Wix.com Ltd. (WIX) Earnings Call Transcript & Summary

Thanks, everyone, for joining us. My name is Sterling Auty. I'm the software analyst here at JPMorgan. I'm really excited about our next session. I'm very fortunate to have all 3 members of the executive team here from Wix. Avishai, who is CEO; Nir, who's President; Leor, who's CFO. Guys, thanks for joining. I really appreciate it.

Pleasure.

All right. Avishai, I think it's been a little while since you've been at a conference. So I really thank you. It's great to see you. Maybe from your perspective, I want to jump into a couple of key questions on things that happen. But given that you're here, I just want you to kick off in terms of the pandemic has been unprecedent to driving small businesses online. From just a high-level perspective, how do you think the kind of online environment has changed due to the pandemic?

So I think that, obviously, right, when this pandemic started, we saw a lot of the off-line businesses closing down because that was a reality. And then we saw a big push in the online environment. And that happened pretty much all the way through the pandemic, right? So we saw this increase. And now what we're seeing is a bit of a turn, where online that didn't slow down, but we're seeing off-line businesses coming in, right? In Wix, we have a luxury that we serve online commerce and offline commerce. We're serving off-line businesses, which are not about commerce, right? So we have this really good view on all kind of businesses in the economy. So we do see that the off-line is growing actually very quickly now, and we actually beat some effect to accumulate checks and other government initiatives to help small businesses. And so online cover is still more than it would be normal. So basically, if the graph was like over the years like this and then it just accelerated so we're not back to where we've been before, I was still above that. However, we're seeing a lot of off-line activity, new businesses opening. Again, December, it used to be before pandemic, even more than before that, which I think is a very good sign for the economy. I think that the United States at least in terms of how businesses pacific is arrived -- derived at the end of the pandemic.

Excellent. No, I agree. And I hope so. Let's get this pandemic behind us. I want to jump into some kind of recent events and things that I think have been impacting the stock. Leor has anything changed in the way that you give guidance specifically around newer businesses like payments?

Yes. So the answer is yes, and I will try to explain. So everything that is related to the cores, right, to the core business that we traditionally had. So there's no change. It's very simple. It's a SaaS model. We know exactly how to how to predict it, not much of a surprises. And Sterling, we talk a lot about how the company evolved, how the business evolved, how the fact that we are in a way, operating system for small businesses, it mean that we are adding -- we added a lot of services. You mentioned payments, but there are many others and each and every one of them -- we present a huge opportunity for us in the future and also serve as a growth engine. But it's only started. I mean if you take payments, for example, it's harder for us to predict. We try to do it. And obviously, we provided the numbers. But there are others like some new initiatives, like, for example, partners. Since it's just started, I think that it's a bit harder to predict, and this is why we prefer this set to be more conservative, meaning that we know that there is more upside to what we provided, but we want -- we feel much safer to be conservative because it's like new initiatives. And I believe that, in a way, it represents a big opportunity, it just demonstrate how the company evolves. And everything that we said, like the last 2 years actually happening now.

Yes. Yes. No, that makes sense. Now if we look at the March quarter, you guys came in well above expectation in terms of revenue. But the creative subscription side, you had set a target for 30%, it came in a little bit light. Can you go through what happened there?

So the simple answer is that there was nothing really significant. We are talking about $3 million of a deal that we had with a partner that basically moved to the second half of the year. And this is part of what we just discussed. I mean because usually, when you do a B2B business, it's a bit different. It's not a SaaS model that it's really easy to predict. Obviously, we are learning as we move and understand really this -- the nature of the business with those partners. But that was the reason. It's very simple. It's nothing related to the core business of the agencies or the do it yourself. Actually, that was actually performed even better than what we've expected. The ACPS was better, the retention was better. I think that we also have seen that in the number of the net premium subscriptions, the -- we said that it's increased by 50% to about 240,000 net of subscription additions. So I think that the core business actually performed even better than what I expected. But again, one of the deals that we had with our partners moved to the second half of the year, which it usually happened when you do those kind of deals, which are B2B deals.

