The results of the streamlining program at Wix.com (Nasdaq: WIX) are evident in the company’s third quarter financials. Wix sprang a surprise with a switch to a net profit on a non-GAAP basis; the consensus analysts’ estimate was that it would present a loss. At the same time, currency fluctuations had an adverse impact on the quarterly results.
The market has responded to the results with a rise of over 20% in Wix’s share price.
The company, headed by co-founder and CEO Avishai Abrahami, enables its customers to create and manage Internet sites. Last summer, after an 80% drop in its share price from the 2021 peak and because of the deteriorating macro-economic situation, Wix announced a streamlining program with the aim of saving $150 million annually. The program included laying off about 100 employees, most of them overseas. The company’s figures for the end of the third quarter indicate that its headcount has fallen by 176 to 5,687.
Wix had revenue of $346 million in the third quarter, slightly ahead of its guidance and the analysts estimates, and representing growth of 8% in comparison with the third quarter of 2021.
On a GAAP basis, Wix posted an operating loss of $62.3 million, narrower than the $70.3 million loss in the corresponding quarter, and the bottom line was a net loss of $47.4 million, which compares with a $16.3 million net profit in the corresponding quarter (which mainly stemmed from revaluation of Wix’s investment in Monday.com, whose share price was at a peak). On a non-GAAP basis, excluding stock-based compensation to employees of $51 million, the company posted a net profit of $3.6 million, or $0.06 per share, in the third quarter of this year. The company posted a net loss in the corresponding quarter. The analysts’ estimate for the current quarter was a net loss per share of $0.09.
In the first nine months of 2022, Wix’s revenue grew by 10% to over $1 billion, its GAAP net loss widened to $386 million, while on a non-GAAP basis its net loss was $45.6 million.
For the fourth quarter, Wix expects to record revenue of $349-354 million, 5-6% more than in the fourth quarter of 2021. For the year as a whole, revenue growth is projected at 9%, in the middle of the company’s previous guidance range, because of exchange rate effects, which have worsened in the past few months. Wix expects to revert to operating profitability on a non-GAAP basis in the fourth quarter, for the first time since 2019, and record free cash flow of $47-50 million (excluding the cost of constructing its new campus).
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“What characterizes these financials is the results of the streamlining plan that we presented and that we prepared for over several quarters, after we responded to the economic slowdown,” Wix CFO Lior Shemesh said at a virtual press conference held by the company. “In the fourth quarter we’ll report a non-GAAP operating profit and record free cash flow, in line with the profitability targets that we presented at an analysts day in May. I’m glad that the program made its mark very rapidly. At the same time, we continue to grow in revenue and orders.”
Shemesh said that most of the streamlining plan had already been carried out, and that there were no further layoffs planned at present.
In September, it was reported that activist investment fund Starboard had taken a stake in Wix. The fund announced a 9% holding in the company. So far, it has not presented concrete demands, but in a presentation last month it indicated that value could be unlocked at Wix through more extensive manpower cuts. “Our conduct towards Starboard has been the same as towards any other investor in the company, and our conduct is good,” Shemesh said. “Of course, we would like higher profitability, and we have done everything required. I’m sure that like all the other investors, Starboard too will be happy.”
Wix president Nir Zohar added, “Relations with Starboard are the same as with any other shareholder. We talk to them about the business as with other investors, no more and no less. They have not asked to appoint a representative to the board of directors, and have not come along with demands.”
Wix recently announced a share buyback program amounting to up to $300 million. At the end of the fourth quarter, it had $1.45 billion cash, and a $927 million debt, mostly long-term, to holders of convertible bonds.
Asked about the company’s readiness for a possible recession, Zohar said, “The reduction in expenses and the establishment of higher profitability are part of the preparedness. We still don’t know what such a scenario will really mean for us. The last time we went through a recession, in 2008-2009, we actually weren’t badly affected, because there was a large movement of people who lost their jobs and started enterprises on the Internet. On the other hand, at that time we were a small company just starting out, so its hard to extrapolate to the present. Our task is to plan for the long term and to build a strategy so that we’ll be here for many years to come, and at same time to be agile and respond to changes. 2022 has been a year of drastic changes within short periods of time. I think that we’ve made the right moves to be ready in the best possible way.”
Published by Globes, Israel business news – en.globes.co.il – on November 10, 2022.
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