago.
"At that time, there were serious questions about the risk. Undoubtedly, questions have been raised in the past couple of months that were never raised before. We have been a public company for almost a decade, and in that time there have been several military confrontations, and there were times when we released our financials from an air-raid shelter in Tel Aviv, but this is the first time that we have received questions like these about Israel. There is no doubt that there is unfavorable, unhealthy talk about levels of certainty in investment in Israeli companies, and I would be happy if that were to disappear, but unfortunately it isn’t in our hands.
Published by Globes, Israel business news - en.globes.co.il - on May 18, 2023.
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