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

Hi, everyone. Thank you for joining us today. Welcome to the Wix 2022 Analyst and Investor Day. I'm Joe Pollaro, General Manager of U.S. Operations and Head of Investor Relations. Quickly, I'll read our legal disclaimer. During this Analyst and Investor Day, we may make forward-looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our most recent Form 20-F that could cause our actual results to differ materially from these forward-looking statements. We do not undertake any obligation to update these forward-looking statements. In addition, we will comment on non-GAAP financial results and key operating metrics. And you can find all reconciliations between our GAAP and non-GAAP results in the appendix of the presentation materials that we will post later today on the Investor Relations section of our website, investors.wix.com. As for our agenda today, several of our leaders will present, and we will follow these presentations with a Q&A session with our covering analysts. And then later today, we'll post all of these presentation materials on our IR site for you to access. One more thing before we begin, I want to share a bit more about how we put together the presentation materials today. We've been speaking with investors over the last few months to get feedback on our story and hear your biggest questions regarding our evolving business. In addition, as we stated in our Q1 earnings release, we recently adopted a 3-year financial plan that was approved by our Board. And we concluded as part of sharing it with you, we need to take a step back and walk through the components of our business that underpin this plan. So this is what you'll see today. This also aligns with the feedback and questions we've received from the investment community. So you won't see as much about product announcements and demos today, but much more on the evolution of our business, the investments we've made over the last several years and how all of this fits together into our 3-year financial plan. With that, let's start with our CEO and Co-Founder, Avishai Abrahami.

Thank you, Joe, and thank you, everybody, for joining us today. We really appreciate your time. Today, we're going to share with you what we did in the last couple of years, where we are today and what we plan to do in the future. So we're going to share with you a lot of information. But if there are 4 things that I want you to take with you today, the first one is the website building market, our market, right, is already a big market and it is quickly growing. The second is that Wix as a company is growing through product innovation and efficient marketing. The third thing is that Wix is a combination of 2 kinds of businesses today. The first one is our traditional business, self-creators, which is a growing business that is already very profitable, and we're going to show you that. Our second market is the partner's agency business where we are growing very quickly. And the fourth point is that we're going to share with you our 3-year financial plans. And now we will drive profitable growth and achieve 20% free cash flow margins for 2025. But maybe to start with, let me remind everybody what is Wix's vision, right? Wix was founded in 2006 with the mission to allow every business, a community or person to create their dreams online. And we do that a lot for many different ways but primarily for enabling them to build a very successful website, right? So if we look at Wix in glance, 228 million registered users. We have a lot of people joining Wix trying to -- over 2 million every month trying to build a website. And we have customers pretty much everywhere we are legally allowed to sell. And it wouldn't be Wix without a video showing a recap of what do we do. [Presentation]

So these video shows, right, how diversified Wix offering is, how many different kind of customer we can address, how much product innovation went into the platform. And one of the good things about Wix was that since we opened in 2008, we enjoyed this tremendous growth. So let's start by looking at our market, right, the website market. We allow people to build websites. Well, COVID has changed the growth of the Internet. Well, obviously, we've all been locked in there in our homes, and the only way we can communicate with the entire world was from our computer from the Internet. This is how we bought things, this is how we interacted, how we talked. We at Wix measure the growth of the Internet by the amount of active websites. An active website is a website that is connected to a domain and there is a website on the other side. And what we can see is that if you look at Q1 '19, right, the Internet has grown at 2.1%, Q1 '20 at 4.5% and Q1 '21 at 5%. But this year, we're at 0.8%, right? And this kind of makes sense because the Internet growing so quickly during COVID has kind of pulled forward the demand from this year. I believe, and this is my personal belief, is that this will return to the average, okay, and maybe even faster. I think that all those external events that we're seeing now, China, the Fed, the war in Ukraine, all of those things are not -- well, are mostly temporary. And I think that will help the Internet continue to go back and accelerate again in the next couple of years. When you think about how to create a website, right, there are 3 ways in which websites are being created. The first one, which is the first method on the Internet, was homegrown solution. People took -- coded their website, they wrote codes for that or they use something that created HTML, and they put it on a server. And this is pretty much all about a developer managing the website, right? That was the only thing. There's no layer of software, nothing there. You work directly with the web server. The second one, right, and this is something that appeared about 15 years ago, our contract management system, or as we call them, CMS systems. CMS system is a software layer that enables you to do a lot more because it gives you so much more functionality. In this category, you'd find things like WordPress.org, Drupal, Joomla and Magento. They -- since it gives you better functionality, easier to do, it's growing much faster, and we're going to share that. And Phase 3, where we are today, and I think it's SaaS, Software as a Service, website builders, right? In these categories, you find things like Wix, Shopify, Workplace.com and Squarespace. What it does, I mean, essentially is give you a contract management system pre-installed where you don't have to know how to manage it, you don't have to know anything about it. You don't need a developer, pretty much do anything you want. The editing environment is already integrated into that. You don't have to worry about security. It's all coming prepared for you. If we look at the growth of the Internet, today, it's about 200 million active websites and growing at a rate of 1.3 year-over-year. However, right, if you look at the CMS portion of that, it is growing much faster than the Internet, actually grown 10x since 2011. It's 26.7% year-over-year. And the market share has gone from 3% to 27%. An interesting thing to say here is that if you notice, does not necessarily add on, on the total Internet. A lot of the time, they replace existing website, right? So there's the old website, maybe some legacy solution, and then somebody come and build a new version of that website with the CMS. The next part is the growth of the SaaS CMS and they are rapidly taking a bigger share of the market at CMS, right? The CMS is expanding very quickly to take over the Internet, while SaaS CMS solutions are expanding very quickly to take over the CMS solution. And like I said, 20x growth in the past 10 years, 36% year-over-year growth. But if we want to share with you a bit more, right, how Wix is doing inside of all of this. So Wix has grown, well, since Q1 2020 to Q4 2021 from 16% to 26% of the new webs they've created. And let me explain, right? So if you look at it, every time a new website is created, 1 in 4 of those new websites will be created with Wix, right? And we think that's pretty cool. Well -- and this was the question, right, why are SaaS CMS winning over legacy CMS? And there's a lot of factors for that. For the first one is that the newer generations, right, are more comfortable with technology. They want to do things themselves. They don't necessarily want somebody to do it for them. They want to control their website after the content changed, changing the design. And every time this generation is growing bigger in the workforce, it also increased the portion of the SaaS CMS. The next reason is that if you are running a regular CMS, where you use regular hosting, you need to do all the patches yourself. You need to do all the security yourself, and this takes a lot of effort. You need to manage hosting. You need to manage caching. You need to manage how it looks in different countries. All the things are taken care of for you within the SaaS CMS. You don't have to worry about it. You get updates for free. You wake up in the morning and the website is better. The last thing is that it's really easy to edit. In order to edit your content, you just go use an editor and you just edit your content. That makes it a huge advantage. Those are the reasons that why SaaS CMS are winning over, right, legacy CMS winning over legacy systems. And since those reasons, a huge part ingrained within the base of the technologies, those reasons are here to stay. They're not going to change. So we spoke about the market and we spoke about SaaS CMS, but I want to show you a bit of what we have, how Wix is built. So we have this platform, right? We enable people to build website. This platform is built from the following component. The first one is the hosting component. This is where all the websites are running, right? So there's a bunch of servers that are taking care of how fast your website is loading, how safe it is, how secure it is, what happens if there is an AWS crash, how it will go in a different place up so we won't have downtime. This is what we're doing in the infrastructure there. Above that, we have 3 different editors. The first one is what we call Wix ADI, which is a very simple editor. It is AI in order to create layout for you, pretty much design it. You just go for this wizard and end up having a website. The next one is a classic editor, which is a bit like PowerPoint, right, where you drag and drop things and you draw a website. You add the application that you need to click publish, and boom, you have a website working with any kind of functionality that you need. The next one is Editor X. Editor X is a tool for professionals. It's built that the professional designers can use it and express itself to the maximum that they desire. The good thing about Wix is that because we have one infrastructure, all those 3 editors, right, have been built on top of that. And that enables us to really easily build additional editors without so much effort. And the last thing I want to mention, of course, is Velo. Velo enable us to build this development environment, which is shared across all of our platform. It is in the infrastructure. It is built with the application, with the verticals, and it is available on all the editors. And this is something unique and very exciting. So for those of you who've been with us for a while, you already know that slide. I want to share with you now what we focus on in the last couple of years. First thing we did is that we started to build our offering for partners, agencies, people that build websites for other people. And to do that, we need it not to rebuild an editor. We didn't need to build an infrastructure. We only needed to give them really good management tools, right, things where they allow them to manage multiple accounts. So they have many websites. They need way -- easy way to manage those. They have many people working in their company, they need a way to manage their team and the permissions and rights that each one in their team have toward customers' website. And they need a way to charge their customers so we build that. So those are the things we built specifically for agencies. The next part is that we made a lot of effort to turn Wix into a professional platform. The first thing was performance. We wanted to make our performance to be the best in class. This is -- this slide shows you how Google look at your website. What is the grade to give the website platform? As you can see here very clearly, Wix today is the fastest. We are very proud of it. We took a lot of effort, but we think this is a massive benefit for our customers. So before we go into this slide, I want to explain a little bit what is SEO and why it is so important. SEO means search engine optimization. How well can search engines see your website and understand it? It is very important because this directly affect your ranking on Google, on their organic search results, right? And for website, this is a free way. You don't pay for that, right? If you are ranking high, you're going to get a lot of customers. You're going to get a lot of visitors to your website without paying anything. So a few years ago, we had a system where we automatically try to optimize for what we thought is good for your website. But today, we opened Wix in a way that if you understand what you do, you can go out of the hood and do so much more, right? What you are seeing here in front of you on the screen are quotes from famous experts in SEO. And this might not seem that important to you. But I got to say as an investor, right, but I can tell you that as a CEO of an Internet company, enabling our customer to have such good SEO capabilities is extremely exciting. One of the other things we invested a lot in the last couple of years is eCommerce. I want to remind you that the eCommerce is shopping cart, scheduling, events, booking, hotels, restaurants. And our investment in that has created this tremendous growth. And as you can see here, 59% year-over-year. And currently, it's contributing 36% to total Wix revenues. We're very excited about it. We think there's a lot more we can do here. I think there's a lot of room to grow. But those are just a few of the things we did, right, everything until now. We did a lot more. And everything in this slide is just a summary of the things we did, right? Wix has always invested a lot in product innovation, and this has enabled us to grow. And I want to show you a bit more about why and how. So if you look at the total available market for Wix, right, in 2017, it was $26 billion. Why? Because we could build a website with very limited commerce or no commerce at all. And as you've seen from what we presented before, right, we've added commerce. We've added the ability to go for agencies, and that's expanding our TAM. In addition to that, our natural TAM has grown just because the market has grown by $36 billion. So today, our total TAM is $211 billion. And by the way, I really believe that with continued innovation, we're going to find more things we can do and more new ways and places to grow into. This is not just theory, right? You can actually see the result of that. We're going to take you through the details. But I want to show you that, yes, it's true, our self-creator business has grown 26% on average year-over-year, right? And that is, what, because the expansion of eCommerce, expansion in SEO capabilities, expansion in performance, all those things that enable us to go after new things. However, our agency business, which almost didn't exist in 2017, right, has grown to $270 million in the last year. And this is all happening because of that innovation. So from here, I'm going to hand you over to some of our leaders at Wix. Nir Zohar will show you a deeper dive into our business model, our self-creator business and how cohorts in Wix behave. Michal Bignitz will take you through our partners business, our agencies and show you what you do with it, how do you use Wix and how it reflects in results. Yaniv Vakrat will take you into our B2B partnerships and what are we doing there, how it works. And Lior Shemesh, our CFO, will share with you our 3-year financial plan. But before that, I want to say again, thank you for joining us today. We really appreciate it.

