Advanced AI And Design Tools Will Shape Future Success

Key Takeaways

• Aggressive expansion of AI tools and Self Creator capabilities aims to boost user engagement, diversify revenue streams, and drive subscription and ARPU growth.
  
• Focus on Partner segment and strategic marketing initiatives seeks to increase market share, improve margins, and enhance free cash flow and profitability.
  
• Fluctuating foreign exchange rates, uncertain AI adoption, and slower gross payment volume growth pose risks to Wix's revenue and profitability projections.

Catalysts

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

• Wix is aggressively expanding its AI product suite and launching new innovative tools like the AI Website Builder, AI-powered chat, and AI marketing agents, which could potentially enhance user engagement and accelerate revenue growth as they drive increased conversion rates and higher-value subscriptions.
  
• The company is focused on growing its Partners segment by expanding Wix Studio and developing advanced design tools, which is expected to increase market share in the professional services market, enhancing revenue and potentially improving net margins through economies of scale.
  
• Wix is launching new solutions to expand Self Creator capabilities beyond website design, targeting broader market needs and diversifying revenue streams. The anticipated release of these products may lead to increased average revenue per user (ARPU) and sustained subscription growth.
  
• Strategic marketing initiatives and price adjustments are positioned to increase average bookings per subscription, resulting in stronger ARPU and contributing to a potential uplift in the company's free cash flow and overall profitability, particularly as high-value users are targeted.
  
• Control over operating expenses and anticipated foreign exchange gains are expected to result in margin expansion and free cash flow improvements, reinforcing Wix’s target to achieve the Rule of 45 by 2025, thereby enhancing earnings stability and investor confidence in long-term growth prospects.

Wix.com Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Wix.com compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Wix.com's revenue will grow by 10.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.9% today to 14.3% in 3 years time.
• The bearish analysts expect earnings to reach $341.0 million (and earnings per share of $4.88) by about April 2028, up from $138.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 44.5x on those 2028 earnings, down from 64.2x today. This future PE is greater than the current PE for the US IT industry at 32.6x.
• Analysts expect the number of shares outstanding to decline by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.66%, as per the Simply Wall St company report.

Wix.com Future Earnings Per Share Growth

Risks

• The fluctuation in foreign exchange rates poses a significant risk, potentially impacting Wix's projected revenue by causing up to forty-five million dollars in headwinds for the full year 2025.
  
• Slower-than-expected growth in Gross Payment Volume due to factors like the timing of Christmas impacted transaction revenue, creating immediate effects on bookings and overall quarterly revenue performance.
  
• There is uncertainty surrounding the adoption of new products like the AI Site-Chat and AI marketing agent, which could lead to lower-than-expected additional revenue streams if users do not adopt these innovations widely.
  
• Wix's Free Cash Flow margin improvements largely depend on AI-driven efficiencies, which may not materialize as planned, potentially affecting the projected profitability enhancements and operating margin sustainability.
  
• Net subscriber growth has been deemphasized, with its significance reduced to a secondary metric. This may limit visibility and predictability concerning the underlying growth in the premium subscriber base, impacting long-term revenue forecasts.

Valuation

• The assumed bearish price target for Wix.com is $203.5, which represents one standard deviation below the consensus price target of $238.31. This valuation is based on what can be assumed as the expectations of Wix.com's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 bearish analysts, you'd need to believe that by 2028, revenues will be $2.4 billion, earnings will come to $341.0 million, and it would be trading on a PE ratio of 44.5x, assuming you use a discount rate of 10.7%.
  
• Given the current share price of $158.86, the bearish analyst price target of $203.5 is 21.9% 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.