Wix.com Ltd. (NASDAQ:WIX), which operates a platform for creating websites, is having a banner year. Note that the shares have logged a return of 50%. This is no fluke. Keep in mind that for the past three years the average compound annual growth rate on Wix stock is sizzling 62%.
So then, can the company keep up the momentum? Or should there be caution? Well, it’s true that the valuation is far from cheap. Consider that the forward price-to-earnings multiple is at nose-bleed 67X.
But hey, when it comes to tech companies, the growth can continue for some time, as seen with operators like Netflix, Inc. (NASDAQ:NFLX), salesforce.com, inc. (NYSE:CRM) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG). And I think this should apply to Wix stock as well.
So let’s take a deeper lock at the fundamentals of the company:
Wix Stock Advantage #1 – Great Product
Successful entrepreneurs have a knack for solving “pain points.” Often it is about making a process much easier.
No doubt, this has been the case with Wix.com, whose mission is that the “Internet should be accessible to everyone to develop, create and contribute.” So from the company’s founding in 2006, it has continued to develop innovative features to its platform, like:
- Wix Artificial Design Intelligence (Wix ADI): This allows a user to create a personalized website quickly, such as with the drag-and-drop of objects and content. The system also leverages AI (Artificial Intelligence) to streamline the process.
- A mobile web editor
- Wix code: This is an easy language that makes it possible to create advanced websites and web apps.
But Wix has also been smart to create add-on functions, such as a CRM, a payments system, marketing automation, social media and workflow management.
Wix Stock Advantage #2 – Strong Growth
WIX uses the freemium pricing model. This means that the company gives away core services and then charges for premium features. This is why there are 119 million users and 3.2 million paying customers.
In other words, the key to the success of the model is to focus on conversion. And for the most part, WIX has been pretty good at this. Last year, revenues spiked by 47% to $425.6 million and free cash flows came to $70.7 million, up 95%. According to the latest earnings report from Wix: “conversion of registered users to premium subscriptions and retention of subscriptions are at all-time highs.”
Wix has also been successful in expanded its business on a global basis. For example, 25% of revenues come from Europe and about 14% are from Asia. Wix.com is available in 17 languages.
Wix Stock Advantage #3 – Market Opportunity
While the Web has been around since the mid-1990s, the fact is that many businesses and people do not have a website. Or, if they do, it often is not well-designed or effective.
In fact, estimates are about 60% of small businesses do not even have a website! In other words, there is still quite a bit of runway left in the market for web development companies. After all, there are roughly 30 million small businesses in the US. According to William Blair analyst Matthew Pfau, the market opportunity is estimated at about $12 billion.
Finally, when it comes to small businesses developing websites, the expenses can be significant if an agency is hired or outside consultants. So this is where WIX has a big advantage. Because of its enormous scale, the company can provide automated systems to develop a professional website that is quite affordable.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.