I think you kind of answered this, but I want to put a fine point on it. So you didn't change your outlook for the full year. What gives you the confidence that you can deliver on the full year.

I mean the fact that we have a few options on those kind of deals. As a company, we are learning a bit more how to do business -- well, bigger deals with channels. And I think that this is something that we feel confident that we have a few options, and we believe that statistically, a lot of them will close.

Got you. So as the economy started to reopen on the back of increased vaccination, knock on wood, hopefully that continues. What are you seeing? Are you seeing the same level of renewals in this environment? You kind of touched upon it in some of your answers there, but I just, again, want to make sure I kind of called out. What are you seeing in terms of renewals?

So we actually don't see any difference in terms of churn. And our point of talent we saw bits. So today, right, 33% of our business is based on online commerce, so things that related to an e-commerce but it's the other 67%, right, thing that usually would be on the offline universe side. So businesses that are not based on e-commerce. And I got to say, probably, if you did not change during the pandemic, you are not very likely to churn, right? And so apparently, when we're going to see how it works, but we're seeing that things are stable and we did submit it to think this time, revenue retention is actually better, right, than ever before.

By the way, this is the reason -- part of the reason why we actually increased the outlook for the year. Because of that, we've seen that the renewals are actually looking stronger, and retention is better.

Revenue retention in second even more significant.

Yes.

That now makes sense. Earlier this year, you had set some targets on the business solution area. So specifically for payments. I think it was $125 million to $130 million revenue, $10 billion in GPV. Is that still the case?

Absolutely. It's actually it's early to say, but we said that in Q1, it actually even exceeded our expectations. So yes, we definitely feel that we're going to meet those targets.

All right. Great. And then you had mentioned in the first quarter, G Suite, in particular, was very strong. Can you clarify in terms of what the impact of G Suite, not only in the quarter but also kind of the June quarter outlook?

Sure. So when you look at the business solution, meaning compare Q2 to Q1, based on the guidance that we provided, you might assume that the business solution is actually kind of flat Q2 over Q1, which is true. But the reason for that is actually that payments is actually increasing, meaning that payment is going to be better in terms of the revenue compared to Q1. G Suite has 2 nature of transaction. The first one is something that we know. We know how much of this we are selling, how much renewal it's very similar to the traditional SaaS model. There's no room. There's no changes. Nothing complicated over there. But the nature of our agreement with Google is basically provide us with some additional terms, which obviously I cannot go into the details. By the way, it's happened in the past, and I'm sure that it's also going to happen in the future, meaning that there will be from time to time quarters, that we are going to sell more G Suite because of the nature of the transaction with Google. So again, I don't want to call it kind of the one-time in Q1, but definitely, I don't think that it's going to happen again in Q2. Perhaps in a later stage, it's something that I cannot really predict.

This is also already part of the one.

Exactly, exactly. We so G Suite is going to be less in Q2 versus Q1 because of what I said. And also remember that seasonality, we are selling more G Suite in Q1 than in any other quarter. But payments is going to be actually going to increase.

Is that G Suite in Q1 strength just because of the seasonal strength of when you're adding new customers and renewals, whereas payments just kind of grows? Is that it? I want to make sure I understand some of the seasonality?

Yes, the seasonality because Q1 is a very strong quarter in terms, for example, of the number of the net subscription additions. I mean, we've seen that it was growing by 50% on a year-over-year basis. So obviously, the more subscription that we are selling, we are selling also more G Suite together with that. And in addition, there is like this specific special terms that we have with Google in order to increase the top line. And again, this is something that happens from time to time, it is not solid like it's happening every quarter. It really depends on their ability to do that.

I got you. I got you. So Avishai, one of your competitors is now recently public. So I think it brings in where investors are trying to better understand the landscape. And so specifically, let me ask it this way. What is the profile of the incremental new customer subscriber that comes to Wix today versus what you think the profile is that goes to a Shopify or any of the other competitors?

