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

Great. Thanks, everyone, for joining us today. Hopefully, you had a chance to watch our Analyst and Investor Days videos that we posted last night. We're going to spend the next -- we're going to spend a little bit of time now taking questions from some of our analysts on the Zoom. We also got some questions submitted to us over e-mail, which we'll also work in during this time. I've got here with me Avishai, Nir and Lior. And I think we're all ready to get started, right, guys?

Yes, we are.

All right. So first, we'll go to Brad at RBC. Brad, do you want to go ahead and ask your question?

I guess, yes, just first I have one kind of follow-up. Can you talk about achieving the free cash flow targets under the current growth rates? You guys -- current growth rates, there's a lot of noise kind of going on. There's improving FX. We've got some pricing in there. Maybe just help us unpack that statement between sub growth versus price and mix, if we could, let's just start there.

Sure. So I will try to relate to that, and hopefully, it will be clear. I think that, first of all, it's important to understand the methodology of the model. And I think that this is also back to the previous Analyst Day where we said that we are committed to the profitability targets no matter what is the growth, meaning that we will align cost based on the growth. So to answer your question in simple words, we are just looking at the KPIs as it is today in terms of conversion, in terms of pricing, in terms of FX, but also in terms of the growth of our business, both for sales [indiscernible] and Partners. If we just continue that without any changes, without any recovery of the economy, without any increase in conversion as a result of AI, without any positive impact, which we assume that we will have for the Studio product, meaning for Partners, just continue the way we see the KPIs, the fundamentals of our business today. And this is exactly what it take us in order to get to the 25%. That said, obviously, it can -- the growth can be higher, can be better. And certainly, internally, this is what we expect. But in case it is lower, again, we will align our cost in order to make sure that we will meet the profitability target as we did in the last couple of years.

Got it. And then just a quick follow-up. On the subscriber growth, just when we think about that piece going forward, how much of that is coming from market share gains versus just kind of new domains, new business formation? And on the market share gain side, where should we think about that coming from?

This question goes to a few things, right? What we can always see is that -- and we've seen even more of that last year that the SaaS CMS market and SEO is taking a bigger portion of the website total markets. And we're seeing it on the -- obviously, on the new website where it's potentially bigger, but also on a website that are being renewed. And meaning that there -- all implementation, most build some homegrown CMS or website management tool and some hosting company, and then it migrates to a more than SaaS offering. And it depends on each year, right? Last year, we've seen actually a decrease in the total amount of website on the words, obviously. That was even more in terms of the SaaS CMS products taking a bigger portion of the market. So it fluctuates. But I would assume that going forward, we're going to see that in the next couple of years, SaaS CMS will take the majority of new websites on the planet by a big margin.

And I think this is a lot reflected in our -- just Partners business, gaining market share as the SaaS CMS takes over much more.

And this is something that you can see, again, that the partners that utilize modern tools are actually getting faster market share, more customers and, of course, that actually pushes other partners to move -- other agencies to move to such tools. It's very hard to compete when you build something from scratch or an old technology with an agency that added a modern tool. It's hard to compete on how good it looks and how -- and how good it works, how competitive a functionality you have there. And then the combination of all of that is the efficiency in which you build it which, of course, is how profitable you're going to be.

Great. Thanks, Brad. Next, we'll go to Ygal at Citi.

I want to try the growth question, again, maybe in a little bit of a different way. First, so I mean -- so you talked about in the presentation how you can see the self-creators accelerate again? And you just kind of showed how that progression work based on the data you have. That was really helpful, talking about Partners potentially [ making even bigger ] figures over time. So it feels like based on some of these growth drivers, again, with the macro, it's a little bit harder to quick numbers on the growth. It feels like there's a path to get back to 20% plus, which is, I feel like investors have had a hard time kind of envisioning, but it feels like we're seeing some of those things. So not to put a target on it, but -- can you bridge us there? Do you think that that's an opportunity in the coming years even if the macro, let's just call it neutral? And then, on the product side, lots of great information. A lot of it is pretty technical. So can you just help us understand maybe both on the Studio side and on the AI side, what's different about Studio and your -- and the AI stuff that you guys are doing? Like chat integration and creating content is kind of -- everyone's got at that now. So what's different about what you guys are offering here that the rest of the market might not have?

