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Why Is Wix.com (WIX) Down 4.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Wix.com (WIX). Shares have lost about 4.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wix.com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Wix.com Tops Q3 Earnings Estimates, Updates ’19 View

Wix.com Ltd. reported third-quarter 2019 non-GAAP earnings of 41 cents per share beating the Zacks Consensus Estimate by 46.43%. Notably, the bottom line also improved 5.1% on a year-over-year basis.

Total revenues surged 26% year over year to $196.8 million. The top line lagged the Zacks Consensus Estimate by 0.48%. Nonetheless, figure came within management’s guided range of $196 million to $198 million.

The year-over-year increase in the top line can primarily be attributed to robust product offering and higher sales of complementary products.  Further, growing user and premium subscription base were other positives.

Key Metrics in Q3

Collections during the reported quarter came in at $205.9 million, up 26% year over year, attributable to expansion of new products, enhancement of existing products and improvement in pricing strategies. Management had projected collections in the range of $204-$206 million. Unfavorable foreign exchange movement limited growth. On a constant currency basis, collections would have been $207 million, up 27% year over year.

The company witnessed better-than-expected conversion and retention in user cohorts. The company added a total of 114,000 net premium subscriptions in the reported quarter, which came in at 4.4 million as of Sep 30, 2019 (up 15% year over year).

Wix added 5.5 million registered users during the reported quarter. Registered users as of Sep 30, 2019 came in at 160 million, up 17% year over year.

During the reported quarter, average revenue per subscription (ARPS) improved 8% year over year to $175. The surge can primarily be attributed to solid adoption of higher priced subscription packages.

Notably, Average Collections per Subscription (ACPS) of the latest annual subscriptions in the US improved 39% on a year-over-year basis and came in at $247 in the third quarter.

Operating Results

Non-GAAP gross profit advanced 17.2% from the year-ago quarter to $145.2 million. Nonetheless, non-GAAP gross margin contracted 600 bps to 74%, primarily owing to increasing investments in Wix Payments and Customer Solutions organization.

Non-GAAP Research and development expenses of $49.5 million, increased 28.2% year over year. Non-GAAP Selling and marketing expenses came in at $70.3 million, up almost 19% year over year. Non-GAAP General and administrative expenses surged 34.7% on a year-over-year basis to $13.2 million.

The company reported non-GAAP operating income of $12.3 million, down 24.6% year over year. As percentage of revenues non-GAAP operating margin contracted 420 bps to 6.3%.

Balance Sheet & Cash Flow

As on Sep 30, 2019, Wix had cash and cash equivalents of $283.2 million, compared with $351.5 million in the previous quarter. The company ended the quarter with $354.6 million in long-term debt compared with $349.3 million in the previous quarter.

Cash flow from operations came in at $36.1 million during the third quarter compared with $37.2 million reported in the previous quarter. Free cash flow was $29.2 million, compared with $30.8 million reported in the prior quarter.

Guidance

For the fourth quarter, the company anticipates revenues in the range of $204-$206 million, suggesting growth of 24-25% from the year-ago quarter. The guidance takes impact of foreign exchange rates into account. Collections are projected to be in the range of $222-$225 million, indicating an improvement of 26-28% from the year-ago reported figure.

The company updated fiscal 2019 guidance. Management now anticipates revenues in the range of $761-$763 million, compared with prior guided range of $761-$765 million. This indicates an improvement of 26% from the year-ago reported figure.

Collections are projected to be in the range of $828-$831 million, suggesting growth of 26% from the prior-year quarter, compared with previous predicted range of $825-$831 million. On a constant currency basis, Collections are projected to be in the range of $830-$833 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted 14.19% due to these changes.

VGM Scores

Currently, Wix.com has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Wix.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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