Well, so it's a very broad question, right? And the thing that we have to say so, there's some common things, right, between we Shopify buy and the Squarespace. And that we all SaaS model, right? So this is software service SaaS. You don't have a hosting company, you don't install open source. You pretty much have everything being managed for you. And so it's a complete SaaS service. And I think all 3 of us are sharing that vision where businesses should not be handling infrastructure to get the business online, right? And I think that if you look at the differentiation, the difference between Wix and Shopify, so we both have e-commerce, however, if you're a professional market to, usually would go to Shopify. So if somebody will care about design and the ability to build the brand, a lot of them will come to Wix, right? Because this is what we focus on. And Shopify did an amazing thing with drop shipping. So basically, if you are market here and just do one into marketing. A lot of what you're going to do is just take Shopify, drop shipping, you start selling product that you never built and never seen in the life. Well, in weeks, usually people would do their own products, they got their own things. That's why we also have, for example, a lot of start-ups and midsized companies building using Wix to build their front. When it comes to Squarespace, it's a bit more tricky. So I think we compete more directly. Again, the difference is Wix provides very better capability to design yourself. So it's all drag and drop, fluidity of design, they are relatively huge stackings a huge start of templates. I think this is where we are stronger. And so if you care about the thing, there is a higher chance that you'll go with Wix. And of course, if you are a professional designer, by the way, Editor X today is the only solution that you really have there from all those companies I mentioned X will be the the only solution available for a professional designer. So this is kind of how the landscape work. But I think all 3 companies are trying to transform this market from legacy hosting with the part of open source from them into modern SaaS environment in which you can immediately provision, you don't have to worry about security, you don't have to worry about uptime and onto performance, everything is handed for you. So this is where we share a vision. And then each one of the segment where customers would be economy.

And I think some of the solid times and best I talked to lose the idea of the size of the market. Are you worried about your growth rate because of the number of competitors that are out there?

Obviously, not. I think today, we have well, we completely Shopify somewhat, right, not really, right? So I always say that there's about 7% where we compete and 93% where we don't. But when it comes to Squarespace, we both compete with this huge legacy out there, right? So -- and together, we are probably about 15% of the market. So I think there is a massive opportunity for both companies to be successful. Even if we compete on some customers, the size of the opportunity is huge, and it's always growing, right? Early year, it has been growing since, I don't know, 1995 or 1996.

I sit there and look at -- listen, I cover Verisign as well. Verisign adds like now it's 11 million new domains a quarter in terms of the gross new that comes in, right? So I look at that and I look at the net subscriptions that the companies in the space add and say, there's still a ton of room for you guys to grow? Or is that the wrong way to look at it?

Well, Verisign is a very good proxy, but it is Verisign either is not the whole market because they're mostly very specifically. So the market is actually probably about $30 million, I'm guessing or $22 million of domains that we can go after. So it's still a massive opportunity for us to go after. And I think that both Squarespace and Shopify and us are actually more helping each other because we are educating the market that there is something better to do, right? It's a bit like selling electric cars, right? You want to have a few people competing and talking about it, and then you know it's real. The technology is there, and we're pushing each other in the market to accept that. SaaS is also viable for this kind of an opportunity.

Yes, it makes sense. Nir, did you want to weigh in?

No, no, I just wanted to ask you that quarterly Verisign number, you said it's $11 million now. What was it like 23 years ago?

Yes, like $9 million. So it continues to grow, to your point, that it's still expanding.

As the expansion of the opportunity. So...

Exactly. All right. So a couple of questions came in for investors. I want to make sure I include these. [Operator Instructions] First one is bid solutions was ARR actually up quarter-on-quarter in March?

ARR of business solution? The answer is yes.

Okay. Perfect. Next one is within Wix business, how much is restaurants, and specifically, do you think DoorDash and Grubhub expansion to the restaurant Storefront builders is a competitive risk?

So I mean if you look at which -- we're not going to show the exact number. I don't think we have it ready [indiscernible]?

No.