So I think I'm going to try and answer your first question around growth, and Avishai will continue with the product side. I think our goal here in the 3-year plan has always been to explain our methodology and how we think about how we should run the company, how we're driving the things that we control to get to the results that we want to commit to ourselves and to the street. And can we achieve further growth even without the macro economy on improved conversion through the AI and the -- Avishai -- products that Avishai discussed on the video? Can we prove -- achieve further growth or accelerated growth through the adoption of Studio and the compounding growth that we are seeing in the partners' cohorts? Yes, absolutely, we can. But the goal now is not to give projections. We want to give guidance only based on the things we know at the time that we know them and we give the guidance. We definitely believe that we have the right levers to get back to higher growth, as we said, even at the 20% plus. But we'll definitely continue to innovate towards that end, and these are also things that we control. And like everyone else, hope that there's some recovery in the market at some point.

And in regards to the question that you asked about the difference between Studio and AI, you asked -- are you asking also about what in Studio is different or just...

Yes, different than what else is on the market. Because -- just because some of it is a little technical in the way you guys presented it. So what do you -- how are you approaching AI? You kind of highlighted how you've got a lot of internal research and things like that. How are you approaching AI? What do you have that's different that others might not have? And then maybe I think it's worth answering the same question for Studio. What's different in Studio that isn't on the market, that's like unique to Wix?

Of course. So maybe I'll start with -- I mean, what is the easier one, which is Studio. I think that -- the concept in Studio is that it's a designer you're used to working with, tools like Photoshop and Figma, right? And those tools, you work on what is called a pixel base, so you can actually position something perfectly and draw and move it. And they are very powerful tools, how you scale things, how you combine things. And most agencies, right, will have people that are very used to that kind of an interface. However, that doesn't translate to web design where things are very fluid, content is fluid, screen sizes are different, font looks differently on different screens. So what we try to do in Studio is to bring the same kind of experience where you would have in Photoshop or in Figma and make it available to everybody, that they want to be a designer on the web, right? So you can learn how to -- if you know all the tool -- if you know those kind of tools, again, Studio will feel very natural for you. And we take care of all the complexity in the background of how to make it fit into a modern web environment. The -- by the way, this is supposed to -- Wix, which is taking the experience that you normally find in something like slides or PowerPoint and making it feel very natural for you. So it's a very different UI, then also a very different capability in terms of how deep you can do things and how much complexity you have in the thing you can actually create, which is why we think that Studio is a great tool for agencies and partners. As for the AI, well, we do a lot of different things in AI. So I'm going to try and limit my answer for just a few of those. So the first one, is things like the responsive AI or the layout creation, right? And the thing to understand is that LLM, which is what we are seeing today, large language models are working on what we call a one-dimensional prediction, okay? So essentially, if you think about text, text always goes like that, right? Well, some languages goes like that, but again -- or like this, but it's still one dimension. So the way that LLM works is that they always predict the next word and take that, but they know the next word, they'll predict the next word after that. So this is the concept behind it. When it comes to do visual things, right, visual designs, you need to take into account three dimensions or four dimensions. Because, first of all, you have this dimension and then you have this one, right? You position things. Then you have to make sure how big they are, then you have to look at how big -- color scheme and the font are combined with everything else on the same page. So you have to develop a multidimensional AI to predict what is the next thing to do, right? So it requires different kind of algorithms, and it requires a very different dataset to train on, and it requires is very different framing. And because you cannot predict the next word, you have to predict the layout and then fill it in with detail. So it's working differently. And that difference is why this kind of AI is different. Another example is how do you take a page and make it into a responsive page. Why is that important? Because as a designer, you're used to working with Photoshop, you build something, you build a design, take that design and -- but this design does not say how patterns should behave when they're on a mobile phone, for example, on a tablet, right? So what we have to do is we have to say, well, this is the image of what you built, right, how we envision that to behave on a tablet or on a mobile phone or on a huge plain, right? And that is, again, you have to use AI to be able to say that because different elements or different texts will actually have a very different effect. For you -- for all of us, as humans, it's very natural. But to make that into a computer algorithm, it's essentially almost the same as image recognition. So we kind of have to look at that and say, well, this is the design that you build for desktop, how we envision that to work well on something else. Now in most of the time, you use some kind of approximations and then you get something that looks very plastic, and you immediately can see that it's not natural. So while AI, we can actually make it feel very natural and looked really well while trying to capture, in most cases, the design intent behind it. So those are just two examples, but there are plenty of those.

