Wix Is A Buy: Strong Growth And Positive Free Cash Flow

Mar. 18, 2020 4:29 AM ETWix.com Ltd. (WIX)11 Comments

Summary

  • WIX is a leader in the DIY website building market.
  • It is growing revenues at a 25% clip.
  • The company trades at 7 times trailing revenues.
  • The stock is a buy.
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Wix (NASDAQ:WIX) fell sharply after earnings as growth projections didn’t meet the expectations of Wall Street. The stock has never stopped falling ever since. The DIY website builder has fallen 40% off all-time highs and now trades at a single-digit multiple of trailing revenues. With a solid balance sheet and positive free cash flow generation, WIX can survive the current market volatility. I rate shares a Buy.

The Website Builder Named Wix

Wix has become somewhat of a household name when it comes to building a website. I know from my own experience using it that Wix makes the website building experience much easier.

(Source: Investor Presentation)

In the past, one might have to learn some software development languages such as HTML, but WIX’s easy-to-use templates changed the game. It uses a freemium model, which reduces friction for growth. WIX has seen impressively consistent registered user growth, and also impressive premium subscription growth.

(Source: Investor Presentation)

Once a customer signs on, they are likely to increase their relationship with WIX as they seek to improve their website and business - WIX’s Corvid enables advanced web developers to build a fully functional online business, all through WIX:

(Investor Presentation)

Naturally, this has led to steady growth in average revenue per subscription:

(Source: Investor Presentation)

As one of the market leaders in DIY website building, WIX has benefitted from strong revenue growth. Trailing revenue growth of 25% and forward revenue growth of around 25% is impressive for any company:

(Source: Investor Presentation)

While the company is not yet profitable on a GAAP basis, a large amount of its employee costs is stock-based compensation. As a result, WIX has been free cash flow positive - and deeply so - for several years:

(Source: Investor Presentation)

WIX appears to be an easy-to-understand name seeing

25 Stocks I Like More Than WIX

WIX is rated only a buy, but the Best of Breed portfolio features over 25 stocks rated strong buy or conviction buy. Some investors start by looking at valuation with a stock screener, and from these cheap companies try to find any that they can justify buying.

I instead start with an assessment of quality, and only from the highest quality companies do I begin to search for value. 

My goal is to not only beat the market but to also do so with a high success rate.

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This article was written by

Julian Lin profile picture
27.26K Followers
High conviction investment ideas in the winners of tomorrow.

Julian Lin is a top ranked financial analyst. Julian Lin runs Best Of Breed Growth Stocks, a research service uncovering high conviction ideas in the winners of tomorrow. 

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Disclosure: I am/we are long WIX, GOOGL. 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.

Additional disclosure: Disclaimer: Julian Lin is not a Registered Investment Advisor or Financial Planner. While the information in his articles and his comments on SeekingAlpha.com or elsewhere may seem like financial advice, it is not, and it is provided for information purposes only. Do your own research or seek the advice of a qualified professional. You are responsible for your own investment decisions.

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