But I think that they are probably more of a partner than a competitor. And so we don't really need them is something that competes with us. Remember, the old process how we join Wix is a bit different. So I think that -- I'd say that -- well, in my mind, a lot more of a partner than a competitor.

I would also add that I think we're not -- we don't disclose the number. It's not a huge part of our business, but it's actually growing very fast. So I think to Avishai's point, I think the we don't feel as if we are being pressured in terms of the competition. Actually, the opposite because of the massive growth we're seeing there. You've seen the acquisition we did with SpeedETab in order to kind of incorporate more functionality also on the off-line side for the restaurants because we see that they have that demand. And then also, obviously, partnering and connected or distribution and last mile opportunities that these companies offer.

Makes sense. All right. I want to talk about TROI. I remember, as we're going through the IPO process, we're doing the first meetings, and you pull out this TROI, like what the heck is this? What is this metric? Now you fast forward to today and the number of my companies that talk about payback they may not use TROI, but I give you guys a lot of credit, you were definitely on the bleeding edge in terms of how you thought about your marketing go to market. We recently announced that you're looking at possibly adjusting that not how you calculate the metric, but how you manage the business in that metric. So what's changed?

Well, I think the top of the business we offer, right? I think that when you look at the customers we have today, in the past, a lot of them would be just static sites. Right, with some business activity. And today, they have more business activity, and we have payments on top of that, and we're selling additional software on top of that as well. Then, obviously, the value of the customer dramatically change. And our prediction of the length of the lifetime value of the customer will change. And it kind of like says that well, we should also change the way we predict risk on the customer, which is basically why we use payback or TROI. And we've been always very conservative on that. I think most companies will go to over a year with that. We've been very conservative on that. And now we look at and say, okay, we have a customer. So the subscription will do 9 months, right, or 10 months or 11 months, but then some of them have payment do massive right, because we get a percentage of that. Some of them were a lot of different software on top of that. Some of them is additional businesses on top of that. So we see more and more customers adding multiple sides. And the result is that we're sitting and say, okay, we have the saying that is constant in a business since we're, very, very for a very long time, and does it still make sense and realize, well, we need to be able to test different brands because the customer has changed.

And I think there's something interesting maybe to point out 2 specific mechanics that we're looking at. And at the end, it's actually 2 similar behaviors for 2 different groups. One are the group -- is the group that generates GPV to Avishai's point. And the other one are the partners. And in both cases, it's not only that you end up with more value per given user. The behavior of when it happens is a bit a little bit different because a business that generates GPV, usually takes -- they buy the subscription maybe early on, but the GPV ramp up takes a little bit longer. So you might see starting to peak or peak by getting to a critical mass, after 9 or 10 or 11 months. So we're trying to figure out what does that mean for us and how we want to deploy the marketing dollars and take that into account. The other group, which again, behaves a little bit similar, are the partners because when they are on board, they usually have 1 or 2 subscriptions, but after a while, they start getting more and more clients, and adding more and more on top of it, again, going towards the second half of the year after they join. So those 2 specific groups have kind of a similar behavior that leads us to think that we need to understand how we evolve our TROI thing.

Also, it's not just TROI. I often talk to investors. I've always appreciated that I cover a lot of companies. And I think yourselves and Intuit are the 2 businesses that run your business by the data, the best, meaning the amount of A/B testing and things that you've done and your willingness, we go back, as March of 2019, when you started to talk about the move-up market and then you go back and say, you know what, not every market geographically has an upmarket. So you adapt. And I think I think investors, as they begin to see that, we'll understand it. All right. A couple more questions here from investors. One came in just on the competitive landscape. They want to know are you seeing due to gain traction through digital marketing firms and advertising channel. I'll throw another one in there. What about Webflow? And again, based on the look on Avishai space, I'm guessing Duda is something that's not moving the needle or showing up on -- to be as with you, I googled it. As we're sitting here talking like Duda, what's Duda?

