Wix.com Aims For Growth, But Stocks Can Still Fall

Wix.com (WiX) provides small businesses with software technology that allows them to create websites that allow them to do business online. Wix has over 220 million registered users and approximately five million premium users worldwide. The company’s headquarters are in Tel Aviv, Israel.

The stock is down more than 50% this year. I’m bearish on the title.

Reasons to expect further bearish sentiment

Current market sentiment is not supportive of tech stocks as traders primarily favor energy companies to take advantage of record fossil fuel prices.

Many investors remain focused on value during the current market turmoil caused by many uncertainties.

As a result, investor interest is currently turning away from growth stocks, especially technology stocks.

Wix stock has a 14-day Relative Strength Index of 37.2, suggesting that Wix still has some price drops ahead of it.

For starters: RSI is a technical analysis tool used to gauge whether the price of a stock or other asset is either overbought or oversold. When the RSI is above 70, the stock is generally considered overbought, while below 30 it is considered oversold.

Q4 2021 results

A strong performance across its business helped Wix boost revenue rather than earnings in the fourth quarter of 2021, but surprisingly it only beat analysts on earnings.

Revenue was $328.3 million, up more than 16% year over year, and analysts’ median forecast missed $4.5 million.

Pro forma earnings were negative as the company suffered a net loss of -$0.37 per share, reflecting a significant deterioration from the net loss of -$0.03 in the prior year quarter. However, the consensus on Wall Street was expecting a net loss of $0.42.

By segment, creative subscriptions grew approximately 15% year-over-year to $246.67 million. Business Solutions grew approximately 19% year-over-year to $81.67 million. In terms of contribution to total revenue, creative subscriptions accounted for approximately 75%, while enterprise solutions accounted for approximately 25%.

Other relevant metrics include annual recurring revenue (ARR) from creative subscriptions, which reached $1.01 billion in Q4 2021 after growing 15% year-over-year, and total bookings, which increased 15% year over year to $351.6. million.

Outlook

Wix’s business is poised to grow further as it will benefit from the growing adoption of internet technology by businesses.

According to Statista, the global online retail market, worth nearly $5 trillion in 2021, is on track to double over the next four years to $7.4 trillion. here 2025.

If e-commerce is making such a big contribution to retail, chances are small businesses won’t want to miss out on this growth opportunity.

As a web design service provider, Wix should benefit from the positive momentum and continue the improvement seen in the fourth quarter.

Guidelines for the first quarter of 2022

For the first quarter of 2022, the company expects total revenue of $338-343 million, an increase of 11-13% over the corresponding period. Analysts estimate an average of $342.68 million.

The company will announce the results on May 16 before normal trading hours.

The company also announced that annual growth in total sales is expected to accelerate in the 2022 quarters, including the last of the current year.

Balance sheet

Wix’s track record is not strong and needs improvement.

The Altman Z score of 2.2, which indicates financial difficulties, puts Wix – albeit slightly – at risk of bankruptcy within a few years.

For those unfamiliar with the financial indicator, the Altman Z-Score measures the likelihood of a company going bankrupt within a few years. When the ratio is between 1 and 3, “grey areas” appear, meaning that the company could face a certain risk of bankruptcy.

Additionally, Wix investments produce a return that is lower than the cost of raising capital. This latter aspect is highlighted by Wix’s weighted average cost of capital (WACC) of 9.87%, while the return on invested capital (ROIC) is negative at -42.2%.

Therefore, unless the company reverses the trend by improving its profitability as soon as possible, the financial situation of the company will deteriorate.

However, the company operates in a very high growth market, and if it seizes opportunities quickly, its balance sheet will surely improve, which is a good reason for the share price to rise.

Evaluation

The stock has a price-to-book ratio of 77.2, a price-to-sales ratio of 4.75, a price-to-cash flow ratio of 65.5, and a price-to-free cash flow ratio of -498.

The Taking of Wall Street

Over the past three months, 17 Wall Street analysts have released a 12-month price target for WIX. The company has a moderate buy consensus rating based on 11 buy, five hold, and one sell rating.

Wix.com’s average price target is $134.53, implying an upside potential of 89.4%.

Conclusion

Currently, the market is not favoring Wix and other growth tech stocks. The share price, which has halved so far this year, could fall further due to the current market turmoil.

This company operates in a fast-growing market and should be on track to improve its profitability and financial situation.

However, the stock price needs bullish sentiment to rally.

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