What happened
Shares of digital platform company Wix.com (NASDAQ: WIX) popped on Wednesday after the company announced it has a $500 million plan in place. The stock closed the session up 11%.
So what
Some investors might argue that the market wasn't positively reacting to news from Wix, considering its competitor Squarespace was up 9% today. To be sure, today's broad market rally certainly helped Wix stock. But it was up roughly 9% early in the session, before the market started its strongest push higher. Therefore, Wix's 11% move today does indeed seem to be correlated with the news.
Early this morning, Wix filed an update with the Securities and Exchange Commission (SEC). In the filing, it notes that the company is authorized to spend $500 million either repurchasing shares or repurchasing convertible notes.
This is a big deal because of how far Wix stock has fallen. Even after today's rally, it has a market capitalization under $3.6 billion. This means that it could theoretically repurchase around 14% of shares today if it wanted to. And for those keeping score, that's a lot.
Now what
Wix stock has fallen to its cheapest valuation ever because its growth rate is significantly slowing down. However, the company is still growing and serves an important industry -- Wix tries to make it easy for anyone to build an online presence. Moreover, the company has historically been very good at retaining customers, which will give this business a lot of stability going forward if the trend holds.
Wix management is targeting modest future growth and an impressive 20% free-cash-flow margin by 2025. If the company can achieve these goals, repurchasing $500 million in stock at today's prices could prove to be a solid move in hindsight.
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Jon Quast has positions in Wix.com. The Motley Fool has positions in and recommends Wix.com. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
