Everyone is thrilled that a
coronavirus vaccine appears to be imminent. But Wix.com
(NASDAQ: WIX) shareholders may be a little less thrilled than the rest of us.
Shares of the web developer are down nearly 15% over the two sessions since the news was released, as investors fear that WIX’s growth won’t be quite as high in a post-pandemic world.
WIX shares staged a nice reversal yesterday, however, indicating that this sell-off may have already run its course.
WIX is set to report its Q3 earnings tomorrow. I’m expecting a strong Q3, though obviously the news doesn’t impact those results. The bigger question is: Will Wix’s growth decelerate significantly in a post-vaccine world? I don’t think so. Instead, I see now as a great chance to buy WIX at a discount. Here’s why:
Growth is Nothing New for WIX
From 2015 to 2019, WIX averaged 26% yoy revenue growth and 15% yoy registered user and subscription growth. In Q2 2020, WIX’s revenue increased 27% yoy, its registered user base went up 18% yoy, and its premium subscribers jumped 17% yoy.
Before the vaccine news, WIX’s revenue was projected to increase by around 26% in each of 2021 and 2022. Again, very reasonable expectations based on Wix’s pre-pandemic and pandemic numbers.
E-Commerce Shift Will Be Sticky
Back in July, I talked about the 2020 shift to e-commerce. To recap: Since the onset of the pandemic, customers have shifted from brick-and-mortar to online en masse, with online increasing from 23% to 42%. There had been a shift prior to the pandemic, but it was happening at around 2% annually over the past 10 years. So, through that lens, the pandemic caused nearly 10 years’ worth of evolution in just months.
But what really matters is, Will the shift stick post-pandemic? In July, I said that a good percentage of it likely would, and I stick by that. I’ll reiterate: Even if half of those gains stick, e-commerce will be sitting pretty over the next couple of years. And once it does stabilize, I’d fully expect the world to start slowly shifting back to e-commerce – roughly in line with the pre-pandemic rates.
New Businesses = Potential Customers for WIX
Recessions often lead to a surge in new businesses. It can seem counterintuitive, but it makes sense when you think about it: People lose their jobs, and they a) realize how precarious their employment status is, and b) have a lot of free time to start a business. And with the pandemic ripping through the world, unemployed people had even more free time than they normally would. It’s not as if they could use the time off to take an international vacation, after all. With that in mind, it shouldn’t be shocking that applications for new businesses recently hit a 13-year high.
You may be wondering:
How does this all relate to WIX?
Well, the people that are starting new businesses are, now more than ever, aware of what happens to businesses that lack a strong online presence. So, they will make an online presence a top priority for their businesses. Which WIX will happily help them do…
WIX Has a Nice Source of Upside
Subscription businesses are a great place to put your money because they are sticky. But there are a lot of subscription businesses out there. What makes WIX special?
In a word: Upside. WIX has a freemium business model, and the vast majority of its users aren’t generating much, if any, revenue.
At last count, WIX has 182 million registered users, but only 5 million of them are paid subscribers. I said it in September and I’ll say it again: If WIX can convert even a small percentage of its free users into paid subscribers, the company has a lot of upside.
Look to Get in Ahead of Earnings
I’m not expecting any big surprises – on the upside or downside – for Q3, when WIX reports tomorrow. But what I do think will happen is that WIX will reassure investors that there’s nothing to worry about in the long-run. That the company is well-positioned for post-pandemic prosperity.
Bottom line, I think you have more to gain than to lose by getting in ahead of tomorrow’s release.
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