AI Website Builder And Site-Chat Will Improve User Experience And Drive Future Success

Key Takeaways

• New AI-driven products are set to boost user engagement, conversion rates, and future revenue through higher subscription and service adoption rates.
  
• Strategic focus on high-intent user onboarding and AI enhancements is expected to improve retention and lifetime value, positively influencing revenue and margins.
  
• Wix's growth and profitability are threatened by FX volatility, delayed product launches, adverse macroeconomic conditions, increased competition, and technology integration inefficiencies.

Catalysts

Operates as a cloud-based web development platform for registered users and creators worldwide.

• The introduction of new AI-driven products, such as the AI Website Builder and AI Site-Chat, is expected to enhance user engagement and conversion rates, likely boosting future revenue through higher subscription and service adoption rates.
  
• The ongoing and projected growth in the Partners and Studio segments suggests substantial expansion opportunities, with Partners revenue growing 30% year-over-year. This could lead to higher revenue and market share capture, as these segments typically have a higher average revenue per user.
  
• The strategic focus on onboarding high-intent users and professionals, alongside enhancements in AI and Studio platforms, is anticipated to improve retention rates and lifetime value, positively impacting both revenue and net margins.
  
• The significant margin improvement, part of a stable cost structure despite top line growth, combined with AI-driven efficiencies in the customer service area, is slated to expand net margins and free cash flow.
  
• Planned capital allocation, including significant free cash flow generation and management of share count through responsible buyback strategies, may support future earnings per share (EPS) growth, enhancing shareholder value.

Wix.com Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wix.com's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.9% today to 16.1% in 3 years time.
• Analysts expect earnings to reach $409.5 million (and earnings per share of $6.47) by about March 2028, up from $138.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $582.3 million in earnings, and the most bearish expecting $341 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 44.0x on those 2028 earnings, down from 75.5x today. This future PE is greater than the current PE for the US IT industry at 43.7x.
• Analysts expect the number of shares outstanding to decline by 0.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.51%, as per the Simply Wall St company report.

Wix.com Future Earnings Per Share Growth

Risks

• Wix faces potential risks from elevated FX volatility, which could negatively impact bookings and revenue growth due to its significant exposure to non-U.S. currencies. This impacts revenue.
  
• Any failure or delays in launching and monetizing new products, such as AI tools, could limit Wix's growth opportunities and affect their expected contribution to revenue. This impacts earnings.
  
• The impact of adverse macroeconomic conditions, such as reduced spending by small businesses, may lead to lower than expected growth in new premium subscriptions and renewal rates. This impacts net margins.
  
• Increased competition from other web creation and software firms, potentially offering more advanced AI tools or more competitive pricing, could hinder Wix's ability to capture market share. This impacts revenue.
  
• Potential inefficiencies or higher-than-expected costs in developing and integrating new technologies, such as AI, may affect profitability and delay margin expansion targets. This impacts earnings.

Valuation

• The analysts have a consensus price target of $242.587 for Wix.com based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $300.0, and the most bearish reporting a price target of just $166.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $409.5 million, and it would be trading on a PE ratio of 44.0x, assuming you use a discount rate of 10.5%.
  
• Given the current share price of $186.56, the analyst price target of $242.59 is 23.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.