Wix.Com: Buy This Industry Disruptor

Wix.com (WIX) is seeing its share price breakout higher due to the continued success of its website-creating platform. In the current economic and social environment, it is important for all organizations to have an online presence. Wix allows users to simply and easily create a professional looking website. Demand for its services has been strong in the years since its IPO, leading to impressive revenue growth. Moreover, the company continues to reinvent in itself to stay ahead of competitors, leading to a per share loss for investors, but also continued innovation across the company. Investors have thus far been focused on top-line growth, pushing the companys share price higher on record revenue results. I am buying stock in this company as its operational strength continues to fuel share price gains.

Fundamental Narrative

Wix looks like an attractive opportunity at current levels as demand for its services continues to expand at an impressive pace due to the importance of all organizations having an online presence currently. Additionally, the company continues to reinvest back into the company to stay ahead of competitors.

The company develops and markets an internet service that allows users to create Web content in Latin America, Europe, North America, Asia, and other countries. It offers Web development, design, and management solutions and apps through an online platform that enables its user base of businesses, organizations, professionals, and individuals to create a digital presence.

Wix had a strong start to the year, beating expectations for both collection and revenues, leading to an increase in its full year outlook. The company reported record free cash flow of more than $21M, with operational success largely driven by strong conversion and retention in its cohorts. For example, Wix added 231,000 subscriptions in the most recent quarter, its most ever, according to its earnings call. The company has been monetizing this cohort over a long period of time without the need for additional marketing, aiding overall operating margins. This cohort also continues to expand in size, for every 100,000 new subscriptions, management estimates future collection of more than $186 million, with the cohort expected to generate over $370 million in collection over the next eight years at 80% gross margins with very little additional marketing. Due to the companys strong product offering and word of mouth marketing, management has been able to commit little actual marketing dollars to expand its brand. This is a positive development for the company, and continues to be a function of its innovative platform, which does require constant reinvestment to stay ahead of its competitors.

The company is also operating well on a product development front. Wix has expanded its new product offerings, while improving existing products. For example, management rolled out Wix Answers, which is a product developed in-house to support users. Other companies had asked if they could use Wixs support infrastructure, leading to the creation of this service, which is receiving positive support so far, according to its earnings call.

Wix Code is also growing in popularity. Developers and designers are using the many features of Wix Code in different ways to create advanced websites and applications, according to its earnings call. These features help create a strong community of users who are constantly incorporating their feedback as new features and functionality are released. The Wix Code platform currently has roughly 8x the users management originally expected to have at this state, signaling that a lot of their effort to bring in users is paying off, according to its earnings call.

The creation of Wix Code and Wix Answers shows how managements investment in the company can add users into its ecosystem. By allowing coders to create an even more custom product, it opens up its potential user base to more people. Additionally, Wix Answers allows users to feel more comfortable with its service, and become more functional on the platform as a result. All of this allows for customers to come into and stay in the ecosystem, paying recurring fees, while also paying up for additional services on the platform.

Below is a chart of the companys revenue and earnings per share. Over the last five years, the company has experienced strong growth due to the importance of all types of organizations having an online presence. Its revenue has risen from under $100M, to now roughly $500M, a testament to overall demand for the companys service offering. Due to its constant reinvestment however, management has been unable to convert its strong demand into a per share profit. Investors do not look to be worried as of yet however, as its share price continues higher on stronger top-line growth results.

Price Action

Wixs share price continues to trend strongly higher as investors are rewarding the company for impressive top-line growth. From mid-2017 through a few weeks ago, the companys share price consolidated after running strongly higher. This consolidation gave way to a breakout higher following further strong operational results. The roughly 1 year consolidation was between $50-75. As investors pushed the companys share price above $75 for the first time ever a few weeks back, this was deemed significant as the level had acted as strong resistance. Upward momentum should continue for Wix as continued top-line success should boost investor sentiment.

Conclusion

Wix is seeing its share price breakout higher due to the continued success of its website-creating platform. In the current economic and social environment, it is important for all organizations to have an online presence. Wix allows users to simply and easily create a professional looking website. Demand for its services have been strong in the years since its IPO, leading to impressive revenue growth. Moreover, the company continues to reinvest in itself to stay ahead of competitors, leading to a per share loss for investors, but continued innovation across the company. Investors have thus far been focused on top-line growth, pushing the companys share price higher on recird revenue results. I am buying stock in this company as its operational strength continues to fuel share price gains.

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Disclosure: I am/we are long WIX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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