In early March, as Covid-19 began spreading throughout Italy and Spain - in tandem with confusion, shutdowns, panic and rising death tolls - executives at Wix.com Ltd. (Nasdaq: WIX) noticed something: an unusually sharp increase in the number of Google searches for "website building" and their company name, "Wix". It turned out that small business owners, forced to close their stores, were thinking of ways to adapt to the situation; creating an online store was the prime solution. Others, who had shut down business completely, were now in search of new forms of income.
Wix's management got the message. They saw clearly that if the pandemic were to spread in the US - the country that provides Wix with half its revenue - their user base would expand dramatically. "Small businesses that previously had either no internet presence or only a partial one, went from considering company websites a ‘nice to have’ to a ‘must have,’" explains Nir Zohar, Wix president and COO. "The business is shut and the owners are locked down at home. Big businesses have cash reserves, they can survive for a quarter, stop purchasing, and downsize. A small business doesn't have that luxury. It has to reinvent itself quickly."
In line with these forecasts, the company has taken several measures: increasing marketing spend, developing new features in response to customer demand - integrating with video-conferencing platform Zoom, for example - and investing a great deal in analyzing customer behavior and needs.
Today, three months on, it's clear that they were right: the company's user base has grown dramatically, from 2 million per month to 3 million. In response, its share price has soared to levels currently reflecting an impressive $12 billion-plus market capitalization - making it Israel’s third largest company. Only two veteran giants, Check Point Software Technologies Ltd. (Nasdaq: CHKP)and Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) have higher market caps.
So far this year, Wix's share price has risen 100% (i.e., doubled in value), while the Nasdaq has risen only 11%. Over the past five years, the share has yielded a phenomenal 900% return, or a tenfold share price increase. At the same time, revenue has increased sharply from about $200 million in 2015 to projected revenue of almost $1 billion for the current year.
In other words: the virus that paralyzed and shattered economies did just the opposite for Wix.
Still, there are notable problems. In 2019, before Covid-19, the company's growth rate had slowed, its share price was marking time and, for the main part, highly volatile. Last year, for example, the return on it was only slightly higher than that of the Nasdaq. Even in mid-March, investors seemed pessimistic, and the share hit a 13-month low. Then the trend turned around, and within three months the share price rose almost threefold.
When we propose to Zohar, and Avishai Abrahami, company CEO and one of its founders, that Covid-19 is perhaps the greatest gift they could have wished for, while they disagree about the share drifting before the outbreak, they do acknowledge the facts. "The coronavirus didn't save us," says Zohar, "but it did move us forward. If you look at the daily performance, the share price was uncomfortably volatile. But on an annual basis, the stock yielded a nice return. Even before the coronavirus, we had 25 million new users a year - and there’s huge potential for growth; we're still a small company."
Globes: And what’s it like to head a company that’s suddenly worth $12 billion?
Abrahami: "It’s just like heading a $2 billion company - but you get more newspaper coverage."
That’s it? Don’t you also have greater responsibility towards your shareholders? You can lose them much more money.
"On the other hand, I know I made a lot of money for people, too."
Don't you feel as though you're flying too close to the sun? After all, the higher you go, the closer you come to the moment when things stop. Your wings might get burned.
"I look up and see Amazon there. There’s a lot farther to go till we reach the sun."
So, you compare yourselves to Amazon?
"What are we working for? Amazon hadn’t reached the sun when it started, either. I think Wix has the ability to achieve huge things."
Zohar: "When we think about orders of size and dream ahead, we're not talking about a week. We won't be Amazon next year. But do we want to be here in ten years and build something as big as Amazon? Yes. At the moment, this looks to me like the most fun opportunity I’ve ever had in my life". Abrahami: "We also believe it's possible."
The gaming disagreement
It's hard to imagine two people more different than Abrahami and Zohar, who’ve been helming the Wix ship for over a decade, since 2007. Abrahami is the co-founder, together with his brother Nadav, and Giora (Gig) Kaplan. At the beginning, they were also assisted by Abrahami’s ex-wife, the late Dr. Orit Mossinson, who recently passed away. Zohar has served as COO almost from the very start.
The differences between them can easily been seen almost immediately: When we arrived for a scheduled meeting at the Wix offices, Zohar was already waiting for us while Abrahami came in almost half an hour late. During the course of the conversation, it becomes clear this pattern isn’t unusual: Zohar always shows up in the offices early in the morning, after working out at the gym with his wife. Abrahami arrives, at the earliest, by noon. Zohar (42) has four children, while Abrahami (49) is expecting the birth of his first daughter within days.
What’s your excuse for only now becoming a father? Late bloomer or workaholic?
"I married for the first time at the age of 37 - even then that wasn’t young - and we were never able to bring a child into the world. You’re right about it being very important to me to have had the space to take chances and focus on what I was doing."
So, is Wix also to blame?