Okay. And some of that AI is internally developed proprietary to...

All of those are internally developed with Wix. None of them exist outside Wix. Well, I'm sure some other people develop other models for that, but our models were developed internally here and are kept here.

Thanks, Ygal. Next, we'll go to Mark Mahaney at Evercore.

Okay. Two questions, please. One, can you talk about pricing for Wix Studio. And then just in terms of the long-term margin forecast, so getting to the 35% cost free cash flow margin. I think at the last Investor Day, that was almost 30%. So just talk about the biggest differences between then and now that give you the confidence to take that long-term free cash flow margin higher?

Mark, I'll kick it off with the pricing and then hand it over to Lior for the long term. So in terms of the pricing for Studio, for the time being, it will be very similar to the pricing of Editor X whereas the way we think about the monetization of Studio is around basically enhancing all of those KPIs that I mentioned in my presentation. So by helping our existing partners move over to Studio -- adopt Studio and by means of all of the additional functionality and capabilities that we've added to Studio, to allow them to be in a position where they are more successful. They are building more -- taking on more projects, building more websites moving and adding more business applications and therefore, having higher ARPS per website. And obviously, once we open Studio for the general public to just get more partners joining us because we have such a good -- great solution, those all are going to contribute to an even further acceleration into the growth of the Partners cohorts. That's basically how we think about the monetization side of it. Lior, you want to talk towards the long term?

Yes, sure. So first of all, Mark, I will start with the first part of the question. Because you're right, last time, it was about 30%, right now, it's 30% -- 35% plus, the difference mostly coming from the fact that now we understand that we can get to the target with lower operating expenses. I think that one of the examples of the last couple of years, we understand how we can be more efficient. And also, obviously, about the changed strategy about the marketing, being more specific about the self-creators. So I believe that we will get to the 35% of free cash flow, not before of 2028, might be sooner, might be a bit later. But I believe that this is where we believe that we can get there.

This -- thanks, Mark. I think this is actually a good time to jump in with a question that we got from one of our investors e-mailing in. Just when you talk about the differences between the model that we presented a year ago and today, Lior, what is the change in methodology or differences between how we put together the model last May and how we put together the model this year?

Yes. Well, I believe that -- actually, when you think about it, there is no change. I think that last time when we were talking about it, we said that we are committed to the margins. And we will control whatever we can control, which is obviously the cost. I think that what's happened in the last year is just a testament to the fact that we were able to align the cost to the current growth rate. And I believe that this is something that we will continue to do. And again, I want to emphasize that. We are committed to the 25% of free cash flow. We are committed to the $500 million free cash flow by 2025, and we will adjust the cost accordingly. And again, so there is no change except of the fact that the growth was not as we expected obviously because of the macro and the environment. But we managed to prove that we can control what is under our control, which is the cost.

Great. So next question, we'll go to Ken at Oppenheimer.