Hi, everyone. My name is Nir Zohar. I'm the President and COO of the company. And I will take us into a deep dive into our business model. In terms of what I'm going to share with you today, I think the 4 key things that I want you to take away is, first, a good look at our -- and understanding of our user cohorts and how they are driving our growth over many, many years. Secondly is the efficient way that we deploy our marketing investments in order to increase that growth even further. And then we're going to do something that we haven't done in the past, which is actually break apart the 2 different sides of our business, show you the cohorts of the self-creators and why that side of our business is a very healthy and sustainable one. And then switch over to showing the cohorts of our partners business and how that is generating compounding bookings and revenue growth into our future. So let's actually -- for anyone here who hasn't heard this before, let's go back to the basics for a second in terms of understanding the Wix business model. I'll start with the basic notions, which is, first of all, is the registered user. People come to us from all over the Internet, and they give us their e-mail and their password. They create an account and they become a registered user. A cohort will be a group of those users, of those registered users in a certain period of time, can be monthly cohort, it can be a quarterly cohort, even a yearly cohort, but it allows us to look at the statistical behavior of the full group into which we invested our marketing dollars. A premium subscription will be the step in which a registered user will start paying us for more functionality to connect their own domain to the website to get more commerce functionality and many more pieces of our offering. The cohort value, which is kind of the aggregated value generated by all that group of users in a certain point of time, it will be measured by bookings or revenues. And it will be driven by that conversion of the registered users to the subscriptions, their retention over time and also the average revenue per subscription as they're taking more and more higher-priced subscriptions. This is a slide of the cohort's value. And this is actually a slide -- it's not a new slide there. This is a slide that we present to you every earnings. We update this on every earnings, and it's the quarterly -- Q1 quarterly cohort value in bookings over many, many years. You can see how it is compounding and growing over time. But today, we wanted to do something a little bit different. We wanted to continue talking about cohorts but in a different view. And this is -- again, this is our -- the Wix cohorts. Here, it's an annualized view of the cohorts, but we are showing the bookings retention over time, so how much bookings we got from each cohort of each year when it was just created and how has that repeated itself in the years to come. So for example, if I will take the 2016 cohort, which is the kind of the light yellow in the middle, you can see that it is starting back in 2016 at a rate of about USD 90 million. And then it increases over time to roughly $120 million, but then stabilizes over many years. And even today, when you look 5 years later in 2021, it still contributed about $120 million to the revenues we generated back in 2021. And I think one more point which is worth understanding is the underlying behavior that causes this graph to look like it does, that stability of retention of those cohorts over so many years. And the reason for that is the combination of the freemium business model. So some of those registered users have not converted yet back in 2016. They will continue to convert over many, many years. It's also coupled with the fact that this is obviously a subscription model. So as long as they stay and continue and renew their subscriptions, we will get more revenues for them and more bookings year after year. So another basic, I think, concept of our model is the way we deploy our marketing dollars. Now about 50% of our users are still coming to us through unpaid sources, whether it's word of mouth, recommendations, searches on Google, maybe sometimes people will just hit the free banner on the registered user website and go back -- and get back to our website. The other 50% are coming through our methodology of running our marketing investment, which we call the TROI methodology, the time to return on marketing investment. Now again, this is a slide that we show every quarter. And it kind of shows the evolution of Q1s over the years, how we did the initial investment and how that investment became profitable over time. But let's try to take a little bit of a deeper dive just to make sure that we understand this. Let's take Q2 of 2021. It's the first post-COVID cohort that we have, which is more stabilized. And we've invested $55 million of our marketing dollars into that cohort. And within the same quarter, within Q2 of 2021, we already got back about 50%, $28 million. Now as time progresses, we continue getting more and more dollars out of that cohort because of that retention behavior that we spoke about before. And it will continue going up until it peaks and basically returns the whole 100% around somewhere between quarter 3 to 4 after the cohort was generated. I think another very interesting view of the TROI is if we took -- we look at it at a longer -- over a longer period of time. Here, you can see a quarterly TROI from Q1 of '17 and basically up to date, and you see the amount of marketing investment in each cohort, in each quarter in any of those years. And what's remarkable is that we're still getting roughly 50% of the investment within the same quarter in which we made the investment. In some more recent quarters, you can start seeing that it might be going a little bit below, but that's also because we started investing more into partners. And I'm going to talk about the separation between the TROI of the partners and the self-creators down this presentation. What I want to do now is to basically separate something we've never done before, is to try to separate these 2 business lines that we have. And Avishai mentioned before that the self-creators and the partners. And in order to do that, let's start with just explaining who are self-creators. Self-creators represent a very diverse user base. It's -- again, with more than 2 million registered users that join us every month, you can get any kind of business type or any kind of business vertical you can even imagine. The slide shows a selection of those, but obviously, that's not the full list. And it's very long and pretty much as anything you can imagine. They also come from all over the world and basically in anywhere that we can legally operate. But I think it's worth to -- for a second to stop just for a few minutes to understand a little bit of the faces behind all of these numbers. So let's take a look at 2 of those self-creators. [Presentation]

So these were Laurie and Jay. And I think it's worth stopping for a second to think about why did they choose Wix? Why did they come to us? First and foremost, it's the power of our brand, which is definitely the leading one in our category. Secondly is going back to what Avishai explained before about those different editing environment, it's very easy to start something. And then you have a very deep functionality that you need -- you can achieve more and more and get more things done with your business over time. The other thing that is playing a very strong role in what people care about is how good will I look? Because if you look extremely -- if your website looks very good, and it's stunning, has stunning design, you look very professional. And the result is very professional. And that coupling is also extremely important. And then there's the versatility that allows you basically to start from pretty much anything and take it to wherever you believe, whatever your dream and vision is for your business online. Lastly, going back again to what Avishai explained about the power of the SaaS CMS is the fact that it's super easy to maintain. You don't have to worry about security and installations and upgrades of software and changes in browsers or resolutions or devices. It is all being taken care of by the Wix platform. Now a few words about the financial aspect of the self-creators. And I'm not going to go very deep, obviously. Lior is going to take us through everything at the end of the day. But I think it's worth mentioning just a few points here. One is the revenue. You can see that the self-creators are generating a very consistent and strong revenue stream over the years and literally became a $1 billion business last year and keeps on growing and sustaining our long-term growth. Secondly, in accordance to that, we see that the growth of the average revenue per subscriber has also been increasing over the years. And that has a lot to do with the fact that we're innovating all the time. Avishai spoke about all those different pieces of innovation. When someone has a need for the business, and we unlock that specific need, that specific blocker and they can add that and go deeper with facilitating the success of their business, then they're also willing to eventually go to a higher-priced subscription, which also is driving that increase over time. And lastly, I think it's worth looking at the GPV generated from self-creators. It was over $6 billion in 2021. We just started kind of getting into the payments and GPV in -- back in 2019. It is 60% of our overall GPV is coming from self-creators. So let's actually do that separation. Let's try and look at the self-creators cohorts separately now from the partners, and then we can also add on the -- how the partners cohorts look like. When you look at the self-creators user cohorts, you can see that very much like the cumulative ones. Again, this is an annualized bookings retention of the self-creators. It looks very similar. It starts from a high point. It is very solid. It is -- drives growth over the years. It's very healthy. And it continues to generate more and more and more revenues as the years progress. Let's now actually switch and look at the other side of this equation, which is the partners cohorts. And here, I think there is something remarkable. So this graph might confuse you for a second because it looks much more like the cumulative cohort value that I showed you at the beginning, it is not. This is still annualized booking retention but for the partners. And you can see, obviously, it is starting from a lower point because this is a younger business, but it is compounding growth much, much faster from the other side of the business, which is also why we are so excited about it. Now let's actually look at them side by side. So on the left side, you see the self-creators cohorts. On the right side, you see the partners cohorts. And I think it's worth understanding the different dynamics of why one looks in one way and the other looks different. So if I started from the self-creators, we're talking about small business owners. We're talking about people who are using Wix sometimes for personal use. They will build one website, maybe 2 websites. And over time, they may cancel a subscription and buy another subscription because their need has changed, but they will stay on that kind of constant graph over a very long period of time. With the partners, we see something very different, which also is very intuitive because the partners are designers. They are agencies, small or big. And when they start, they open the Wix account and they start building websites, they will compound more and more and more websites over the years. And if they're successful, that will continue to grow and will push the Wix retention and their contribution to our growth higher and higher. So yes, it is starting from obviously from a smaller point, but it is going much faster in terms of the compounding growth. And as we're going to add more and more, we'll get more of that as years go by. Now obviously, we spoke about the TROI for the overall. It's worth also kind of mentioning the TROI in a separate way for both the self-creators and the partners. So for the self creators, we are maintaining the 7- to 9-month TROI that we've been at for many, many years. But I know that many of you have asked us in the past, what is -- what are our thinking about -- or how are we thinking about maybe expanding the TROI or why are we seeing fluctuations. And the reason for that is that we have the partners TROI. That TROI is a little bit longer. It's 10 to 12 months currently. And it makes sense if you're looking at that kind of how the graph looks and how the retention and the return dynamics are so different from the self-creators. And by the way, it may change in the future as we understand that mechanics better and better, understand what's the right balance point for the TROI for the partners. And another important takeaway, I think, is that when -- if you remember that previous slide I showed you where we see the TROI quarter-over-quarter and there's a little bit of a decline in the first quarter return, that is because of our investment into the partners TROI, which is a little bit longer. So on the cumulative basis, when it's averaged together, it looks like it's a little bit low, whereas the self-creators are still returning the full amount of money at 7 to 9 months as before. So before I wrap it up and taking kind of a connecting back the dots of those cohorts to one place, I just want to play a little bit of kind of a mental exercise. What you see here are -- is the bookings contribution in the past decade of all of these existing cohorts. So let's assume for a minute. We have these cohorts that are in our system. These are users who generated. We made the marketing investment. We don't need to do it again. We don't do it again. Let's assume for a second that we decide that we're shutting down Wix in terms of sign-ups. No more sign-ups, no more new registered users. Only the existing cohorts are in. And they're going to generate whatever they generate, but we're not going to spend more dollars on marketing. We're not going to generate more growth. We will get growth from the existing cohorts. And I think that is one of the amazing things about our model because this is basically the foreseeable expected future bookings over the next 10 years of those existing cohorts, the ones which are already in our system, almost $16 billion in future bookings and revenues in the next 10 years. And this is why we're so excited about our business model and why we think it will give us an amazing leverage of growth going forward. With that, I want to thank you all again for coming and being here with us today. And I'm going to hand it over to Michal Bignitz, our Head of Partners and Agencies, who's going to tell you more about what we've been doing there in the last few years.

