Get to know Wix

What is Wix and what does it do?

Wix was founded in Israel in 2006 by Avishai Abrahami, Nadav Abrahami and Giora Kaplan. The trio were brainstorming ideas for a startup and they realized that building a website was complicated and expensive. They pivoted to building a tool that would enable an easy and painless process to quickly construct a website, even for those without coding experience. Hence, Wix was born. The company reached 1 million users in 2009, debuted on Nasdaq in 2013, reported 50 million users in 2014 and, as of June 2020, had 182 million registered users. The latest reports showed that Wix was available in 190 countries and 20 languages.

The company mostly operates on a freemium basis. In addition to a free tier, Wix also offers paid subscriptions such as Ascend by Wix and Premium, the latter of which comes into two sub-tiers: Website and Business & eCommerce. Moreover, there are also standalone services such as: Domains, Mailbox in a partnership with G-Suite, Wix Payments, Wix Answers and Wix Logo Maker.

Wix’s two main revenue segments are Creative Subscriptions and Business Solutions. The former consists of mostly Premium Subscription while the latter is made of Ascend by Wix, other services and the 30% commission that comes from the use of 3rd party apps. For instance, if a user pais $10/month to use a 3rd party app on Wix, Wix is entitled to $3/month and that revenue will go to Business Solutions segment. As of December 31, 2019, 84% of Wix’s premium subscriptions were yearly or multi-year subscriptions while the other 16% was made of monthly subscriptions.

To cater to industries, Wix offers tailored packages that include various tools specific to each industry such as Wix Stores, Wix Hotels, Wix Bookings, Wix Music, Wix Video, Wix Restaurants and others.

How has Wix been doing?

Wix’s quarterly revenue has been steadily increasing. In Q2 2020 ending June 30, 2020, the company recorded around $236 million, up 27% from the same period a year ago. Over the years, there has been a shift in revenue mix as Business Solutions has been gaining share from Creative Subscriptions. Since Creative Subscriptions segment has a higher gross margin, the shift negatively impacts the company’s overall margin. In Q2 2020, the gross margin stood at 70%, compared to 75% a year ago.

With regard to user acquisition, Wix has been steadily adding both registered and paid users; however, out of 100 registered users, there have been consistently only 3 paid users. What does work for Wix is its monetization from these paid users. According to the Investor Presentation, Wix, the company made more money and recouped marketing cost faster from more recent cohorts.

A concern for the company is operating margin. In Q2 2020, operating margin stood at -23%, the highest since Q1 2016. The increase in operating loss resulted from the decrease in gross margin and increase mostly in Sales & Marketing, which was 50% of total revenue in Q2 2020, the highest in the last 3 years. In my opinion, this is particularly worrying because the company lost more money from acquiring users during a pandemic that should accelerate the adoption of their offerings.

Unsurprisingly, North America is Wix’s biggest market with 57% of total revenue, followed by Europe, Asia and Latin America. Europe and Asia’s share has been consistent in the past 3 years while half of Latin America’s share in 2017 (9%) was transferred to North America. Since the company doesn’t break down margin by geography, it’s hard to say which one is more profitable, but I suspect that the fierce competition in the largest market contributed to the decrease in operating margin.

Summary

Wix is undeniably a success story. The company has been around for 14 years as 90% of startups fail. It is used by 180 million users around the world and many businesses are powered by its platform. However, I am very concerned about the company’s competitive advantages. Its competitors in the eCommerce space include Shopify, Square, WordPress, Adobe, BigCommerce, Etsy and to some extent Amazon, all formidable entities. A business doesn’t only need a tool to build a website. It needs other operational tools to run, and equally importantly traffic to its website to generate sales. That’s why you see Shopify partner with Facebook, Walmart and Pinterest. That’s why you see Shopify has shipped new features relentlessly and launched a fulfillment service of its own. That’s why it’s important that Amazon’s marketplace attracts 150 million unique visitors a month. I don’t see yet how Wix help small and medium sized businesses do that.

It can be argued that some of the standalone services are quite new and they take time to gain economies of scale. That is a valid argument. I hope it’s the case and that as they entice more customers to use such services, the marketing leverage will improve and so will the margin. As of now, that is not the case yet.