Long story short:
- A good company with excellent growth yet carries losses which makes any investment into a gamble.
- Has high potential to be purchased or merged within the medium term (year or two).
- At the time, the price is unreasonably high to my opinion. I believe there is a real possibility that the stock will suffer a reduction towards the price area of 6$-8$ per share.
- I believe that the risk does not allow to commit purchase with an amount larger then 5% of our portfolio. also in order to further reduce the risk I advice on buying in 2-4 different times- for instance just 1% of our portfolio each time, and that to only after the market and the stock (NASDAQ:WIX) will show more stability.
and in details
The Market -
The company is engaged in a market which still has huge growth potential. Basically WIX helps making the Internet more accessible to millions of businesses and self-employed who wishes to open a website. WIX allow people to do it using simple means and without any previous knowledge of coding or programming.
In today's world more and more SME are realizing that if you do not have an official website you just simply don't exist. The problem is that setting up a website requires professional knowledge in designing and programming which costs thousands of dollars. ordinary maintenance and changes will also accumulate in to some considerable expense.
So if we will assume that in the close and distant future the main arena of the economy will be the Internet, and that traditional businesses will be forced to open a website as time passes, there is no doubt that the solution WIX offers is an affordable and worthwhile alternative for which will show bigger demand.
Let's assume that we want to develop our professional future or take our business into a new market.
The best way to do that with spending small is by checking the ROI or the market demand. What I can do is to build a web site and according to the entries or references from customers I can tell if it's worthwhile for me to continue to develop the product / service or keep track in the current business .
WIX - enables low cost way to set up a free website and check out the market by the amount of potential customers . I believe that as time passes the more people will use such platforms to explore possibilities for business development.
Also in future perspective WIX is an excellent bet , even when the economy gains and even when it drops most people will rely on the Internet as a source of income.
In fact chances are that if we will face another economic crisis WIX will earn additional users to transfer their business operations to the Internet in order to save expenses, advertising, rent and employees.
An additional advantage for WIX is that unlike professional web site designers which are constantly looking for tools that would facilitate their work, individuals are looking for a tool which is good and efficient - functionality and quality .
From my personal experience I have learned that after a private client learns to work with a system that gives him a good feedback and answers his needs, the chances should be very small that he will choose to learn a new system as long as the small differences in terms of level of service / reliability.
- A company with a good product and innovation, displays rapid growth for the short time she's been on the market .
- Based on cloud technology .
- Large market share relative to competing companies - nearly 50 million registered users .
- High cash balance
- Company with core income and a variety of complementary products - Mobile Mobile, my services premium URL.
- No need for sales .
- Offer the platform in six different languages.
- Depends deeply on its ability to generate traffic - the number of customers depends on direct investment relentless marketing .
- Relatively new market .
- Depend on the customer 's contract renewal , can be a customer chooses not to renew .
- High dependence on the reputation and limited opportunity to monitor it.
- High dependence on outsourcing infrastructure - bandwidth, servers, billing services
- High dependence on R & D - products, applications , translations into other languages .
- Are under investigation The U.S. Chamber of Commerce might sue the company for business with zones / confiscated by the United States .
- Provides a significant part of the free services and therefore current expenditures are increasing in direct proportion to income .
- Technological developments of competitors.
- The ability to stay up with the rest of the market and understand the demands of consumers.
- Damage to reputation or consumer boycotts .
- The site might be hacked by hackers who tries to steal information or disrupt the Company's operations
- Inability to maintain the corporate culture and innovation during growth.
- Options for merger, acquisition of another company or purchase by another company (probably Google or Facebook) .
- Options to develop new markets and in emerging .
- Option to earn advertising sites users- to have advertisement pf paying companies in every website being produced using wix.
There is no doubt that this company is still in its growth stage. WIX'S numbers are very impressive especially with the tremendous growth in the last quarter.
The problems revealed from the looking in the financial statements
Total assets equal to 115.355 million when the stock has a market cap of more than $ 650 million, not good enough for a company that won't be making any money for the close couple of years.
Commitments for the coming year are almost half the liquid assets .
The Company holds 25,653,917 shares traded.
Over the next year will join the trade about 12 million shares held as options by the Company's employees which will lower the value of each share .
Another problem that increases the risk of the company is the profit model - freemium .
The model suggest that the company provides some services for free so that over time more clients will be willing to pay for extra services.
This is the model that almost all successful online company uses in one way or another .
However, if you do not apply it properly it can act as a Double blade sword.
A "FREE" customer might not pay but he certainly costs the company money , bandwidth, services , and infrastructure .
Losses for the company rose last quarter by approximately $ 3.2 million when they present growth of 4 million regular users and 118 thousand users a fee.
An additional expense comes in expression in the form of capital expenditures -This is a tangible expression of the company in the form of renovations shopping developments are a direct result of the premium model .
Another problem I have with the inherent risk -
The Company leases an area of 3K feet in the most expensive area in Israel.
This poses a certain ethical and financial problem as one. should a company that shows financial losses and also predicts nothing but losses lease a space in a and desired location?.
I wouldn't treat my business partners or investors on that manner.
Creative and talented people with great vision is a wonderful thing but when it comes on the back of the investors it takes the shape of an unnecessary risk .
Speaking about risk-
The company does not offer any profits for the next two years ,when it comes to technology two years is a lots and lots of time in which can change a lot of things .
By the next two years, thousands of new technology companies will rise and thousands will go bankrupt , what assures us that WIX will not be one of them ?
Although you can not analyze a company traded less than a year, notice how the chart describes a "flight" of money from the share after reaching a peak of $30.
Cycles rises when the stock declines with a group of large red candles, the stock crashes almost without correction.
Who sold under $ 16 on heavy trading is not someone who bought the offering or thereafter, that anyone holding stock before.
In conclusion - off course on the surface it's a company that looks very attractive thanks to rapid growth , unique technology and the very real possibility that Google or Facebook are going to fight for the right to buy it with in the coming year for billions of dollars.
However, one should carefully examine what risk we are willing to take ? Although today's price is cheaper than two months ago , but the issue is whether the price is a bargain ?
First investors in the company received shares worth 3 cent per share.
They've benefited tens of thousands of percent on investment , why not sell at least some now?
WIX is a good company but the risks exist.
buy it in small amounts and wait for good prices.