Thanks, Nir, and hi, everyone. I'm Michal Bignitz, the Head of Wix Partners here at Wix. And today, I'm super excited to be here and tell you how Wix became the place for any agency to build their clients' web presence. I want to start from the bottom line. In the last 2 years, we've seen a massive growth in the number of partners joining Wix, more than 200% increase, taking us to a total of more than 500,000 partners to date. Another impressive number to look at is the number of sites these partners are building, a growth of more than 100%. As Nir showed us, this all sums up to an exponential growth we see with partners cohort bookings, leading to $270 million revenue in 2021, driven both from existing partners that continue to grow with us and new and much stronger partners generating higher bookings. And this is exactly my focus, bringing more agencies to Wix and making them build more sites with us. Today, I want to show you the reasons behind the graphs, what have we done to make more and more partners join us and how we plan to continue this massive growth. Let's start by talking about the partners we used to have in the past and how they've advanced with our platform. Meet Flor-IT. They've been with us for 6 years. They're an agency of 10 employees. And since they joined Wix, they've built more than 1,500 sites with 350 just in the last year. When they started, they offer basic sites with limited number of pages and limited functionality like this one, Boomhut Boris, a small business building and selling wooden playhouses. The beautiful site tell the story of the company, showcase some of their work and invites visitors to contact them via form. But the actual sale take place off-line. As the Wix platform evolved, Flor-IT added more services to their offering. And today, they are also building complex business websites like [ Coco Collection ], a luxury fashion label selling globally using Wix Store's advanced capabilities. In this graph, you can see the number of sites Flor-IT built over the years and the split between business sites, sites with online transaction in orange and others. Along the years, Flor-IT not only grew in the number of sites they were building, scaling their business massively. They were also able to grow in their offering, charging more for each project and growing their business by more than 300%. The high-volume, low-complexity partners like this one were the first ones to adopt the platform, and we scale together. Today, we are able to bring more partners like this. They are growing much faster than in the past. And obviously, the long-timers partners continue to grow with us. But if in the past, these were the only partners I could show you, today, I'm privileged to say that in addition to them, we have new types of partners joining us, partners that provide more services to their clients and offer more types of website with Wix platform, all thanks to the massive product advancement we did in the last couple of years. And I want to show you some of them. The biggest investment, and also our biggest product achievement, were around providing our users and partners a secure, production-ready environment, fully maintained and monitored, ready to scale with uptime of 99.98%. At the end of the day, professionals are looking to build professional websites that will run and behave flawlessly. They maintain hundreds of sites in production, and they want to know that there would be 0 downtimes, that their sites stand in the highest global security standard, that the performance of every website would get the highest score and that everyone who's looking would find their client site in Google. To get to this place, we've done a massive amount of work. We have infrastructure of data center across 3 continents. We deployed more than 200 CDNs globally. We have a 24/7 war room to monitor and handle attack. We have 2 layers of DDoS protection per site. We are building SEO tools and many more. All of these are not easy to get to. And for an agency to get to this level of infrastructure, it would require the knowledge, the resources, time and money. But with Wix, they get them out of the box, allowing the agency to focus on growing the real business. This is our unique offering and the advantage over all other solutions. And I can tell you that from talking with hundreds of partners that move to Wix from other platforms, this is also the #1 reason they did it. But instead of telling you about it, I will let you hear it directly from them. [Presentation]

Thank you, Dante. We are really proud to have you as our partner. I want to talk about our SEO investment. We had another huge achievement doing them. We weren't just able to improve the product dramatically by providing SEO advanced capabilities. We now see the biggest name in the SEO industry moving to Wix and offering their services with our platform. In the last year, we already saw a growth of 52% in the number of SEO services provided by our partners, and we expect to see this number grow even further. The next milestone was the release of Editor X, a fully responsive editor with advanced design capabilities tailored for pro designers. The release of the new editor allowed us to add new types of agencies, agencies that search for a full-blown design capabilities platform and would never join us if we didn't have it. Monday Media joined Wix in 2021. They told us that before joining, they had to say too often, "No, we can't do that" to their clients. But it wasn't their abilities, it was the platform they used. When Paul and Steve, the founder and lead designer at Monday Media, found Editor X, they put the platform to the test. They built their most complicated client site on it, a site for a lawn care business involving a database and hundreds of dynamic pages that would allow users to search by their postcode and see a report of soil condition and their address. With the code-free CMS, they discovered that building the site was not only possible, it also didn't take any more time to build than simpler site on their previous platform. Following this test, Monday Media shifted all of their projects to Wix. And this is the same trend we see overall. Just in the last year, we saw a 130% growth of sites built by partners with multiple premiums. Another big advancement was in the area of our vertical solutions. We added hundreds of integration and advanced capabilities to our verticals. Let's take eComm, for example. Custom Mattress Factory, a client of Digital Edge, are a manufacturer and a seller of mattresses. All of their sales are online, directly to their clients, and they sell around $440,000 a month. To get to their clients' unique store experience, Digital Edge use Wix Stores and Velo to create custom experience for the product pages, including different questions and variable for each product. They use the buy now pay later feature, gift card, back in stock, custom mobile menu, monitoring tools and more. Without this advanced stores capabilities, Digital Edge would never choose Wix as their go-to platform. But I can tell you that following the success of this eComm site, Digital Edge build with Wix around 300 sites over the last 2 years. Overall, we can see an increase of more than 200% in the number of eComm sites built by our partners. And if we'll take a deeper look, we will see that it's not only driven from existing partners that started building more eComm sites with us, but also we can see that in the last 2 years, we expanded our reach to eComm agencies. More agencies that build eComm sites know about our eComm capabilities and choose Wix as their go-to platform. And last but not least are all the Velo improvements we have done along the years. Recently, we opened many APIs, improved Velo data environment and added more capabilities to our CMS, all leading to much more advanced sites that can be developed with Wix. To demonstrate the complexity level you can get with Velo, I want to share with you one last site for today, a food manufacturing company. The site includes 4,000 products all needed to be uploaded and managed. For that, 773Designs, the agency that built this website, use our content manager. They use dynamic pages and custom forms to provide recipe recommendation. And they developed a product locator so consumers can easily find retailers that sell the products. Today, I chose to bring you some of the biggest advancements we have done in the platform over the years. All of the things I've talked about, production environment, Editor X, advanced business solutions, dev capabilities, CMS are real needs of any web agency out there. Improving them, adding more capabilities allows us to bring more agencies to choose Wix as their platform. But what I showed you today is only the tip of the iceberg. The beautiful thing about partners and our platform is that partners use it to the extent. Every improvement we did and will do in the future to make our platform better and more professional open more possibilities for our partners, making our existing partners take more projects with us and making new agencies of any type choose Wix as their go-to platform. And this is exactly our go-to-market approach. As the platform evolves and Wix capabilities are getting better known in the industry, both organically and with our outbound marketing effort, more and more agencies are joining us. Once they join, a dedicated success manager helps our partner onboard, grow and utilize the platform tools to become more professional with Wix. For the larger-scale agencies, we have a dedicated team that targets B2B opportunities. To elaborate more on that, I want to invite our Chief Business Officer, Yaniv Vakrat, that will speak about our B2B efforts.

Hi. I'm Yaniv Vakrat, Chief Business Officer at Wix. I joined Wix's leadership team about a year ago. Prior to Wix, I spent 8 years in leadership roles at Adobe, including sales and marketing; led all commercial activities for a company called PrimeSense, which was sold to Apple. I was also a Founder and CEO of a couple of successful start-ups. And earlier in my career, I spent 4 years at McKinsey and Silicon Valley office. I want to thank Michal Bignitz for describing our partners agencies business. As she explained, I'm going to focus on larger partners and specifically on our strategy of growing through partnering with large SMB-focused service providers worldwide. Over the last couple of years, we started partnering with large service providers. The first one was NTT Town Page in Japan, where we formed a partnership with one of the largest directory listings providers in the country. The easiest way to think about this partnership is to look at NTT Town Page as a mega agency. The partner is both selling Wix to its SMB customers and building the websites for them. Since then, we established similar partnerships with several other players in the space, Yale, which is U.K.'s Yellow Pages and others. Last August, we switched gears and established a significant strategic partnerships with Vistaprint. Vista, for those of you who don't know, is the market leader in print on demand. Vista has partnered with us to offer Wix as the online presence solution to its customers. We're going to hear more details about this specific partnership later on in the presentation. More recently, we announced another significant partnership with LegalZoom. LegalZoom delivers formation services, registered agent, tax compliance and a lot more to small businesses. The commonality between LegalZoom and Vista is the fact that these partners are offering Wix as part of their onboarding funnel. As such, some end users choose to leverage Wix do-it-yourself solution and some end users are actually asking for help from an agency to build it for them. Why do partners find it compelling to work with us? For 2 reasons. Number one is the brand. Our investment in product and marketing over the years have yielded very good brand recognition. As you may know, there are many website builders that are selling white-label solutions to service providers. We don't. And it's not because we're trying to be difficult. It's because our brand carries values with users, and our partners are actually asking us to be associated with that brand. The second reason is our products and technology. Our technology offers varying degrees of ease of use and can really address all spectrum of segments in the market, starting with ADI, which caters small businesses with 0 knowledge and design, all the way to Editor X, which is targeting expert designers in a do-it-for-me settings. Our large partners are signing up to our road map. It's not only what Wix is today. It's also what Wix will be in the future. And that's important for them that we continue to invest in R&D. What's in it for us? There's a few things. The first thing is getting access to a broader set of customers. A small business has a broad range of needs. They need to form a business, they need to register with the authorities, they need a bank account, accounting software. They need to buy a domain. They need to do a website. They also need to print business cards and do marketing collateral and a whole range of other things. You probably noticed that we respond to a partial list of these needs. We want to meet customers wherever they are. We want to meet them at the right place at the right time. And that's why we're partnering with these service providers. The second reason for why it's compelling for us is that we're leveraging an existing platform. Over the last few years, the platform opened up and now allows partners to be able to leverage and resell our services to their own customers. As such, engaging in that business means very little incremental R&D investment for Wix. And the last point is that this partnership model gives us an attractive economics because we incur limited customer acquisition costs. We talked a little bit about why it's compelling for partners, why it's compelling for us. Let's talk about the how, how are we addressing this opportunity. There's really 2 things that we focus on. The first one is on technology. We've developed many APIs to allow access to our technology by the partners. We develop customized funnels for our partners. And the last thing we do, we developed site migration tools to basically migrate websites from all technologies to Wix. The second thing we focus on is building a dedicated team to address this opportunity, starting from presales, solution architecture, a sales team that covers the globe and customer success that's dedicated for these specific large partners. One of the things that investors are asking us quite a bit is how these deals are being booked and recorded. So it starts when we sign the agreement, we basically book the total multiyear commitment. And we record that upfront. Every quarter, we then update the deferred revenues. And obligations that are longer than 12 months are being recorded as unbilled contractual obligations. When we deliver the service, we, of course, recognize the revenue. And then what's really interesting about these type of partnerships is that oftentimes, they overdeliver and exceed the expectation. And if that happens and we exceed the original commit, we record, of course, the bookings and the revenue associated with that delta. We thought it will be helpful for you to hear directly from one of our most strategic partners. And to do that, I'd like to invite Nir for a chat with Robert Keane, the Founder and CEO of Vista.