Oh no. Duda we don't see on. Duda is a very small, I think, declining. And I think there's a lot of issues with product, and I don't believe that it's going to be very hard for them to continue and I think continuing as a company, but they might surprise you, right? I think that it did happen. And Webflow, on the other hand, is a very, at this stage, very small product. It's a good part. It really call. It does not aim for the same customers that we traditionally go after with Wix because Webflow is a product for developers, right? As a designer, it's going to be very hard for you to finish a project. It most line of designers can build a skeletal for developer and then the developer are able to drop the code and put it on their server, right? So it's -- it may kind of like Photoshop, for HTML and CSS, where you get that file and then you take it and the developer works with each someone else. So that is where they're very strong. I think that they compete to some degree with our Editor X product. But even that is to some degree. For example, Editor X all back end, so you don't have to take the code to put it somewhere, you can just use our server services. You can code on top of that if you need with Webflow. So I think Webflow is a good company, and I believe that we're going to probably see them in the future even more. But at this stage, really small. And I think they still need to focus on what they are a bit better in order to get to that point.

Yes. Makes sense. On the Editor X, the other question that came in for investors, what are you seeing in terms of Editor X conversions, so adoption and conversion. So what kind of traction are you seeing?

So we're seeing Editor X, which is just a product that a very young product. I think that it is the fastest in terms of growth at the fastest product I've seen yet. And I've seen yet, not just within any company that was involved in. And so it's doing very, very well. I think that each -- of course, it's a product that requires a lot of trust because people are building their business, not if you use Shopify or Wave or Squarespace, usually, you have a business, and then you take that business a great front, right, which is online front way. If you're using Editor X, usually your business is to build websites, right, or to build very complex projects. So your business is actually built on top of Editor X. So we've seen that the trust that you need for that is actually growing all the time. And the result of that is that we're seeing growth and with how the product has been adopted. We are very happy with with the results were ahead of where we thought we're going to be. And still, it's a huge potential, huge market. So hopefully, we'll continue to deliver well on that.

Given -- I remember when HTML5 hit in the explosion that you had. So if Editor X is actually growing faster, that's impressive. But the follow-up question from the investors how much of that is incorporated into your guidance? Or how is it incorporated into your guidance?

So again, let's go back to what I said before. So obviously, we are we took into consideration a very conservative assumptions, meaning that if -- I think that we have an upside for this year, it's mainly coming from Editor X. It's simply because it's really -- we know we have the model. We know exactly where we want to go, and we have our own assumption, but it's not something that actually I will provide us guidance. So we were very conservative about it. Most of the upside is obviously not part of our guidance.

We know Leor is getting serious. He's sitting back and I asked when I said guidance, you saw lean forward. So we know that he was getting serious about the answer. So let's talk a little bit about designers and developers and going after that market. Is that a WordPress migration effort?

Well, I wouldn't say only WordPress migration, ACI. But there is a substantial amount of people that are moving away from board base that, right? Because most design agencies, they traditionally use WordPress. And most developed that build website choose WordPress. So its a most common tool. So a lot of them that are coming 2 weeks now are upcoming from migrating for WordPress. I think that the value that we bring, right, is that, well, it's not just simplicity and better workflow and easier to complete projects. It's even after that, right? Because when you have to and maintain a project of WordPress. It's very hard. Security is a massive issue. Security with work, security with hosting company, security with the plug ins, right? Things crash, the database doesn't, more memory fragmented all of these things are things that you -- is a designer, right, or say, and you get what's for living you have to worry about it and take care of them. If you move to wages, they're all gone. It's all automatic, right? And last year, I read the statistics that on average, it takes about 8 minutes for a hacker to break into a WordPress site, right? And I think SaaS model. And not just as, right? It's also Shopify and it's also Squarespace, right? It's much harder, right? I'm sure there are hackers that can do everything, but it's much harder. And we -- like normally, right, when we think about the platform, we don't think about that, right? Okay, how do what's I believe here? How was it be there? But when you actually you have your business doing that, you're responsible for the data, you're responsible for it being why you are accountable for the security, right? And just that is huge one. And then I think which is a much better product. But that's obviously, a bonus.

You're not biased.

No.