Abrahami: "There were times when I used to work 18 hours a day. Today, I settle for 12 hours. Working a lot is critical. High-tech is not hard labor. We’re not lugging sacks and we’re not doing lifesaving heart surgery. But there’s a big workload, lots of tinkering, reviewing, and going into depth."
Despite their obvious differences, the two share a great kinship: "I had four children and Avishai was there for all of their births - not in the delivery room but in the waiting room," says Zohar. "Even before I messaged my mother, I messaged Avishai. That’s how close we are. When he got married in Cyprus - I officiated. I’m the little brother he doesn’t fight with."
We'll get to the other brothers - who fight with Avishai - but the fraternal relationship Zohar mentions goes a long way back. The two met when Zohar was only 13, through his brother Dror, who served under Abrahami’s command in the Israel Defense Forces intelligence unit 8-200. By hanging out with his brother and his army buddies, Zohar met both Abrahami and Kaplan.
When he grew up, Zohar enlisted and served six years in the navy. Upon his release, he went to work at a Jewish Agency summer camp in New York State. On his first day off, walking around the West Village in Manhattan, he heard someone behind him speaking Hebrew. "That’s not such a big deal in New York City, but the voice sounded familiar to me. I turned around and saw Avishai," Zohar recalls. By this time, Abrahami had already founded a few startups, had several exits, and was in New York on business.
The year was 2004 and the two spent time together in New York. They dreamed about co-founding a computer game company and were already putting out feelers for fundraising. However, Abrahami thought the company should appeal to a broad audience - what’s known as "casual gaming" - and not "hardcore gamers" with their consoles and equipment.
"I was a serious gamer, and I made a statement that Avishai will never let me forget," laughs Zohar. "'Who would ever pay for casual gaming?'" "The right answer was," snickers Abrahami, "'Most people on earth.'" Thus ended the attempted partnership, and the two, again, parted ways.
About two years later, Abrahami and Kaplan decided to found a startup. "We would sit in our apartments in Tel Aviv thinking up ideas," Abrahami says. "We made a very long list, and then we started deleting ideas, until we were left with two. One was related to file sharing and we began raising angel capital for it, but Gig (Giora Kaplan) insisted on the second idea: website building. I started playing with building websites, and told him: 'Listen, this is very interesting.'"
And how did it come about that your brother Nadav joined you?
"Abrahami: "Orit (Mossinson, his then-wife), told me: 'Your brother Nadav is playing around with technology that's really appropriate for what you're doing'."
You needed Orit to tell you what your brother did?
Abrahami: "Yes, because he sat down and explained it to her. And that's how Wix came to be."
Weren’t you worried about working with your brother?
Abrahami: "Sure, I was worried. It's stressful. You don't know how you'll get along, you might fight all day - and you should know that we do fight all day. It’s more fun that way because in the end, big brother solves all the problems. By the way, two years later, Gig and Nir hired my other brother, Yoav."
Zohar: "It’s not the only thing I’ve done without him knowing. In the end, I let him know about everything, I just thought it would be better if he knew about it later. We wanted our staff to understand that Yoav was hired because of his abilities and not because he was Avishai's brother. We didn’t bring him in to make trouble for Avishai. We hired him because he is a phenomenal technical talent."
But how did Zohar come to Wix? This too is a story, of course. A few months after its founding, Abrahami asked Zohar to visit his new company, then located on Tel Aviv’s Hashmona’im Street with about ten employees. Zohar was working part-time somewhere else, but the founders said, "If you’re part-time, then you have time. Come help us out for two weeks." Zohar was given a list of 40 tasks. The next day, he had checked off all of them, and asked for a new list. Wix’s founders realized this was exactly what had been missing - someone who knew operations. "If I get a list like that, I do one task, stop, take a rest, watch TV, and play games," laughs Abrahami.
A week later, Zohar was invited to join the company. "They negotiated all kinds of conditions with me," he recalls, "and I was young and brash. I wanted to test limits, so I said, I’d join only if they’d let me manage the company. I thought they’d say, ‘Calm down, learn some things, we’ll talk about it in two years,’ but instead they looked at one another and said ‘Okay.’"
Avishai, do you always give up responsibility so easily?
Abrahami: "What he called management is not what we thought of as management. Kaplan and I led the professional side. We started with three people, and with every additional person, part of your influence over the company disappears. And that's fine. You're constantly on the lookout for talented people and you give them responsibility. For most founders, that's one of the most difficult things to deal with."
Why do you think it’s easier for you?
"I always look at my life in terms of the amount of time I have for PlayStation. I play more than an hour a day on average. So, it's pretty clear why it's worth my while to hand-over responsibility to other people. But there's something more. I grew up in a home where I wasn't the most intelligent. In fact, I was the least intelligent. And that enabled me to understand that there are some very smart people around and I should try to find them. Because for me to feel at home, I’ve got to be surrounded by very strong people. By the way, my wife is also smarter than me - ask anyone here."
So, if everyone is smarter than you, what are you good for?