I have with me Robert Keane, who is the Founder and CEO of Cimpress that used to be Vistaprint in the past. And now it's just Vista, right?

That's correct. Yes.

So can you tell me a little bit, we decided to go down the path of a partnership and announced it last year in August. I know from our shareholders' perspective, there were many questions kind of understanding the nature of what we're trying to do together, why this is such a significant step for both companies. Would love to hear a little bit of like your vision for Vista for the years to come and maybe also what is that change of Vistaprint becoming Vista and take it from there.

Well, first of all, it's great to see you again, Nir. I'll just say the reason we partnered with you, as you know, but for your shareholders' information, is you guys have a best-in-class technology platform for a business' presence in a lot of different ways. And Vista, which is the expanded vision for Vistaprint, brings best-in-class design services and as we've always done, what we call physical marketing products, so that certainly is print, but it's embroidered apparel, signage, many other things. And the common thread of our 2 companies is that our customers want to have beautiful, impactful presence and marketing for their business regardless of the channel, whether that's physical or digital. And Vista serves literally millions and millions of small business customers around the world in many different industries, many different types of business models. Some are physical storefronts. Some are on-the-go service providers and some are 100% online entrepreneurs. And Wix's offering, we liked and we really admired because it's very broad. It's very deep. It's -- you guys have always been, ever since I've known you and the industry, very committed to innovation. And that allows the customers who are coming into Vista-Wix solution to choose whatever they need. They can choose along the spectrum of the upgrade path. They could start with ADI or they can start at the other end, a much more sophisticated approach or many of the things you have in between like Editor X. So it's that holistic package and leadership in a platform that you've built that is very complementary to the physical and design services that we offer our customers.

Making a decision, I know that you guys have, over the years, invested a lot into creating your suite of technology to serve that need, right, including building it yourselves in a few versions and an acquisition, a significant one over the years. I'm assuming the decision to switch over and kind of a plug in an external technology is probably a hard and a big decision for a company. If you're willing to share a little bit of that, about what brought it about, and also I'm humbled and honored that you chose Wix, but I'm guessing that you guys have done your homework. So what made you choose us versus others?

You're absolutely right. We did have an internal approach in technology. We bought most of that technology and then developed it, but we acquired it 10, 12 years ago. The simple fact is we need to focus as a business on what we can be best in the world at. And we have great team members who've worked on that product, but we were not keeping up with you and even other firms and the other companies in the market. And so it was a -- it wasn't an easy decision. Internally, it was hotly debated. But we really felt that it was important to start with a customer and say, what's best in class, what's the best customer experience, period, and be agnostic whether we own it or a partner for that. And so that led to -- I think, frankly, we're very excited about what we've done in a few markets we've already launched. We look forward to what we're doing in the future. In retrospect, we probably could have done it much sooner. But we did, I think, have internal reluctance, including myself, to say should we give up something that's so important to our customers and give up control of that internally. And we certainly did look at a lot of alternatives. There are many good companies in the market. But I think you have a number of advantages that really won out. One is the quality of the technology platform, right? You pour a lot into that. And I think you think of the platform way, in a way which we felt differentiated, that's very important for ourselves as a technology firm who's integrating in. And secondly, the overlap when we just did market research, focusing on the customers of where small businesses who were not experts in graphic design would turn to, Wix consistently came out as the #1 option for us. And that's globally, but certainly in all of our major geographic markets.

Yes, I think that also goes to many of the discussions you and I had when we were working towards this deal about the alignment on looking for the user value and where is the customer going to get the best, which I think led us to decide what should be done by Vista, what should be done by Wix, not from an ego perspective, but actually from what's the most value that can be gained. I think that for me, another exciting thing and I would love to hear your commentary on it, is that I think it's already in the few months that we started launching in various markets because I think of the nature of the breadth of the offering of Vista on one end and the wide offering on the Wix platform, I think we're already starting to see more and more opportunities that we didn't necessarily account for when we just started talking about working together. And I think this is also very exciting to me because I see more and more venues of value that we can give to our customers together.

Yes, I fully agree with that. And we've invested in a lot of things like Vista Create in partnerships like this in 99designs. And the more we go into those design-oriented parts of Vista, the more this particular partnership, I think, will bear fruit. But again, there's a lot of products you just mentioned. And if we start with the customer, really understand what they need and what they're frustrated with, with the offerings that are on the market today and build towards that without trying to start first internally, I think we'll both do very well.

I got to say maybe my biggest concern when we were just -- right after we signed our deal and started working together was that we as Wix are taking a very big commitment to suddenly work with a very, very big partner. I mean, obviously, we've been working with SMBs for many years. And we also had many, many smaller agencies that we're working with. But suddenly, we have Vista, which is essentially behaving like this super agency on a global level that has much higher technical demands and needs different ways to operate. And if I had one -- I think one big concern was, can we adapt to working with and applying our technology to supply your needs? I think after launching the first market and gearing up for the big ones, one of the key things I'm happy to say that we've managed to overcome that and work very well together.

I fully agree with you. I think it was a concern on both sides because this is not simply a very simple reselling relationship. It is a deep integration into the customer journey of our customers -- on our mutual customers. And in both of our firms being 100% online in their focus and very technology-oriented in their focus, I have to say it's gone very well, very much in line with our aspirations and our hope. So you and I spoke about before we signed. But that was a concern I understand from your perspective as well, but I'm happy to say we've been very happy with the way the teams, the product teams, the technology teams, UX teams are working together on this.

Yes. Same here. And I got to say, I think we are nearing that kind of -- we have -- we'll always have more to develop and more to integrate and to gain more value. But I think a big -- most of the heavy lifting is kind of behind us, which to me is -- it's exciting because now we can start doing really amazing and new paths for different kind of business owners. I think we are mixing much more commerce than you guys used to serve before. And suddenly, that can be a big part of what's being offered for the customers. And generally, I think we can start figuring out together more and more of how to give more value and make our joint customers more successful. So I think even though real excitement is going to be in the second half of this year and going forward as we start to actually realize real value out of this.

I totally agree with that, and we're going to be working full board to make that happen, but we've got off to a very good start.

I agree. So Robert, thank you so much for answering my questions and sharing some of your excitement and point of view with our own shareholders and hope to see you very soon and face-to-face.

That would be great. All right. Thank you very much. Have a great day.

You too. Thank you.

Bye.

Hi, everyone. My name is Lior Shemesh, and I'm the CFO of Wix. I'm going to talk today about the 3-year plan and describe how we get there and where we are today. So a few points before we actually start. Self-creator business is durable and profitable and having already achieved the Rule of 40 for several years now. So Nir spoke about it before. We think that the growth of the self-creator is going to continue at a double-digit growth. And this is something that is obviously very achievable. The way that we plan to do it is by doing actually the same things that we've done in the last few years. For example, developing new products, new features, increasing conversion, increasing the ARPU. So we think that this is something that is going to continue. Partners business is still in early stage, but growing significantly with potential for higher margins. And Nir spoke about it and described the cohort behavior with a compounding effect. So I believe that this is something that will going to generate more profitability in the future, also mostly based on the gross margins. Michal also described to you exactly where we invested, the infrastructure, we improved the services and so on. So from now on, we are going to get a lot of leverage. We are planning to generate significant gross margin and operating level in the next coming years. And by 2025, we anticipate to achieve the Rule of 40 for the full business with revenue growth of about 20% to 20% free cash flow. So we are going to get to $2.5 billion of revenue and $500 million of free cash flow for the full year of 2025. So this is the plan that was recently approved by our Board. Now let's talk about a few assumptions when we actually build this model. We assume that current economic headwinds going to continue through 2022. Revenue growth starting in 2023 assume kind of getting back to normal. We assume moderate employee headcount increase annually. And we've made some assumptions with regard to the split between self-creators and partners mostly with regard to the indirect cost. And we assume that the current FX will remain as it is today. So let's start with self-creators. As we mentioned before, self-creators has been at a Rule of 40 for a few years now. When you look at 2021, we're already at $1 billion of revenue and about $193 million of free cash flow. As you can see, the growth was very stable in the last few years. And we think that this is something that is going to continue with a double-digit growth for the next few years. I'm going to talk about it in a few minutes. The gross margin. The gross margin has been stable at 82% for Creative Subscription. Now this is something that is really important to understand because it has not changed and will not change in the next 3 years. It's actually going to improve modestly in the next few years. With regard to the gross margin of Business Solutions, it's at 25% and is going to improve. And we have about 60% of our operating expenses out of revenue bring us to about 20% of free cash flow already now in the Rule of 40. Now with regard to 2022, I'm not going to repeat those explanations that Avishai showed before about the economy and so on. But even at 2022, the growth is still 5% to 8%. Now let's go to the Creative Subscription. You can see that gross margin is really stable at 82%. Business Solution is about 25% to 26%, a slight improvement over 2021. I believe that if we exclude the impact of the headwinds, we maintain the Rule of 40 even for 2022. Now let's talk about the 3-year plan and the long term. As we mentioned before, this is a durable business, already generating a very steady growth. And I believe that this is something that will continue with a double-digit growth for the next 3 years but actually also in the long term. So we assume 2023 to 2025, 17% to 19% of annual growth, and for the long term, about 15%. With regard to the gross margin, we're already at 82%. We believe that it's going to improve modestly in the next 3 years to 82% to 84%, where the long term is 83% to 85%. So we are already there. But with regard to the Business Solution, we will continue to improve the gross margin as payments scaling up and improving and generating more and more leverage. So today, we're at around 25% to 26%. So we believe that it's going to continue to grow to approximately 29% to 33% in the next 3 years, but the long-term costs were about 35%. So with regard to the overall free cash flow margin, we believe that it will be improved in the next 3 years, mostly because of leverage that we are seeing from hiring less people, as we mentioned before. But also for the long term, we believe the margin are going to increase to about 30%, bring us to 45% in terms of the Rule of 40. Now I'm going to talk about partners. We can see that revenue growing and is significantly higher than self-creators, but it also makes sense because we started this business a few years ago. And it was growing significantly well, and we think that it will continue in a very similar way. We also invested millions of dollars in order to create the platform in order to build it. And we mentioned it very -- a few times before. Michal spoke about it. And still, because it's an early stage, we don't see the leverage from this business, meaning that the gross margin for Creative Subscription is at around 52%. But that will increase significantly. I'm going to talk about it. The same goes for Business Solutions. So our 2021 overall operating expense is at around 100% out of revenue simply because we invested a lot in this business. Now let's go and talk about the 2022. We see that revenue growth slowing because of macroeconomics and the headwinds that we spoke about before but still marginally improving. Now let's talk about the 3-year plan and the long-term targets. I will actually start from the long-term targets and then talk about the 3-year plan. We believe that the growth for the long term is going to be at around 20%, actually higher than the self-creators because we mentioned before about the behavior of the cohort and so on. And we believe that the TAM for this business is actually higher. With regard to the gross margin, the gross margin is 85%-plus. The plus is because we think that and Nir talk about the cohort behavior and the compounding effect of this business. And therefore, we believe that the margins are going to be higher for Creative Subscription. In terms of the Business Solution, it will be very similar to creative -- to self-creator at around 35%. Now when we look at the 3-year plan, the improvement already started to happen. So we are going to see some improvement in terms of the gross margin, 62% to 73%. The same growth for Business Solutions as payments scaling up. It's going to be around 22% to 34%. But most of the leverage is going to come from operating expenses. We are going to see improvement of about 10% on a year-over-year basis. So we started with around 100% of operating expenses go down to approximately 70% at 2025, 10% every year. And from there, it's only 2 to 3 years until we get to that long-term model to less than 50%. So on top of the improvements that we are going to see in the next 3 years, we believe that these businesses will continue growth, scaling up. And most of the leverage for the combined company is actually going to come from this business. Long-term margin are going to be around 30% for free cash flow. And Rule of 40 or actually, can I call it Rule of 50, is going to be at around 50%. Now I want to talk about the combined company and where we expect it to be. So by 2025, we are going to get to $2.5 billion of revenue and $500 million of free cash flow. We can see that very clearly from the plan. In the next 3 years, we are going to see a lot of improvements coming from leverage in the operating expenses but also improvement in gross margins, both for Creative Subscription and Business Solution from all of the reasons that I spoke about before, taking us to around 40% in terms of the Rule of 40 by 2025. Long term is really interesting. We believe that the growth is going to be at around 17% going forward. The gross margin for Creative Subscription is going to be 85%-plus where Business Solutions gross margin is going to be at around 35%. Operating expenses, as I mentioned before, is going to be less than 50%. And overall free cash flow margin will be at around 30%, bringing us to approximately 47% in terms of the Rule of 40. And this is very similar to what we showed you a few years ago but with a much higher baseline, with a much higher top line than we had a few years ago. Now how we get there, how we get to those margins, how we improve those margins? So again, for self-creators, I'm not going to repeat it. It's already at very high margins. We are going to see some improvement, but it's not going to be big. With regard to the Business Solution for self-creators, we believe that there will be some more improvement over there as payments scaling up. So this is the same just for partners. Gross margin improving significantly, mostly from the leverage that we see in terms of our investments in infrastructure but also for the current organization. Well, for Business Solution, again, it's going to improve very similar to self-creators, going to about 35% for the long term. And by 2025, we're already going to get to 34% simply because it's mostly coming from payment scaling up. And therefore, we are going to see more and more leverage and also from the benefit and the contribution of the increased take rates. Most of the leverage in the next few years is going to come from the operating leverage. And we mentioned it before, but it's mostly attributed to partners. Operating expenses are going to go down to approximately 50% for the long term. Now you can see the differences between self-creators to partners. For self-creators, we got a lot of leverage in the past few years, and this is why it's a super profitable business. Partners is going to be the same. And by 2025, we believe that the improvement is going to be at around 10% on a year-over-year basis, going down to 50% for the long term. To summarize the 3-year plan, we saw that self-creator business generating significant cash flow and will continue to deliver profitable double-digit growth in the long term. Partners business complements self-creators. And while still early, it's gaining scale very quickly and the profitability is in sight. We plan to significantly improve margins, achieving 20% of free cash flow and the Rule of 40 by 2025. Long-term target model is around 17% in terms of annual revenue growth and about 30% of free cash flow margin. We are scaling up to $2.5 billion of revenue and $500 million of free cash flow for the full year of 2025. Thank you, everyone. And now we are going to take a 10-minute break, and we'll come back for some questions. [Break]