Another question that came in on the competitive environment. You did mention GoDaddy at all. So with websites and marketing, some of the new capabilities that they've been adding any change on the competitive landscape there?

Well, obviously not, right? I think that what GoDaddy being talking about website building and platform. And then they have WordPress on some hosting or some very basic template creation thing. So no, I don't think that we are seeing anything new coming from there. At least I'm not aware of anything new that is come from GoDaddy. And GoDaddy, by the way, which I think it's a great company for what they do, but let's be honest, right? They sell domains and all, right? And then they sell a huge amount of services on top of that. And when it comes to selling domain, without a double they're best in the world, right? So I don't have anything against the company, but I got to say, if you're looking at building a website somewhere, that's probably another place you want to go to.

Got you. So I was on the website the other day, and clicking through, looking at some of the pricing. And on the enterprise options, there's some very, very notable brand names on your site. CDS, I think, was listed there. I think Lyft was listed there. I think that would be surprising to a lot of investors. So what's happening in the enterprise part of the business?

So this is something that really started to happen organically, right? We -- one day woke up in the morning, realize that we have massive sites built by large companies. And some of it would be due to the fact that we had no -- that we would get request about the enterprise version of Wix, and we had no enterprise version of Vix. So we would have a $10 billion company hosting their homepage on Wix for $29.90, right? And that's because we sold them the VIP package. And so we realize that we don't have risk journeys well, of course. And we need to do something better in order to create an offering. And this is that initiative. We don't publish all of the digital customers. But I can just say Google, Microsoft, for example, use Wix in many different projects, right? And the list is huge. I think this is going to be an opportunity that we're going to be -- we're investing a lot into that now. And I think you're going to sell-out of the fit next year and then you after that. I -- the reality is that if you are sitting in one of these companies, and you want to create a project, right? And you need any brand, you're doing a lot of website for product, right, if you have a multi-brand product place, if you have internal site, right, which is an amazing solution for that. And -- but we need to provide some better support a way for you to do single sign-on and a bunch of other fits in order for you to be easy to use and today, the fact that we have such customer means that the need is so big that even that it's still not easy to use as it should be, right? They are already the value is big enough that they are willing to take the pain. So that's something that, in my mind, usually show that the opportunity is massive. We're working on that. Hopefully, next year, you're going to see some more interesting results coming from that.

All right. Excellent. Can you help investors, when you guys talk about growing up market, going after designers, developers, agencies, as soon as they hear that word agency, they usually think advertising agency. So who are the types of companies that you're targeting in this designer developer space?

So it's a very wide range, right? I think there's probably a few millions of them on the planet today. A lot of them are designers -- sorry, advertisement agency and there will be a company go to and say, okay, I have a business, I want you to build the onside, advertise and we're going to negotiate on what you get out of it in terms of commission percentage or a monthly fee, right? So this is one type of those kind of advertiser agency. Another one our design, right, brand and design firms. When you go to them and you're telling them, listen, I want to build it for a website or I want a new brand right to help you rebrand the business or take my brand online. And those guys would usually be all about designs, all about how to convey your messages, less about conversion, right? And they would build usually beautiful websites. And so this is another group. Another group would be real developers and people that are building project issue, where it's a bit more complex, and they'll just do that. And this is another -- actually a very big group on the to date and mostly using WordPress. And the large group are the guys that are just building website for small businesses. That's a job, right? They would do 5 every month or 3 or 4, some will do 10 every month. And they just build and maintaining for a customer, right? So they would -- it's very similar to the brand, but for very small projects. And we have a lot of those and so discount like of the type of agencies we have -- advertising industry, the branding agency is the developer. It's the guy that -- the last group is the guy that used to do all the print shops, right? If you remember, in the '80s, where you go with them, they'll help you rent everything, now they do websites, and they have a lot of businesses that support. So this is kind of like we go out.

Excellent. All right, guys, we're up against the time. I really appreciate it. It's always great to see you. Stay safe, stay healthy, and thanks for joining us.

Thank you, Sterling.

Thank you very much.