A month has gone by since the last earnings report for Wix.com (WIX). Shares have lost about 0.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Wix.com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Wix.com Ltd. delivered non-GAAP earnings of 29 cents per share in the second quarter of 2018, which beat the Zacks Consensus Estimate of 13 cents. Moreover, the figure was also higher than the year-ago in line earnings.
The company has adopted anew Accounting Standards Codification ("ASC") 606 using full retrospective method.
Total revenues increased 41% year over year to $146.1 million, surpassing the Zacks Consensus Estimate of $144 million. Collections during the quarter came in at $159.9 million, up 37% year over year, attributable to expansion of new products and enhancement of existing products.
The company witnessed better-than-expected conversion and retention in its user cohorts. The company added a total of 205,000 net premium subscriptions in the quarter, which came in at 3.7 million as of Jun 30, 2018 (up 28% year over year).
Wix added 5.8 million registered users during the quarter. Registered users as of Jun 30, 2018 came in at 131 million, up 20% increase year over year.
The company projects the existing user cohort to generate more than $4.6 billion in collection over a period of eight years. This is the primary reason behind higher product offering, improved conversion and monetization of the user cohorts.
During the quarter, average revenue per subscription (ARPS) came in at $157 as compared with $154 in the previous quarter. The increase was primarily driven by higher adoption of vertical applications and a favourable mix of higher priced subscription packages.
The company released new features, consequently enhancing its Wix Code capabilities. Recently, the company unveiled Wix Mobile Site Builder. The latest product has increased functionality by utilizing the Artificial Intelligence (AI) technology, and helps users to create advanced websites and applications solely from a mobile device. We believe that these product innovations bode well for Wix.
Non-GAAP gross profit advanced 34% from the year-ago quarter to $116.9 million. Nonetheless, non-GAAP gross margin contracted 400 basis points (bps) to 80%, primarily due to the "change from net (agent) to gross (principal) accounting of revenue due to the updated terms of our agreement with Google that was previously announced."
The company's non-GAAP operating income for the quarter came in at $12.9 million as compared with $3.5 million reported in the year-ago quarter. As a percentage of revenues non-GAAP operating income came in at 9% as compared with 3% recorded in the year-ago period.
Non-GAAP net income during the quarter came in at $13.8 million against a loss of $0.185 million reported in the prior-year quarter.
As on Jun 30, 2018, Wix had cash and cash equivalents of $354.3 million up from $103.5 million in the previous quarter.
Cash flow from operations came in at $27.3 million during the quarter. Free cash flow was $23.9 million, highest ever during the quarter. The company did not repurchase any share during the quarter.
On Jun 21, 2018, Wix announced the pricing of $385 million aggregate principal amount of Senior Notes in a private offering. The notes will mature in 2023, subject to customary closing conditions.
Moreover, on Jul 3, 2018, the company raised the pricing its previous offering to $443 million aggregate principal amount of Senior Notes. The note carries 0% interest.
For the third quarter, the company expects revenues in the range of $152-$153 million, representing year-over-year growth of 37-38%. Collections are projected to be in the range of $161-$162 million, representing year-over-year growth of 34-35%.
The company updated fiscal 2018 guidance. Management now expects fiscal 2018 revenues in the range of $597-$599 million (up from the previous guidance of $594-$597 million). This exhibits year-over-year growth of 40-41%.
Collections are now projected to be in the range of $656-$660 million (up from the previous guidance of $651 million to $657 million), displaying year-over-year growth of 36%.
Free cash is now expected in the range of $101-$103 million (up from the previous range of $100-$102 million, representing year over year growth of 43-46%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 23.08% due to these changes.
Currently, Wix.com has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. The stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our style scores.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise Wix.com has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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