[Audio Gap] maybe increasing the amount of services that go towards the transactional or store-related services?

Well, what we say is that in many cases, partners tend to be sites that will have a bigger company behind it. And as a result, their share of GPS, which is what we disclosed, is actually higher than the rest of the population. If you think about it, a lot of the people that build a personal website for their portfolio, for example, will do it themselves. So that tends to be much more common. And if you need to have a store for a business of 20 people, right, you usually go to an agency to do it. And so this is a lot of what we've seen, and this is -- I think this trend will continue.

All right. Perfect. And then just one follow-up question. I wanted to understand the mix between Creative Solutions and Business Solutions. Today, Business Solutions are 1/3 of the mix are partners, 25 of the mix, self-service. Looking at those long-term free cash flow targets, do you expect there to be a max portion of Business Solutions to kind of get to that free cash flow margin without maybe a commensurate lowering of operating expenses? Lior, what do you expect in the trajectory of business solutions long term to reach the profitability targets?

So with regard to the first part of your question, I assume the long term is about 35% of Business Solution out of the overall. It might be more than that. It's really hard to predict that, but this is pretty much what we see right now. And by the way, it's keep on growing. So I think that it's reasonable to assume that. And the second part of the question was about -- what was the second part of the question?

It was more about the timing on profitability for Business Solutions.

The timing for profitability. So actually, by 2025, partners will start to generate free cash flow with regard to the profitability based on U.S. GAAP, where it will take some more time.

Okay. All right. Thanks, Clark. I know we're having a little technical issue, but we're working on getting it fixed. Hopefully, we can move on to the next question. I think we're going to Brent at Jefferies. Brent, do you have a question?

Many are asking on the '23 assumptions, what you're planning and expectations for the macro. Clearly, we're seeing some economic conditions deteriorate a little quicker than most of us thought. Can you talk to what you've been [ planning ] in those expectations for the global economy?

So we assume for 2023 that it's pretty much back to normal. We don't know if it's obviously going to be in the beginning or in the mid of the year, but this was one of the assumptions that we made because, really, it's really hard to predict it.

And if I can add, I think this goes back to Avishai's presentation as well if -- we talked about the historical growth of the Internet.

Yes. And we think that -- we believe that -- we've seen previous crises, right, on the Internet. And normally, we saw that the crisis in the Internet usually create more demand for small businesses and innovation. So actually does not hurt our growth as much. Well, I think that -- my belief is that what we're seeing now is a lot about the return to mean, return to average.As the Internet was pulling -- sorry, as COVID was pulling a lot of Internet growth forward, that is a big part of the slowdown that we're seeing today. Again, we don't have the skills to predict the global economy. It's not what we do. We know Internet. We don't know that -- economy that well or pretend to know economy that well. I do from conversations with customers and users, it is kind of clear that a big portion of the slowdown on the Internet today is directly a result of the growth during COVID.

Brent, did you have a follow-up or...

I'll turn it over to my friend, Mark Mahaney.

All right. Mark from Evercore.

Okay. And Joe, it's hard to hear management. So I don't know if there's a solution for that. Let me ask 2 high-level questions. First, I just want to just step back and talk about the partner business and the lessons you've learned as you've kind of tried to really lean into that over the last 2 years. Just at a high level, I don't know if the partner [indiscernible] worked as well as you would have thought, but that's all right. What are the learnings? And like the best place you've learned to accrue with the partner outreach and the partner side of the business. And then secondly, this 30% long-term free cash flow margin. So Lior, just talk about the bridge to get there. I think we spent time on the last call talking about the bridge to get to the 20% free cash flow margin. How do we get from the 20% to the 30%? What are the pieces that go to get there?

Joe, you should take the first one. He cannot hear us well.

Okay. So I think, Mark, I'll take the first one. Hopefully, you can hear us when Lior takes the second one. But I think on the partners business, keep in mind that we spent a decade really marketing Wix as a do-it-yourself, easy-to-use website builder. And we obviously have had great success there. But it takes time to change perception in the market. I think a lot of agencies know us and know our brand very, very well. And we're obviously releasing products and doing a lot of marketing toward the new professional side of Wix, which Michal shared in her presentation. But this will take time, and we knew that. But I think that it has actually progressed at a pace we thought, if not actually faster than we thought. We've seen a lot of growth here in the last 2 years. So I wouldn't say that this has taken longer than we had anticipated. I think we're on a great pace. So Lior, do you want to take the second one?

Yes. So with regard to the improved margins for partners, so there are 2 -- actually, there are 2 factors that we need to achieve in order to be there. And by the way, it's already started to happen. The first one is the gross margins. So we assume that gross margin will continue to improve. We already achieved that for self-creators. So it's not that it's something that we predict, something that we know that is going to be definitely also for our partners. Actually, partners in terms of the gross margin is going to be better because of the behavior of the cohort. And Nir explained the presentation very well, where you see a compounding effect. So therefore, the profitability in terms of the gross margin for partners is going to be higher. And it's already started to happen. So for example, if we think that the business, the Creative Subscription margin is going to be up to 70% already during those 2 years' plan, so I believe that it will take 2 or 3 years more in order to get to the 85%. Now the second thing is about the operation expenses. We can see that right now for partner, it's approximately 100% out of revenue, but it's dropping by 10% every year. So by the end of 2025, we will get to about 70% out of revenue. And then it will take just another 2 years to get to less than 50%. So the combination between the leverage that we see in operating expenses and gross margin are going to bring us to approximately 30% of free cash flow. Now bear in mind that it mostly happened from our headcount, and it's related to expenses like overhead and so on. So when you recruit less people, so obviously, you see the leverage coming from payroll, but also from expenses and overhead. And the other thing is about a lot of leverage that we assume that we are going to get from care and from hosting because we invested millions of dollars in improving the infrastructure. But once it's done, we start to see the benefits of it. So we see that the gross margin is going to continue to increase as we are going to get a lot of leverage out of this component.

Joe, do you want to see if they can hear us now?

I'm sorry?

Do you still want to make sure that they can hear us?

I think we're going to have someone come on and fix.

Let's take a second to do it, just to make sure that we got it. It's only Lior's microphone?

Yes.

Okay.

All right. So we're going to fix Lior's microphone.

Mark, can you hear me well as well?

Yes. Yes. You're looking good, too.

Okay. There we go. So it's only Lior that's problematic.

Finally, we got a complement from Mark Mahaney.

I think we're going to Deepak at Wolfe. Do you have a couple of questions?

So Lior, maybe I'll start with you. First on the self-creators market, how do you think about the price mix of volume [indiscernible] in the next 2, 3 years? How much do you need to grow the [ 6.1 million ] subs you have today? And how do you think about the sustained pricing power of the model? And then maybe kind of related to that a little bit into the question. Beyond financial model, where do you see big opportunities to sort of capture new subscribers? Obviously, there is a market growth component of it. There's potential for market share gains. So maybe can you sort of talk about the levers to kind of bridge the subscriber growth.

Okay. So we start with the first one, and perhaps we'll move to Avishai to talk about the market share gains and so on. But let's start with the first question. First of all, the model does not assume any change in pricing in the next 3 years in order to achieve the targets that we put. You need to remember that for self-creators, more than 60% of the revenue for the next 3 years already exist in the existing cohorts. Meaning without doing anything, no new cohorts, new marketing and anything else, we already have 60% of it in our model. So actually, we need to bring new customers from new cohorts only about -- and it's only about 40% of the revenue. So when you think about it, you don't need to do a lot of changes in order to make it happen. In addition to that, we've always managed to improve conversion. And we always managed to improve the ARPU because of new product that we build, new services that we introduced into the market. Payments, for example, was one of them. And payment is part of this business as it's part also of partners. So we assume that double-digit growth for the next year is something that is very, very reasonable. And I believe that we already showed that in the past few years. I mean, that was the case.

Avishai, you want to take the question around what we anticipate for market share gains or what we would need, I think, for market share gains on the model?

