Wix's Critical Moves And AI Innovation Set To Propel Future Earnings And Stakeholder Value

Key Takeaways

• Wix's strategic executions and innovative solutions, leading to accelerated bookings growth, indicate a positive outlook for future revenue enhancement.
  
• Expansion in commerce and innovation in AI tools underscore a robust growth strategy, potentially enhancing user experience and financial performance.
  
• Dependence on price increase acceptance, market saturation, strategy execution in new verticals, macroeconomic and FX volatility, and operational efficiencies are critical for future earnings and growth.

Catalysts

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

• Wix’s accelerating year-over-year bookings growth, particularly the shift from 10% in Q1 to 15% in Q2, due to the successful execution of their strategy and delivery of innovative solutions, is expected to impact future revenue growth positively.
  
• The introduction and positive reception of Wix Studio and its Figma plug-in, leading to an acceleration in the pace of Studio subscription purchases and a 20% quarter-over-quarter Studio bookings growth, suggest a rising demand that could boost future earnings through increased adoption by the professional community.
  
• The expansion of Wix’s commerce platform, notably the 21% year-over-year transaction revenue growth and record take rate increase, indicates a robust and growing commerce business that could significantly impact net margins and revenue.
  
• The development and rollout of 17 AI business assistants, with dozens more set to launch, along with AI creation capabilities for mobile app builders, indicate an innovation-driven growth strategy that could enhance user experience and drive future growth in bookings and revenue.
  
• The successful repurchase of $225 million of shares and the authorization of a new $200 million program to repurchase securities demonstrate a commitment to returning value to shareholders and could be a positive signal for the stock’s future performance, potentially affecting earnings per share favorably.

Assumptions

• Analysts are assuming Wix.com's revenue will grow by 12.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.4% today to 0.1% in 3 years time.
• Analysts expect earnings to reach $317.8 million (and earnings per share of $5.81) by about August 2027, up from $73.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.3x on those 2027 earnings, down from 128.0x today. This future PE is greater than the current PE for the US IT industry at 34.1x.
• Analysts expect the number of shares outstanding to decline by 1.49% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 8.38%, as per the Simply Wall St company report.

Risks

• The reliance on continued strong user absorption of price increases poses a risk to future revenue growth if users become price-sensitive or if competitive pressures force a reversal or softening of pricing strategies.
  
• Market saturation and competition in AI capabilities could limit the company's ability to maintain a competitive advantage, impacting potential growth in bookings and revenue from its suite of AI capabilities.
  
• The company's strategy to attract larger merchants and expand into new verticals with its commerce platform may face execution challenges, impacting transaction revenue growth and overall take rate improvement.
  
• Global macroeconomic uncertainty and FX volatility could lead to variability in future bookings and revenue, particularly if Wix's conservative outlook underestimates potential negative impacts, affecting net margins.
  
• The sustainability of the Rule of 40 achievement into 2025 relies heavily on continuous operational efficiency improvements and revenue growth acceleration, any faltering in which could impact future earnings and free cash flow margin improvements.

Valuation

• The analysts have a consensus price target of $189.76 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 $225.0, and the most bearish reporting a price target of just $148.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.4 billion, earnings will come to $317.8 million, and it would be trading on a PE ratio of 40.3x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $167.97, the analyst's price target of $189.76 is 11.5% 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.