Great. I wanted to dive into that last point in terms of controlling what you can control. And I think we understand that 2025, that's a floor. If growth does revamp, should we think of you guys slowing that upside through to the bottom line? Or do you recalibrate the spend to recapture that incremental growth?

No, absolutely, the first thing. I mean we will -- obviously, some of the increase will definitely have a positive impact, meaning that it's a floor -- and if growth is going to be better, so you should expect to be at higher than 25%.

Got it. Okay. Perfect. And then the second one, just on M&A. I know that's the number 2 priority in terms of use of cash. Just wondering if there's anything that you guys have in mind? Obviously, you have a competitor that bought the domain business. Just would love to get a sense for what you guys might be thinking on acquisitions?

So always looking at different opportunities, and there's nothing concrete. I can say that we will not buy the main business. That's for sure. I don't think that, that has any margin that are relevant to what we do.

But generally, near that, I mean, we haven't changed our strategy on M&A.

No. I think as Avishai said, we're always looking around. We have done some smaller acquisitions in the past. We may do so in the future. And I think it's clearly something that is an opportunity that may come up. But this -- what we posted doesn't mean that we are aiming to make any significant change from our current methodology.

Next question, we'll go to Andrew Boone at JMP.

I wanted to better understand the 5-point change in terms of OpEx for long term targets. Can you guys double click on that in terms of helping us understand whether that's marketing? And if it is marketing, where are you guys getting the efficiencies in terms of the change?

Yes. Well, it's not just marketing. I mean think about it this way, and this is why I try to illustrate. The growth in OpEx is going to be only a direct result of the increase in revenue. We have no intention to increase headcount. So whenever revenue is increasing, so most of it go to the bottom line. It means that as a percentage of revenue, operating expenses will be by far, less than what it used to be in that previous year. It doesn't mean, by the way, that in dollar, it's not going to increase. It will increase. But as a percentage of revenue, it will go down because when your revenue go up, let's say, by 17%, and your OpEx only by 5%, so it means that you're getting leverage immediately as a percentage of revenue. This is exactly the drill, this is exactly the model, meaning that we don't have any intention to increase OpEx beyond the variable costs that are related directly to the increase of revenue. For example, billing expenses is just an example to that.

And then as we think about the Partners opportunity as that's our greater growth driver for Wix overall, can you guys just speak to the size of the opportunity? You guys have a significant pattern on the eCommerce side. How do you think about the Wix opportunity within Partners in terms of kind of the TAM?

I think -- I mean, Avishai, you and your presentation shared a lot about the size of growth that SaaS CMS is taking with CMS, and CMS is largely a professional type platform, right?

Their Partners, right? I think that if you look at agencies, most of the time, the people that will come to an agency are people that are willing to pay for someone to do their business better. Essentially, most of the time, those will be bigger businesses. As we see that -- as we've seen, by enabling 2 things, right, one is to have better tools of Partners. We actually increased some available TAM, but not just available TAM, available TAM into the bigger kind of websites. And if you look at companies today that are mostly saying to agency, you can see that most of the business will be for larger customers than the average one, we have Wix. There, the result of that, we can already see that retention and the eCommerce revenues are, of course, higher on those websites. So we can already -- and I think we demonstrated that in a deck when we show that Partners websites tend to be -- to sell more or more activity than regular Wix websites. It's kind of the -- it's the natural thing to assume and to see. So I think that overall, Partners sites have a higher value and will continue to be more with higher value and better retention. And -- but for us, the more exciting thing is not just a specific side is that our addressable available market where we can actually bring Wix to customers is growing with it. Because when we allow more partners to use more -- to use Wix into more projects, we are also making the fact that you can use our available addressable TAM is way bigger. And I think there is a slide on that on the Analyst Day presentation.

Okay. We'll go to the next question from Clarke Jeffries at Piper.