Well, I think that in terms of the model, I think we are looking at our natural progression on market share. So we are not looking at anything dramatic to happen. I think -- it's -- a big part of it is that we know who our competitors are, who we are. And we understand pretty much what they're going to do, what we're going to do and how this is going to reflect. What we mostly look at it is the natural expansion of SaaS CMS or SaaS website builders as part of the market. So I think that we don't -- to achieve this model, we don't look at any kind of an aggressive growth beyond what is the trend now. I want to mention again, 1 in 4 new website of any CMS, right, today on the planet are built with Wix. And we're already winning with self-creators. Pretty much almost more than half, I think, of the sites created by self-creators are being built on Wix and which -- and we are growing very quickly, right, into -- in the agencies and that is adding to that. I think the expansion -- natural expansion of the market of self-creators plus the addition of expansion into agencies and partners, we're pretty much guaranteed that we're going to get the market share that we need in order to achieve this model.

Great. Thanks, Deepak. Next, we're going to go to Andrew Boone at JMP Securities.

So I have one more on kind of product and the cadence there and then the second one around the model. So to start off in terms of product, as we do think about OpEx reductions going forward, the model is going to be driven by product innovation, just the breadth as well as the depth increasing. How do you think about the pace of product launches and the cadence going forward on the fact that you guys are pulling back on OpEx? And then for the model, can you just double back in terms of marketing? As we think about that as one of the biggest OpEx line items, how do we think about that just leveraging on [ the working model ]?

Well, you're asking about the tension between OpEx reduction, but we still need developers, right, in order to continue and provide product innovation. So one of the things that we spent a lot of effort in the last couple of years is the ability to do more with less developers, right? And we introduced Velo for that. We have -- we didn't announce it, but we completely rebuild how we do infrastructure on the back end. And we're going to announce this year another technology that is dramatic in the effect of how you build applications on top of Wix. So those things combined give us the ability to innovate very quickly with the same amount of the developers that we have. We do also see that a lot of the products that we had, that it took us a long time to build. Shopping carts, scheduling, booking, events are all now in a place where they move from being something that generate revenues but not as much as the cost of developing them and marketing them to a place where they are profitable. So I think just that naturally would also create another effect forward. And this is also true for Editor X, for Velo, all these things that we develop are now becoming profitable.

So with regard to the marketing, so I think that it makes sense also to share a few data points. So for example, sales and marketing in 2020 was about 42% out of revenue. In 2021, it was about 37% out of revenue. And for 2022, it's about 35%. So I assume that the 2% down on a year-over-year basis will continue. And therefore, by 2025, the sales and marketing is going to be around 29% to 30% out of revenue. And the leverage is obviously -- is very obvious. It's coming from a few places. Some of it is actually from headcount as part of the marketing. Some of it is from the partners organization for the salespeople that we hired in order to build the B2B partnership. So as this business is actually scaling up, the quota of salespeople, for example, are also increasing and changing. So I believe that we are going to get a lot of leverage from those places. And therefore, you should assume about 2% as a percentage of revenue down on a year-over-year basis.

I think also was Lior just complementing this also with just a few words about the TROI, and this is also something that we shared. You've seen us and we spoke about in the past about a 7- to 9-month target for the whole cumulative marketing budget that we are spending. And as partners became a more significant part of it in the last few years, you could start seeing some moderation in that slide I showed you where the amount of all the -- the return in the first month is declining a little bit. That is because of the blended average also with the TROI of the partners. Now when we break it apart, I think it's very clear that the 7 to 9 months' target for self-creators remains the same, whereas currently we are operating the partners at about 10 to 12 months' target. As I said before, this may continue to change a little bit because we're seeing so much compounding growth in the cohort behavior that it may make sense to invest even more. But that's obviously all going to go into that leverage on the marketing investment that Lior mentioned before.

All right. Great. Thanks, Andrew. Let's go to Trevor Young at Barclays.

Great. A few questions on the geo footprint going forward. Is the partner strategy, and in particular, B2B, a mechanism for getting better penetration into certain regions? And if so, what regions might those be? And then any color you can share on ARPU and profitability across regions today and where that maybe goes through 2025?

You want to take [indiscernible] and then Lior can maybe talk about the...

Yes. So I think absolutely the -- both the partners and the B2B partnerships as you said it a great way to leverage higher penetration into the different regions. Avishai said this at the beginning. We are very widely spread already, and we're operating in pretty much any country in the world where we are allowed to. But clearly, the level of penetration we have in some countries is now -- or in the more mature markets such as the U.S. is not the same as we have in, I don't know, in Germany. And the goal is to keep on enhancing that penetration. A lot of it is coming from localization of our products and our designs and all the components, which the customers are using. But definitely, we're going to start leveraging also the power of the agencies and the designers and those big deals in order to go much deeper. I'm not going to name specific geographies for obvious competitive reasons. But this is definitely something that we're looking. And at the end of the day, we are looking at kind of going global, fully global. So we'll obviously cadence this by priority and opportunity. But the goal is to go country after country.

That's really helpful. And just a follow-up on that and related to the comments about kind of more muted headcount growth going forward. Do you feel like you have the right headcount for some of that localization that you have to do kind of country by country?

So I think at this stage, yes. And obviously, you have to remember that when Lior mentioned that we will continue to grow headcount, but just in a much more moderate way than we have done in the past years. So I think if you take into account the current -- our growth so far, and I think we have seen an amazing growth throughout 2019 up to '21 in terms of headcount. We really managed to bring in not only a lot of people, but also amazing talent. We're going to continue to ramp up in the right areas in order to go deeper and deeper on these kind of opportunities. And by the way, to your question about the [ EPS ] and profitability of the different regions, we're still at least on the self-creators side and by the way, also on the partner side, we are working with the TROI methodology, which means that we can adjust the investment to the returns based on the behavior of that specific geography.

All right. Thanks, Trevor. Next, Elizabeth Porter at Morgan Stanley.

First, I wanted to ask about the rebound in growth after fiscal '22. Can you just parse out the impact from the price increases that you announced in April and May and then layering some of the B2B contributions of those large deals? And then second, kind of just what drives your confidence and kind of the durability of that growth longer term?

So we'll start with the first one. The impact on the pricing or the price increase is not that significantly in 2022. Most of the effect is -- actually in 2022 is stand-alone because when you think about it, it's not going to be -- to happen in the same day because it really depends on when the subscription is done and when it's renewed. And it's also something that we've done only in the second half of the year or almost in the second half of the year. So the contribution of the price increase is very small in 2022. With regard to the second part of your question about why this business is durable and why we believe that it will continue, so actually, there are 2 reasons for that. The first one is, as I mentioned before, 60% of the revenue in the next 3 years is coming from existing cohorts. We -- Nir described in the presentation the $16 billion that we have from existing cohorts. So this is exactly the case. When you think about self-creators, you have all those old cohorts for many years ago that still generating a very solid revenue for the next years. And there's no -- we are not assuming that this is something that is going to change. So it will continue, obviously. So this is already 60%. And the rest of the 40%, I think that we have a proven history of how successful we were to generate growth into this business even in the last couple of years with about 20% growth on a year-over-year basis because we will continue to invest in the platform. We said before that both partners and self-creators are in the same platform. In the end of the day, many of it is the same product. So when you invest in eComm, you're actually supporting both segments. So we believe that the conversion for self-creators will continue to increase. We believe that we are going to penetrate more globally into new regions that we don't have today. We believe that ARPU will continue to increase, and we believe that payment is going to be a bigger part of the overall business. So this is why it makes us believe that -- all those reasons that self-creators will continue with double-digit growth.

Great. And then as a follow-up, I wanted to ask on just the B2B deals. As you've gotten some larger names, Vista brand and then most recently, LegalZoom, while it's still early, any sort of factors that you can speak to on brand recognition and willingness for brands to partner with you? And what's the opportunity to see some accelerated pace of announcements in B2B as you've gotten some of these larger brand names in?

Sure. So I think that definitely the fact you were announcing a deal with some -- a company like Vista, like LegalZoom, on its own is a big contribution to how the market perceives it. And definitely, we can say that since we started it already with Vista and now with LegalZoom, we're just seeing the pipeline expanding and growing, which is why we also believe this is another facet of our business that can continue to be -- to grow over quite a long time. I think that if you look about -- also what people are asking us for and you -- I think you heard that also from Robert on his interview, it is very clear that they are not asking us to be a white label or a solution that is hidden underneath their own technology. But they actually want the Wix brand on their website parked next to their -- and side-by-side to their brand because it is now associated with professionalism and success with best in class. So I think that is -- first of all, that's an amazing result, which we are very proud and happy about. But it's also definitely something that we'll continue pushing this initiative going forward and increasing the potential of this pipeline.

All right. Thanks, Elizabeth. Next, we're going to go to Matt Pfau at William Blair.

Wanted to ask on the assumptions over the next 3 years and longer term. Obviously, Business Solutions are the faster-growing component relative to Creative. What are some of the drivers behind that? Is it mostly payments and -- which I would assume that would be? And then does that assume entering new verticals? Does that assume just a higher mix of commerce solutions being uptaken? Some detail there would be helpful.

Yes. So the assumption -- we had the Business Solution -- no, we mentioned before, we have the G Suite solution, that we provide some applications like Ascend and so on. But we assume that those applications will be growing the same as the business itself, not more than that, meaning that most of the growth is actually for payment. So we assume that payment is -- from a few reasons. First of all, this is a compounding business. You have existing customers that drive more GPV through their customers, but you also bring the new one. So it has a compounding effect, which is more, for example, than the self-creators business itself. The second thing is about the take rate. I assume the take rate will modestly increase on a year-over-year basis, which also have a positive contribution over the payments. And therefore, it's going to change a bit the mix, not dramatically, but it will change the mix.

Got it. And then just wanted to follow up, and you guys may have answered this earlier, but at the start the audio was a little bit hard to hear. Maybe just sort of talk about what some of the assumptions are behind the possibility of the Internet growing faster than the pre-COVID rate, that would be helpful.

Well, you're asking what is the chance that the Internet can grow faster than before COVID. I think that it's actually -- and this is again my view and I can explain why I think so. But first of all, I believe that there is a very good chance that anyone actually could accelerate as we move forward. And I think a lot of it has to do with the fact that COVID did change the way that we consume things, right? And a lot of -- I'm sure all -- everybody here can relate to things that before COVID, they would do offline and now they're doing online. This is one side of it. The other part of it is what I was saying in the content creators and in people that move their business completely to being digital. And that's something that is a new thing that is starting. And we can see people teaching yoga on YouTube or teaching cooking classes. And a lot of that is something that is growing very quickly, tutoring over video. And I think those 2 trends, alongside the fact that the younger generation is more comfortable with technology, combined a force that will generate faster growth on the Internet going forward. Again, this is my personal opinion. But now I can only share the numbers that everybody knows, I'm sure about those guys. But I do believe that we're going to see the Internet will accelerate in the coming years and that goes back to 2019, actually go faster and more [indiscernible].

Next, let's go to Mark Zgutowicz at Benchmark.

Just to get maybe a near-term question then a long-term question. To get comfortable with your Business Solutions gross margin outlook, I think it might be helpful to understand where the segments within Business Solutions gross margin are today. You have 3 primary segments: Google Workspace, Wix apps with third-party apps, and then you have transactions or payments gross margin. Can you share what the individual gross margins are for those 3 segments? And then I have a long-term question.