"I'm really good at going over something a thousand times. If I want to learn how to do something, I do it over and over until I do it really well. For most people, the ability to do something a thousand times, either doesn't exist or takes them years to learn but it’s very easy for me to repeat things, or go through a lot of material until I know it really well. That’s my superpower.
"We also believe in it as a company. If we’re about to take an important step, like a share offering, we consult with a lot of people beforehand and learn all we can. In addition, I've learned to lead people who are more intelligent than I am."
Do you ever ask yourself if you’re still the right person to head the company? Would you hire yourself for the job today?
"Obviously, I wouldn't appoint myself," Abrahami says with a half-smile, "and we certainly ask ourselves that, but bear in mind that the tech world is a bit different. Take, for example, Steve Jobs, Bill Gates - Microsoft changed course the moment he left - Jeff Bezos of Amazon, Mark Benioff of Salesforce. Historically, for most high-tech companies, it’s best to keep the founding team in place for as long as possible."
Zohar: "I ask myself this question every morning. I know that I - and I suspect Avishai, as well - wake up in the morning with a little voice in my head saying, 'Hey, are you sure you know what you're doing?'"
So what keeps you at it?
"I try taking that question and using it to find what I'm not good at and closing the gap. Besides, there are people here whom I love, and I really like what we do. Some people love money, but hate the product that brings it. I don't feel like we’re cheating anyone by making money. Probably the opposite. Most people get the product for free, and those who do pay, do it because they really want to - not because we force them to. We have a product that does the world good, and that makes me happy."
Let's get back to management. Your headcount has skyrocketed in recent years, making management harder. How do you handle it?
Abrahami: "I have a theory that in order to be a good entrepreneur you need a brown belt (meaning, knowing almost everything - S.L. & O.Z.) in almost everything the company does. Which is really hard. One thing you’ve got to do to get there is talk to a lot of people."
Zohar: "In general, we’re still very hands-on. We all review websites every day, get inside and dig in. I don't think you can really be good if you aren’t like that."
Abrahami: "Part of our concept of management is, ultimately, not knowing who’s made the most important decisions within the company. The trick is to let people measure whether their decisions are good and not micromanage every decision. Every month, we issue a report presenting a range of criteria to see where we’ve improved and where we haven't. "
Zohar: "These metrics form our corporate culture. A year ago, we had a crisis with online trading. There was a problem that caused a situation in which shoppers would come to our customers’ online stores but because of a bug they couldn't complete their purchases. That was on a Thursday night. I spoke with the team leader and he told me there had been a major bug which was already resolved, and there was another bug, but a minor one affecting only a small percentage of our customer base - a miniscule number of users. And he promised to handle it by the end of the following week.
"I asked him how many businesses this low percentage represented, and he answered, ‘No more than 5,000 stores.’ I told him, ‘Great. But let’s agree that - as it’s going to take a week to fix it - you’ll notify your staff that we’re docking them a week’s pay for this month. Because that’s going to be our customer’s experience; they’re going to lose a week’s worth of income.’
"And then I decided to create a new measure for our employees, the misery quotient. Take all the hours when stores don't work, multiply that by the number of users, and that will be the measure of how much misery you’ve generated each month. Of course, that bug was fixed the next day, and since then, our teams also include the misery quotient in their results."
What's causing the stock upsurge, and how is it that Wix is still a loss-maker?
Wix offers a website-building platform that appeals to potential customers ranging from those without any technological or design background - who rely on the automated system to build websites - to professional web developers and programmers.
The company has over 170 million users, most of whom are non-paying. In fact, only about 3% of users pay to receive various features like custom URLs, payment clearing, newsletters, and more. The company has also developed dedicated features for various types of businesses such as restaurants, hotels, musicians and more.
Wix employs about 3,000 people, about 2,000 of whom are in Israel (mainly at the Tel Aviv Port offices). The company went public on Nasdaq in 2013 at a $765 million valuation; since then, the share price has posted a 15-fold rise, and today the company is valued at over $12 billion.
The surge was thanks to estimates and indications that Wix would benefit from the accelerated transition to e-commerce in the wake of the Covid-19 crisis, as expressed by an increase in the company's user base and in the number of paying customers. The sharp surge in the stock has also made it pricier than ever; it is currently trading at a multiplier of 15, relative to its performance over the past 12 months. The "coronavirus effect" has boosted the number of users of the platform from 1.9 million in April 2019 to 3.2 million in April this year. Nonetheless, analysts expect a 26% growth rate for this year, similar to last year, and that revenue will total $957 million. The company has not released guidance for the year, because of the uncertainty caused by the crisis.
One complaint about Wix is that it makes losses. It's true that the company continues to post losses, but cash flow is positive, and, over the past 12 months, close to $150 million. The reason why Wix still posts losses is due to its expense structure: a significant portion of the money that goes into its cash reserves represents annual payments in advance. In its accounts, Wix recognizes cash as revenue only in the relevant quarter. However, as these funds are already in the company's cash reserve, it can be used for purposes such as marketing and R&D.
Published by Globes, Israel business news - en.globes.co.il - on June 30, 2020
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