Wix specialises in cloud-based website platform, that has seen fantastic growth due to COVID. Is the stock worth looking for your portfolio? Let’s find out.
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What does Wix do?
As mentioned before, Wix is a cloud-based design platform that helps users create websites. Besides websites, they also offer services to help their clients build their business and acquire more visitors.
What are the benefits of using Wix?
Some of the key benefits of Wix include the low entry point for users. So that means it is relatively cheaper to start and as the business grows, they offer more and more services. So, you get the level of services related to the amount you pay.
Most small-medium businesses have focused on online platforms this year due to COVID. Wix can help these users start slow and build up their clients and offer more services. There are many reasons that companies are moving online. Saves a lot of money not having to rent out an office space, makes you more accessible to a global audience and allows the company to grow exponentially.
What makes Wix a buy now?
Wix was fortunate enough to have set themselves up to take advantage of one the biggest technology shifts we’ve seen in our lifetime. The basic pricing model isn’t where Wix makes its money, it’s the premium services it offers – and these services are taking off.
Business solutions revenue increased by +60% in the second quarter of 2020. Whilst it is only a small part of its sales, there are still growth opportunities. Looking at its store subscriptions (similar to Shopify) saw subscriptions grow a whopping 580% comparing April 2019 – April 2020. Their restaurant service climbed 160% year over year – this would only grow as more restaurants turn towards delivery only.
They are also expanding their partnerships and diving into markets previously held by a few. Things like education, specifically helping those who have to home school has increased significantly. They created their marketplace helps partners offer related IT services to Wix users. Finally, joining another COVID darling, Zoom Video – Wix has integrated Zoom services with their websites to help business communicate with their customers when face to face was not possible.
How did COVID impact Wix?
COVID had a positive impact on Wix and continues to show growth. Before I jump into the 2020 numbers, check out the latest analyst reviews and price targets. Looking at November, after they released their earnings report 11 November. There have been 8 analyst ratings. 7 Buys and 1 hold (@$270 – which is still 8% from its current value of $250). What I like about the Buy ratings is that of the 7 ratings, there is an average price target of $330. This represents a 32% increase from current values. The highest is $350 (+40%) from its current value. These analysts are not sloppy either – they all hold 5-star rankings on TipRanks.
COVID Impact
Wix has been enjoying a steady climb over the years, climbing 55% in 2018 and another 40% in 2019. It had a great start to 2020 (like most stocks did) climbing another 20% but when COVID hit, it dropped nearly 50%! When the bounce started, it took off – from its March low to its August high, it climbed 289%!
In 2019, Wix had a total of around 165 million registered users. This included the 23 million-odd added for the year. One key area where they started to make money was getting users to subscribe to their premium services. This upsells registered around 600,000 new users to their premium services. As of year-end 2019, Wix.com boasted 4.5 million paying subscribers, up 13% from year-earlier levels.
When COVID struck, Wix went into overdrive and took advantage of the environment. In Q1, over 6.9million registered users joined. Q2 saw 9.3 million more. So more than 15 million in only 6 months – remembering that the impact of COVID wasn’t felt until the end of Feb. These new users also fuelled the growth of their premium subscribers – jumping to a massive 5 million by the end of Q2.
It cannot be all good, can it?
When a company like Wix gets attention, it’s only a matter of time before competitors try to cut them down. Shopify and GoDaddy are such competitors, making sure that Wix does not eat into their subscribers. WordPress is another website provider that is trying to take some of the userbases away.
Another thing to consider at the smaller end of the scale is how the users will feel the pandemic fallout. Are they going to be able to pay for their subscription services? Whilst new subscribers help with their revenue, it is imperative to ensure old customers are retained.
There was also a recent explosion up to August 2020, where their stock hit its all-time high. Some investors are cautious about it hitting those numbers again and that a correction is needed. We’re currently sitting a -18% from its ATH. Nearly tripling in price from March-August is fast for any company and I would like to see more consolidation of the company before climbing higher again.
Final thoughts
I have Wix in my eToro portfolio. I am not concerned with the short-term noise and I believe in its leadership and business model moving forward. This stock, to me, is a long-term hold – and it should provide a handsome return over the coming years and the world begins to shift even more to an online environment.
Do you think Wix deserves a spot in your portfolio?
The above was prepared with help from the Motley Fool, Wix Investors page, Tip Ranks, and Seeking Alpha.