I can provide some light, but for the Google part, I cannot provide the gross margin because we cannot do it in terms of relationship with Google and the agreement with them. So we cannot provide the margins that we have with Google. This is one. The other part about application, the application is a very high margin, obviously. But it really depends on who's the application, if it's a third party or if it's a Wix application. If it's a Wix application, so the gross margin is pretty high. It's more than 80%. If it's a third-party application, it can be somewhere between 20% to 30% of gross margin. And again, I'm sorry that I cannot share the Google gross margin part.

And how about the transactions gross margin itself?

Transaction gross margin is mostly based on payments right now. But it also include for some part also shipping. Shipping recognized on a net basis, [indiscernible] of gross margin. But it's still -- it's not that big. And with regard to payments, as I mentioned many times before, you cannot get more than 30% to 35% in terms of gross margin because about 2/3 go to the credit card company. There's also a limitation in terms of what we can negotiate with them. And most of the leverage is coming from the operational part, meaning from our people that manage [ programs ]. For example, people that are responsible for the KYC and so on, the care that supports the customer base. So there, we are going to see some leverage that is going to help us with the margin and improve it.

And I think we are finding the data [indiscernible]. We haven't really seen that leverage yet, right? We -- we've added a lot of people in the last 2 years to the organization that -- to the payments organization specifically. And so that leverage is to come. But still today, we're not quite there.

You're absolutely right. And we are already going to see that in those 3-year plan. With the 3-year plan, we are going to see the leverage coming from -- because we already created a department that's supposed to grow and to make sure that the KYC is fine, to go over a certain risk because you need to also to have some kind of a risk management and so on. So we created also the infrastructure to support it. We created a care team in order to help customers dealing with payments. So it was already done. It doesn't mean that we are not going to have a headcount that is scaling up, but the basis is already there. And therefore, you're going to see kind of scaling up in terms of the profitability as well.

Okay. So does the care support then imply sort of a single-digit gross margin for transactions then today in terms of that downward pressure transition?

Again, what was the question?

Just trying to get to the rough number for transactions gross margin today. You reported a 20% overall Business Solutions gross margin in 1Q. So I'm just trying to get to sort of what transactions gross margin is implied in that?

Okay, I understand. So it's going to be approximately 70% in terms of the gross margin. This is the assumption around it. When it get to a kind of a fully -- get the full leverage of what I explained before, we will get to about 30% to 35% only on payment.

Yes, Mark, I think you had a long-term question you wanted to ask?

Yes. And just as we talk about '23, I know a lot of the sort of, I guess, conjecture in terms of '23. And obviously, none of us know exactly what '23 is going to look like. But I think a lot of the conjecture in terms of '23 sort of moving back to normal is sort of this COVID unwind. But I guess, we obviously have a rising inflationary environment, rising rate environment. So if '23 is not normal, and we see sort of the demand pressures that you're seeing this year as it relates to COVID sort of carry into next year and more specific to inflationary and rate pressures, how do you manage the business through that environment? How does that change your strategic priorities that you sort of laid out here over the next few years?

Obviously, right, if we see that demand continue to take more, we will have to take action to make sure that we will continue to run the company in a profitable and cash flow-efficient way, right? I want to remind again that our growth is a factor of many different things. And then COVID was an exception in a positive way. But this year, we feel it in a negative way. But historically, okay, and we have a chance to experience a few economic crisis for the last weeks. And we've seen that normally when there is a crisis, we will try to start something new, to find ways to innovate. And that was actually a positive for Wix. So again, every crisis is different. It doesn't necessarily mean that [indiscernible] is going to be what happen. But I'm less concerned with the interest rate. I'm less concerned with the oil prices. I'm more concerned in manufacturing that allow people to create products and sell them. That is something that I'm a bit more concerned about. But I think that it's not that likely that 2023 will reflect 2022. In addition, if that does happen, we'll take proper action to ensure that we get as far as we can to the model that we presented here today.

Yes, exactly. And we also need to bear in mind that this is a 3-year plan, meaning that if the headwinds continue in 2023, by the mid of 2023, for example, it doesn't change the scope that dramatically for the 3-year plan. There is some cost management that you can do, but I think that what is more important is what we see right now in the business that we actually control. So it's not going to change significantly. And let's assume that those headwinds will last for 2 or 3 years now.

Thanks, Mark. Next, let's go to Ron Josey at Citi.

I wanted to ask maybe 2. Just the first on the partner cohort slides, Nir, that you highlighted and the adoption of bookings, what you're seeing in the first few years. I know we're at a lower base currently but certainly faster growth. Nir, can you help us understand just what's driving that adoption between partners, just working with and being more comfortable with Wix products versus what you all can do to improve education of the partners in terms of what -- how they can use all of Wix properties? And Avishai, I had a quick follow-up.

Yes, absolutely. So I think that there's a combination of a few things. And those graphs reflect, I think, both the improvements in products over the years, when you look at what we've done in order to support needs of partners over the cohort graphs I showed you before, start in 2016. So over the length of those years, we've done many, many things. First of all, we've done many things that are generalized and contributed both the self-creators and the partners. We made massive improvements to our store's solutions, to our scheduling solutions, to our event solutions. All of those obviously were relevant for both a self-creator that wants to create his eCommerce site, but also to an agency that is building an eCommerce site for a client. But on top of that, if you look, we've made a few more things that I think contributed even more. First of all, I think, again, something that contributes to both but played maybe much higher value for the partners was Velo, the ability to create custom code for a client to create a very specific capability, very specific business behavior within a website. That was something that was very important for them. And then naturally Editor X. Editor X is an environment for designers, for professionals. And that's something that had a big impact and effect on the ability to adopt and to be successful. And then, obviously, we're also spending more time on actually talking to them, helping them, account managing the bigger accounts and solving issues with them, not to mention the account management problems that they're having because suddenly, you have people who need to manage many, many, many websites under one account, which is a little bit of a different back-office product challenge than someone who just is building 1 or 2 websites. So all of those is -- things are obviously driving, I think, in many cases, the compounding growth that you're seeing on those cohorts. And the other thing, relating back to what Avishai related in the beginning, many of the agencies have known about Wix for years. And many of them actually were using both Wix and other solutions parallel for years. So a big part of what we needed to do was to convince them that Wix now should be the main thing -- the main platform that they're using. And that was done also on solving real issues, performance issues, making our site work much, much faster, and in some cases, branding issues, showing them that Wix is amazing for SEO. This has been great for SEO for many years. But we needed to actually grow and change the way people think. And we were out there for the past 2, 2.5 years, spending a lot of effort on it and changing the way that they perceive our platform in order to make Wix the go-to platform in their agency. So I think that's what you're seeing in a large part in that massive growth and compounding growth you're seeing in the cohorts of the partners. And I think that over time, that compounding growth can actually increase so you can get even an acceleration in how it's compounding because you have more agencies that are adopting faster our solutions, moving more to our platform within the existing agencies and partners. And naturally, as our brand becomes much stronger for partners, we'll just get more partners in the new cohorts. So I think we're going to see a very -- you can see a very steep increase there, which is very appealing, obviously.

Yes, that's super helpful. And then, Avishai, there's a lot of questions and you've talked about this in some of the other questions, just the balancing between innovation and profitability. And then you teased sort of a new product coming out here that might make it easier to build websites. Any sort of additional insights there would be helpful.

Yes, of course, we have a good plan. So I mean, this tension, right, has come from innovation. It means that somebody writes a lot of cohort, right? And then for any product that, for example, shopping cart, right, there's millions and millions of line of cohort. And so every time we innovate, we have developers building something. And historically, a lot of that was using a very different kind of library [indiscernible]. And what we did is that we've worked very hard to make sure that we, well, write very little, okay, twice. Most of what we do now can share them on all of those applications. And this is something that we already achieved. And we're going to announce this year something that enabled us to build the last part, just the user interface. We usually enormous amount of effort into making user interface. And our -- for all the SaaS website builder, it's not just once, you do it twice, actually more than twice because once you do the regular user interface where our users interact with the application. But then you also have to do the thing that is on the website where daily users are interacting with application. And on top of that, you need to have multiple layouts and visualization. And while we did that, we're going to announce it going forward in the year is we automated that part. So we can actually do it very fast now. The result of that is that we can use the same amount of developers to achieve a lot more. And I think that it was Steve Jobs who said, well, the trick in software acceleration is not to make developers that type of cluster. It is to make developers -- to give them the tools that you can do a lot more with the same amount of lines of coding, right? So every line of code can do much more. And I think we took massive steps towards that direction.

Thanks, Ron. All right. Next, we're going to Bernie at Needham.

Great. Just a few follow-ups on the partnership revenue. You just discussed, to answer Ron's question, how -- what you're doing to make sure agencies are using Wix over other providers. Are you seeing any competition in the B2B space with other operators trying to go after that revenue? And then would love to just get a sense in terms of that 2025 partnership revenue guidance, what's the contribution of agency versus B2B? And if we should be thinking about the economics of those 2 revenue streams differently?

The first part is that if we -- I mean, of course, we're seeing competition in the B2B space, right? I mean, traditionally, the most -- the [indiscernible] by agencies would be mostly Wordpress.org, Drupal and Joomla and what we call traditional CMS systems. Some agencies have homegrown solutions. So we're seeing that as well. And developers work there. And I think that pretty much every time we convert an agency, it is from one of those solutions. So yes, we do see competition. I think we are really well positioned. And compared to those competitors, we have a much better offering. And I think that -- well, if you take the numbers, right, the SaaS CMS are growing much faster than CMS system because of those benefits. As for B2B, I think that today, Wix has the best offering on a variety of websites, right, on the B2B segment with the exception of eCommerce, where, of course, Shopify is a fantastic offering. So I think that on the B2B section, if you look at the most of the possible websites, we have by far the best offering there.

I'll just add to that. I think that from what we experienced at least on the very big partnerships that we created is that, in many cases, we see the competition actually within their kind of decision process, whether they want to build it themselves or to go with someone from the outside where actually, I think, so far, at least from our experience, we were the natural go-to platform. So in the case of Vista, and Robert, I think, shared at least some of it, they had a decade of trying to both build and buy solutions. And they need to get what they bought and make it their own. And they decided that the best way to go about it is to grow with Wix because they knew that they will never commit the same amount of resources and attention to innovating specifically on this part of their business. So I think there, we're starting to see how we're winning that competition of the mindset of, do I want to build it in-house? Or do I want to go and partner with Wix?

Yes. With regard to the B2B versus agencies in terms of the portion out of the revenue, by far agencies is going to be -- we assume that's going to be larger than the B2B partnerships simply because it's a much bigger market.

All right. Thanks, Bernie. Naved Khan at Truist.

So I just wanted to understand the 2025 guide a little bit better. Maybe derisk it a little bit. So how dependent is the gross margin outlook on your ability to hit the $2.5 billion in revenue? Or can you get there even without getting to the top line mark? And then if I have to think about the partner gross margin, how should we be thinking about the volume discounting that you give to your partners? Is this something that you might diminish in order to get to the gross margin? Or you think you might stay at those levels?

So with regard to the 2025, the $2.5 billion that you mentioned, I'm not sure that it really depends on the gross margin. You asked what is the gross margin outlook. When we get to the -- I need to understand the question.

So I'm just trying to understand how dependent is the gross margin on leverage or scale, right? So can you get to the 20% free cash flow margin with maybe some lower amount of revenue? Maybe $2.3 billion or something like that. So just trying to derisk that.

