Wix prefers growth over profits

Wix CFO Lior Shemesh

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Revenue for the Israeli startup grew by 38% from the corresponding quarter, though adjusted EBITDA stood at $2.7 million.

“Out of ten quarters as a public company, we beat expectations in nine; and the Q1 numbers speak for themselves: we exceeded expectations in every possible parameter,” said Wix President Nir Zohar on Wednesday.

The company filed its Q1 reports on Wednesday and raised its forecasts for 2016 as a whole.

Wix, run by CEO Avishai Abrahami, developed a simplified platform to build websites. The company finished the quarter with revenue of $61.6 million a 38.3% growth from the corresponding quarter and higher than analysts’ expectations of $60.7 million.

Meanwhile, its collections a figure which includes chances in postponed payments grew by 35.5% to $75.7 million.

Much like in previous quarters, Wix reported its Q1 profitability based on adjusted EBITDA $2.7 million compared to its negative EBITDA of $493,000 in the corresponding quarter. The bottom line shows Wix is still far from being profitable, with a net GAAP loss of $19.9 million worse than its $16 million loss in the corresponding quarter and a non-GAAP loss of $12.2 million, compared to $11.7 million in the corresponding quarter.

CFO Lior Shemesh explained that as collections increase, the company is investing more in marketing, which absurdly impacts the GAAP loss and that is why the company presents the adjusted EBITDA, which he believes better presents its operations. “I’m not saying I never want us to achieve a GAAP-based net profit, but I prefer we hold off because it would mean collection was waning.”

Shemesh said three major variables combined during the quarter to positive effect: “Traffic grew, and we showed a record number of 5.3 new users in the quarter, which shows the strength of the Wix brand; the conversion rate from free to paid membership went up (the company had 1.94 million paid subscriptions at the end of the quarter; and the ARPU, the average price a premium user pays, went up by 7% compared to the previous quarter because of the new verticals we launched last year, which people need to manage their business. It’s great because the effects are not one-offs, and that’s why we raised the forecasts.”

The new forecasts see collections of $320-324 million, revenue of $274-277 million, and an adjusted EBITDA of $30-32 million in 2016. The forecasts expect a growth of more than 30% in collections and revenue compared to 2015 and more than a 100% increase in EBITDA.

Wix trades on the NASDAQ at a market cap of $984 million, and its stock has enjoyed positive momentum. Zohar said, “Our biggest investors, like Fidelity and T.Rowe, love Wix and believe in the company. The share price is affected by many things, some of it the macro data and some of it investor confidence. Overall, the investors are pleased, and we hope the share price will continue to increase.”