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Strong Revenue Growth, Positive Free Cash Flow, And A Cash-Heavy Balance Sheet Make Wix A Solid Growth Investment

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About: Wix.com Ltd. (WIX)
by: Lukas Wolgram
Lukas Wolgram
Long/short equity, growth at reasonable price, small-cap, mid-cap
Summary

Wix shares should bounce back soon and make new all-time highs once again.

The company has strong revenue growth, positive free cash flow, and plenty of cash and current assets on the balance sheet.

Wix continues to put up solid growth.

Wix (NASDAQ:WIX) shares have underperformed over the last 6 or so months, but investors in the company shouldn't worry. The company continues to prove skeptics wrong with strong growth. Many retail investors are quick to dismiss the company due to its substantial losses on the income statement, but I would argue these losses are not as significant as one might think. Wix generates large amounts of positive operating and free cash flow, has tons of cash on the balance sheet, and continues to grow quickly. The financials are reminiscent of a certain trillion-dollar company known as Amazon (AMZN), and I think every reader knows how that story turned out.

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Revenue Growth

Revenue is expected to come in at $762M for the full 2019 year and grow another 25% in 2020. While this is a significant decline in percentage growth from the previous few years, it remains a respectable amount and certainly qualifies the company as a growth company.

Source: TIKR.com

Not only is WIX's revenue growing, but the majority of revenue is recurring. Furthermore, the switching costs for customers remain high, as many small and medium-size businesses want a simple way to have a basic website. Wix's freemium model and simple design process make it very easy for anybody to create a solid website, and they're unlikely to leave and have to create a whole new site once they're already on Wix.

Many smaller businesses, at least from my own observations, still do not have a website. I also think personal websites are just beginning to gain popularity. These two observations lead me to believe there are still plenty of potential users out there, many of which Wix has a good chance of landing due to their freemium model. Furthermore, continued ventures into integrating e-commerce capabilities should help attract businesses. Analysts don't disagree, as they have the company nearly doubling revenue from 2019 by 2022.

Source: Seeking Alpha Earnings Estimates

Operating Cash Flow And Free Cash Flow Growth

Although Wix isn't profitable, they are generating cash, and have been for some time. The company has been operating cash flow positive since 2015. Free cash flow continues to grow, allowing the company to buy back shares or find new investments.

Source: TIKR.com

Source: Wix Q3 2019 Earnings Slides

As long as Wix keeps up strong cash flow, they'll have little need to seek funding elsewhere and can continue to exist, despite lacking profitability.

Balance Sheet

Wix has a substantial amount of cash, cash equivalents, and marketable securities on the balance sheet. So, not only is the company generating cash, they also have a substantial pile of it to draw on if ever required. Shareholders can sleep well knowing the company is well-equipped to face any potential future headwinds.

Source: Wix Q3 2019 SEC Filing

Of course, a large pile of cash would be of little value if the company had a great deal of debt. Fortunately, Wix has virtually no traditional debt. The largest liability by far on the balance sheet are some convertible senior notes. I won't get into these now, but investors should be aware they exist.

Conclusion

Wix is a company with strong growth that isn't over yet. Several more years of mid 20s percentage revenue growth should bring the company closer to profitability, and in the meantime, the company will continue to pump out cash. Existing customers are unlikely to switch to competitors and are introduced to Wix's platform through a model that only monetizes a user once they're happy with their website. This should ultimately lead to customer loyalty and continued strong recurring revenue. Wix could be making new all-time highs once again very soon.

Source: Wix.com

I'll be writing more articles on Wix in the future, as well as other great (or sometimes not so great) stocks. So, be sure to follow me and turn on email notifications to ensure you never miss another one of my articles! I try to help all my readers find interesting opportunities in the market. Consider checking out some of the other articles I've written as well, which often do a deep dive into a company's fundamentals or take a look at their most recent earnings report.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in WIX over 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.