So look, obviously, when we talk about leverage, it's something that also depends on scale because it means that top line growing faster than cost. In most of the cases, this is the reason for -- to get the leverage, meaning that if we will be not at $2.5 billion, but at $2 billion, it's going to change, but not that dramatically. If it's going to be less than $2 billion, so of course, there is a more significant impact on the ability to get to 20%. Although if you ask us why we actually got to the point of the group according to what we assume, so it means that we need to do some kind of a further cost management based on the reasons, based on the different reasons. But if you ask about if it's going to be $2.2 billion or $2.3 billion or $2.5 billion, yes, of course, you have the flexibility. And I don't think that we could [indiscernible].

The second question, I think, was about volume discounts. Just want to make sure [indiscernible].

Yes. Yes. Just the amount of volume discounting you do with partners currently. And is there something that might go down as you kind of try to hit the gross margin target? Or something that you're not really thinking about actively?

So I think it's a little bit -- it's much like thinking about pricing from our standpoint. We're always testing. In this case, it's not only statistical testing. We actually talk with the partners, understand what works best for them. And we would like to find the best outcome that is in -- optimize our ability to grow. And I think in this case, because we want them with us, it needs to balance their interest as well. But we'll keep on playing, understanding what's the best methodology and what's the best way to go about it over time.

Thanks, Naved. Guys, I want to jump in with a question I know is on investors' minds even before this but probably now after this, seeing it. And that's the topic of the share repurchase. Obviously, our model shows a lot of cash flow generation coming. We filed with the Israeli courts earlier. Can you talk a little bit more about how we're looking at share repurchases in the future?

So first of all, Joe, that's a great question. Thank you for asking it. I think clearly, in our minds, at the management minds, our stock is undervalued, right? I think a significant amount of our valuation is our cash, right? And we just showed this -- the 3-year model that -- and those 2 different business lines, one of them very profitable, growing in a steady -- on a steady base over many, many years. And the other one is as a scaling growth, which is also very exciting. Naturally, and as Lior mentioned, that will also create more cash flow as we go forward. And as he said, in the short term, we applied for that $500 million buyback optionality from the Israeli court. And we need to see -- you need to get the result, see it's approved and then we can plan ahead. Longer term, we're definitely going to make -- consider how do we do the capital allocation and what are the best capital allocation opportunities against that cash flow that will benefit both the company and the shareholders.

Great. And just one other question for you, Lior, around a similar topic of somewhat around stock-based compensation. And obviously, this is a cash flow model that we've shared. But can you give us just a sense of your modeling on stock-based compensation going forward?

Yes. When you think about the 3-year model, so it has also effect on the SBC, the stock-based compensation expenses because when we talk about overall expenses and you get leverage from the fact that you are hiring less employees, we do hire employees but less than what we used to do with it in the last 3 years. So it has also affect on SBC. So for now, SBC, I think it's around 16% or 17% out of revenue. So as a percentage of revenue, I assume that it's going to go down by approximately 2% on a year-over-year basis. So after 3 years, you should see a decrease of about 6%, which will bring you to approximately 12% out of revenue. And it makes sense, right? Because when you talk about when you see leverage coming especially from headcount, it has also an effect on SBC.

And I think naturally, on the managerial headcount -- HR aspect of it, I think it's clear for everyone that even with the changes in the work environment and with inflation, everything is happening. Great talent is still hard to come by and there's amazing competition for it. And it exists everywhere. It's in Silicon Valley. It's in New York. It's in Tel Aviv. It's in Ukraine, in Berlin, in Amsterdam. Wherever you go, it's really hard to compete for talent. So we definitely see the equity compensation being a big part of how you tie in great talent, not only convince people to join you, but actually retain them over many years. I think one of the great things we had working for us at Wix for many, many years is that we managed to keep very, very long tenures for -- as a tech company and we intend to keep on doing so. So we can be so successful in delivering the 3-year model that Lior showed you.

Great. Okay. We're going to get to 2 more analysts for questions. Next one is Brad Erickson at RBC.

Joe, maybe before I go to my questions, could we have Lior just maybe repeat what he just said? I think most of us missed like all of it, unfortunately.

Is it...

About the stock-based comp.

Microphone issue?

Because of the microphone issue?

I think it may have been, but it was largely gone.

Which -- just to be clear, is it the part about the stock-based compensation?

Right, exactly.

So I think what Lior had said was that today, our stock-based compensation is around 17% of revenue. And if you look ahead, we predict that, that percentage of revenue will drop by about 2% per year. So as we're hiring less people, which we've said clearly in the model that our hiring is going to slow, that naturally will start to reduce, obviously, share grants and stock-based compensation.

Perfect. Great. And then, yes, just a couple of follow-ups on the partners business. When you think about the '25 targets you gave, how much of that do you think when you get in the growth contribution wise, how much of that is coming from sort of like upper market or we'll call it, slightly more sophisticated eCommerce companies versus like the true long tail, less sophisticated eCommerce do-it-for-me type customers? That's the first one. And then the second one, as you head towards this 3-year target and improving margins a lot, how would you say you're sort of allocating product investments between, again, if we bucket the 2 that sort of upper market, eCommerce, more sophisticated eCommerce versus long-tail do-it-for-me type customers?

Well, I think for the first part, I want to mention that [indiscernible] saying that most partners not just build eCommerce websites, right? They built many kind of websites. So -- and so when you look at the part of business, right, it generates a variety of different kind of businesses. A lot of them are bigger ones, some of them are small. And of course, it's a variety. You don't normally see the long tail go to partner because the long tail would be mostly personal people or very, very small businesses. They cannot afford a partner. So the partner business, just by its nature, is mostly larger companies. We do have some big eCommerce customers, and we see that portion growing all the time. So we actually have more and more of the large eCommerce, which is kind of coming with the fact that we are able to do it, right? We looked at the our commerce about 2 years, a few years ago, it was not able to support such businesses. Today it is. So as the technology is getting better, the product is getting better, we're also getting those kind of customers. As for your -- by the way, I want to mention that 2 major things that enable that are the maturity of Velo. So you can actually program today things on Wix in a way that is really unique, and a lot of those things you cannot do on a competitor's platform. And we are starting to see some of the really big players taking interest in that. The second question was allocating product investment to -- how much is it going for the upper market compared to the do-it-for-me. I think that for the do-it-for-me, we have a fantastical turnout. Obviously, most of our effort is to enhance the platform in a way that enable us to go after a bigger customer -- or as I would say differently, to allow bigger customers to use Wix in a comfortable way and actually extend Wix in the way that they need in order to use the system and create better websites. A big portion, right, of why we enjoy is the synergies between the fact that when we add -- I'll give you the most basic example, import and export for the catalog of products, okay? And this can be eCommerce, but this can be also if you're rescheduling for other classes, right? When you have 5 products, you don't really need that. When you have a 5,000 products, it becomes very important, integration between your existing CRM system, your inventory system to Wix, right? And those things are usually you'll find them in the bigger kind of customers. However, we saw the example of the couple showing you the classes that they are teaching. And that was, again, a very big thing and that's a self-creator. So the synergies, right, make it that we invest here and enjoy that here. But in theory, some of the -- well, the bigger customers, right, tend to require a bit more on the management tools. And that is the [indiscernible]. I think that the last part I want to say maybe by that, a development team, right? When they create -- when our development teams create new verticals, they [indiscernible]. So that was the bread and butter of Wix. But today, when we are working with something, we usually balance that. And we look at both mix. And a lot of the time, it actually means that we have to do less and not more because they want planning in a way that we can extend it to all the functionality that is needed. So I think in long term, if we look at the 2 years, 3 years from today, there are synergies between both that will actually grow and make it even easier for us [indiscernible] the 2 sides of the market, the bigger customers and the small investors.

Great. Thanks, Brad. So let's wrap up. Sunil with Berenberg.

I just -- 2 questions. One is on the G&A and R&D spend. I want to understand what you are modeling in terms of these lines on your targets for 2025. And my second question is about, can you talk a little bit about what kind of product improvement initiatives you have taken? For example, what is the number of SKUs that your platform currently supports versus what it was a few years back? And anything that you can talk about versus your competition, how your platform is improving over time.

I think just to clarify, Sunil, when you talked about the platform, how many SKUs you support, are you specifically talking about our eCommerce offering and kind of the number of products you can offer and sell under Wix?

Yes, that's correct.

Okay. We'll start with the first one with regard to the R&D. We are going to see some leverage from R&D in the next 3 years, but it's mostly from headcount. So if we're looking at the combined company, both for self-creators and partners, then obviously, the leverage is going to be much higher on partners. But if you're looking at the combined, I believe that the overall R&D is going to be at around 20% out of revenue.

As for the second question, well, this is one I'm actually going to enjoy, right? Because this is a thank you, right?. I normally don't go this technical when I -- on those kind of calls, but I'm going to explain it. I think this is a very important message on where Wix was and where Wix is. So if you look at us a few years ago, you pretty much could use what you have in the basic shopping cart product, right? And we have many products. I want to remind you, everybody, that we have many eCommerce offering, right? So selling time, selling classes, selling events, event ticket. They have a lot of them. But let's focus for a minute on the shopping cart, right? The thing is that when you look at companies, normally, they have 10, 20, 30, 40 SKUs. But you do have those that have thousands. And when you look at those that have thousands, it's not [indiscernible] support them on your database. You want to support them on their database, meaning that you want to create this bridge, their database and their product list and then move it in to Wix. Now to do that normally with any platform outside of Wix and you actually need a team of developers [ to do the ] integration, and this is complex. With Wix today, you take Velo right? And you just use what we call the eCommerce API, the catalog API and you integrate it. It's a few lines of code. You don't have to write it. We run it for you. It's [indiscernible]. We maintain it. We make sure it's running. We make sure it's always available, right? And you create this bridge between the SKUs that you have in your database, in your systems to what you have on our shopping cart. I think today, Wix is the only platform that can enable you to do it in such a simple way without really massive development effort. So the answer to your questions -- to your question is that we support as many SKUs as your database can contain, okay? And in order for you to integrate that, you pretty much need to do very little, right? And that is very unique about the offering today, which goes to show that, yes, in the past, it was true. We could support very few, right? Because most of our customers would be self-creators with a few products, right? But now in a place we can support pretty much any number of SKUs, not only that, immediately real-time integration into your product catalog. I'd say it's a bit more technical than normally, but I'm sure you've all seen it actually. I enjoyed...

That's actually a great -- I think that's a great one to end on because I think it somewhat encapsulates what I think our story -- we really wanted to make sure that you all heard and understood about Wix. And that is that we have a platform here that obviously operates a very stable and profitable self-creators business. And I think everyone is very aware of that. And I think hopefully today, we saw a little bit more, and you saw a little bit more, about how profitable that business really is. But we're layering on top of that now a new business going toward a professional market and much more advanced users. And it doesn't take us an enormous lift to do that, certainly on the product side, as we've seen. And we're already scaling that business in a nice way, and we now feel like we've got really nice visibility into that business becoming a very profitable business in the next several years. So this is a lot of what we wanted to make sure that you all saw. And hopefully, that came clear today. And...

I want to say, again, thank you. Well, we're appreciating taking the time to be with us here today. And I think that it was for us a lot of fun to prepare this day and show us what we think [indiscernible]. And see you soon.

Thank you.

Thank you, everyone.