Wix's loss widens in first quarter

Avishai Abrahami credit: Shlomi Yosef
Avishai Abrahami credit: Shlomi Yosef

The company plans to reach free cash flow of 20% of revenue by 2025. CEO Avishai Abraham: We're concentrating on what we can control.

Website building platform Wix.com (Nasdaq: WIX) deviated from its usual practice and did not provide annual guidance at the beginning of this year because of the prevailing uncertainty in its market. This means that it does not now have to lower its guidance as so many other companies have done. The company continues, however, to talk of high levels of uncertainty adversely affecting its rate of growth, and it has reported tepid results for the first quarter of this year, together with a tepid forecast for the second quarter.

Concurrently, Wix has reported that its board of directors has adopted a plan that will lead to free cash flow of 20% of revenue by 2025, although at this stage it is providing no details about how it proposes to get there. A prominent possibility for saving cash is downsizing of the workforce. In the first quarter the company had negative cash flow of $33.6 million.

Wix enables small and mid-size businesses to build and manage Internet sites. In the first quarter, it had revenue of $342 million, slightly higher than analysts had estimated, and close to the upper threshold of the guidance it provided in the past, and representing growth of 14% in comparison with the corresponding quarter of 2021. On a GAAP basis, the company's net loss widened substantially, from $62.1 million in the corresponding quarter, to NIS 227 million in the current quarter. On a non-GAAP basis, Wix posted a net loss of $41.4 million, or $0.72 per share. The consensus analysts' estimate was of a net loss per share of $0.64.

The difference between the GAAP and non-GAAP loss is mainly accounted for by recognition of a loss of $116 million on Wix's investment in Monday.com, whose share price fell sharply in the first quarter. This is a mirror image of the financials for the second quarter of 2021, when Wix benefitted from net income of $110 million from this investment. In the fourth quarter of 2021, Wix recognized a $12.5 million loss on this investment.

Looking ahead, Wix's guidance for the second quarter is for revenue of $342-346 million, representing growth of 8-10% in comparison with the corresponding quarter. The guidance takes into account a hit of $0.6 million from the closure of the company's activity in Russia and parts of Ukraine, and of $4 million from year-on-year exchange rate differences. Wix says that unless there is a deterioration in the macro-economic situation, revenue will grow 10-13% in 2022 (after a hit of $3 million from the situation in Russia and Ukraine and $20 million from exchange rate differences). Growth in 2021 was 29%, so that even if Wix had not been affected by the war in Ukraine and by exchange rates, growth would have been slower than in previous years.

"Wix has remained focused on executing on our long-term opportunities, our product and marketing roadmaps, and concentrating on what we can control despite the recent months of instability and volatility," Wix co-founder and CEO Avishai Abrahami. "Investments over the last several years have driven a significant expansion of our addressable market through the growth of our product platform, product innovation and development and go-to-market activities. We'll continue to push these efforts forward to build the best platform so any type of user and any business can build a powerful and successful digital presence."

Wix CFO Lior Shemesh added, "Volatility and uncertainty remain elevated creating headwinds to overall revenue growth. We are focused on prudent cost management and driving operational efficiencies, from which we are already beginning to see results, and are instating a plan to achieve 20% FCF margins by 2025 . Our Partners initiative continues to grow at high rates, generating 41% year-on-year revenue growth in the first quarter. In addition, we were happy to announce our new B2B partnership with LegalZoom, further validating our product platform and brand as a premier technology platform to serve small businesses."

Wix has a market cap of $4.1 billion after a 68% decline in its share price in the past year.

Published by Globes, Israel business news - en.globes.co.il - on May 16, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Avishai Abrahami credit: Shlomi Yosef
Avishai Abrahami credit: Shlomi Yosef
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