$628 million have evaporated from the market cap of Israeli DIY website building company Wix.com Ltd. (Nasdaq: WIX), whose share price dropped 20% in the three trading days following the release of its third quarter results. The drop in market cap is more than the valuation of the company when it made its IPO on Nasdaq four years ago, which was $600 million.
Wix, headed by Avishai Abrahami, provides a platform that makes setting up an Internet site easy. It published decent quarterly financials, which for the first time showed a non-GAAP net profit, but it appears that the market expected more, and some analysts covering Wix cut their price targets for the stock after the results were released. Wix reported revenue of $111 million, a GAAP-based net loss of $14.5 million, and a non-GAAP net profit of $353 thousand for the third quarter.
The big losers on paper from the drop in the share price are venture capital firm Mangrove Capital Partners, which invested in Wix before its IPO and holds 13.1% of its shares, and which notionally lost $81 million in three sessions; T. Rowe, Fidelity and Steadfast, which each lost $49-76 million; and co-founder and CEO Abrahami, who is down $21.3 million on paper. For all that, the investors are still well ahead overall. Wix's share price has risen strongly since it IPO, with a sharp rise coming between mid-2016 and mid-2017. Even after the recent drop, the return on the stock in the past year is positive, at 12.5%.
Oppenheimer describes Wix's third quarter results as mixed. Analyst Jason Helfstein notes that while Wix overtook analysts estimates on collection, EBITDA was below expectations, because of higher expenditure on R&D and general management, and exchange rate effects.
Because of the rise in expenses, Oppenheimer has cut projected EBITDA for Wix to 9-16% for the coming years, and its price target by 20% to $70. The updated price target is still 25.8% above market.
Oppenheimer's rating for the stock remains "Outperform', and Helfstein writes that Wix continues to launch new products and to develop, although he is not very excited about the forthcoming general launch of the Wix Code product, aimed at developers, which he says is not better than existing solutions and will have a limited impact on Wix's 2018 results.
Barclays too has cut its price target for the stock, by 16% to $65, remaining with an "Overweight" rating. Analyst Deepak Mathivanan believes that Wix will be traded within a limited range in the next few months, until the market sees the contribution made by Wix Code. Unlike Oppenheimer, Barclays expects a substantial contribution from the new product in 2018, and more so in 2019.
Barclays sees Wix as the best product currently available for building websites independently. It explains the cut in its price target by lower expectations for free cash flow in 2018, because of higher expenditure on R&D and exchange rate effects.
Published by Globes [online], Israel business news - www.globes-online.com - on November 13, 2017
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