Israel's IPO IS Growing Subscription Model Rapidly

| About: (WIX) Ltd. (NASDAQ:WIX), provider of a cloud-based web development platform, plans to raise $119.5 million in its upcoming IPO. The Tel Aviv, Israel-based firm will offer 7.7 million shares, including 29% insider shares, at an expected price range of $14.50-$16.50 per share. If the IPO can find the midpoint of that range at $15.50 per share, WIX will command a market value of $719 million.

WIX filed on October 1, 2013.
Lead Underwriters: RBC Capital Markets LLC, BofA Merrill Lynch, JP Morgan Securities LLC
Underwriters: Needham & Co LLC, Oppenheimer & Co Inc

WIX offers a user-friendly, cloud-based web development platform that allows businesses, organizations and individuals to build and manage an online presence without the need for coding or design services. The firm's core product features a simple drag-and-drop design process along with an App Market of carefully selected apps that can be added to a user's website. WIX has nearly 40 million users spread across 190 countries. The firm offers its platform through both freemium and subscription models; as of September 30, 2013, the firm had 706,780 premium subscriptions.

WIX offers the following figures in its F-1 balance sheet for the nine months ending September 30, 2013:

Revenue: $55,530,000
Net Loss: ($17,802,000)
Total Assets: $26,278,000
Total Liabilities: $50,785,000
Stockholders' Equity: ($24,507,000)

WIX has seen growth in revenues the past 15 consecutive quarters, with revenues of $9.9 million, $24.6 million and $43.7 million in 2010, 2011, and 2012, respectively. However, the firm has yet to translate increased revenues into profitability, with net losses of $11.5 million, $22.7 million and $15.0 million in 2010, 2011, and 2012, respectively.

WIX has been and will likely continue to be a beneficiary of the massive numbers of websites being created. A recent Netcraft survey indicated that there are over 767 million websites across all domains, quadruple the number of sites that existed five years ago. Websites have become a necessity for most businesses in developed countries.

WIX faces severe competition from other website development services and tools. Major competitors include Microsoft Corporation (NASDAQ:MSFT), Oracle Corporation (NASDAQ:ORCL), and Adobe Systems (NASDAQ:ADBE), all of which are significantly better capitalized and have far greater resources than WIX. WIX also must contend with free, open-source development tools like KompoZer, Drupal, and WordPress.

Co-founder and CEO Avishai Abrahami has served as Chief Executive Officer since September 2010 and as our Co-Chief Executive Officer and director since 2006. Mr. Abrahami was previously the Vice President of Strategic Alliances at Arel Communications & Software Ltd. He has previously co-founded two other software development firms, AIT Ltd and Sphera Corporation.

With the growing demand for WIX's product and the rapid growth of revenues we recommend this IPO in the price range of $13 to $15 for aggressive short term oriented investors.

We are concerned that WIX has yet to show an ability to turn a profit, and is very vague about its plans for the funds that will be generated in the public offering. The firm's lack of a direct sales force is also troubling; while the firm does generate a significant customer base through web searches, it's difficult to believe that it wouldn't be more successful with a sales team.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.