One thing that stood out to me was the sort of slope of bookings by cohort and especially the difference between Partners business and the self-creators business. I've been looking at this before on an aggregate basis that you give in terms of cohort booking. But I wanted to ask what roast rate you're seeing in the oldest cohorts between the Partners and the self-creator business. It seems like the Partners business would be at a higher rate. But curious if you guys -- what the growth differential is among this cohort?

Clark, so without going -- I think we supplied quite a lot of detail there. So I'm not going to break it apart further than what we've already showed in the presentation. But I would say that the generalization that you observed is absolutely that there is a much -- we're seeing a much higher growth in the Partners business, and it makes sense. Because when you think about kind of the underlying behavior, on a self-creator, essentially in a cohort -- a small business or a person that is represented in that cohort will build one website over the lifetime, maybe two or maybe they'll have more than one active at the same time. And that's kind of averaging it at a much -- obviously, at a low number. Whereas in Partners, over time, we'll see the designers, the agencies adopting more and more capabilities and then bringing in more projects, even if for some reason, the project went away because a client left them. At the end of the day, if they're successful and they're building a business, then that expands. And that expansion over time is what is driving basically that growth of the cohort. Now naturally still, the bigger piece of our business is the self-creators business. So when you aggregate them, it looks much more like the self-creator cohort than the Partners cohort. But our belief is that with these new introductions with the investments we've done that are already paying off over the last few years. And the additional introduction of Studio, our ability to grow the Partners cohorts and accelerate them is going to be much, much further. And when that happens, it becomes a bigger and bigger part of our business, then obviously, that's going to be a contributor of the overall growth. And already today, you see that Partners are growing at 36% year-over-year. It's a very significant growth. Again, based on everything I've showed, the higher GPV, the high ARPS, the higher -- the multiple sites per partner and the general adoption of the platform, we believe that this growth can not only be continued, but actually accelerate.

I just wanted to sort of follow up. You were saying, Lior, the free cash flow margin for Partners in '25 is significantly in an inflection from the prior year. I wanted to ask, was that always anticipated off of that update that you gave where Partners business is going to reach positive by mid-2024? Or is that a change? And then longer term, I mean, based off of these bookings comments based off of the improvement in free cash margin, Could Partners be the higher terminal margin free cash -- free cash flow margin business at the upper rate?

So yes for both questions. Yes, we have, in a way, expedited the path to profitability for Partners. It used to be 2025, now it's at least a year before. I think that this is as a result of all the efficiencies but also from the current growth that we see within Partners. So definitely, next year, Partners will start to be free cash flow positive sooner rather than later. And on the other question, so the answer is yes. I think that Nir talked about the compounding effect of Partners. Well, the compounding effect is -- has a direct contribution to the profitability because when you get one agency, it keeps on building more and more and more website. The ARPU is different, obviously, but also the mix of the Partners or mix of the business is different. We see the adoption of more business solution. So the ARPU is much better. I believe that the profitability of Partners will be higher than self-creators. And again, I think that once we get kind of the 50-50 between Partners and self-creator, it is going to be seen quite easily.

Okay. Next question, we'll go to Fiona Hynes at Morgan Stanley.

This is Fiona on for Elizabeth Porter. I wanted to ask on AI and the ability to improve conversion. Thinking back to when you launched the ADI, what did you see in terms of customers completing websites and the conversion from registered users to paying subscribers? And how should we think about similarities or differences with the launch of...

Well, I think you're touching the core of the issue, right? I think that historically, what we did at Wix has always reduced the friction when somebody tries to build the website. That was where we started, right? We said, well, now everybody can. And then we did something very basic, but slowly, we continued to expand the offering to make it that we can reduce the friction for more and more people. And the friction could be not having eCommerce and then making it easy to build in commerce side. But another side of it, of course, is to design the website, to write the content, to have the right images and to know what kind of website you need to build. With ADI, I think we demonstrated a massive improvement in terms of conversion. And by the way, it took us time to optimize it. It's not like in the first day, we've seen it massive, right? It took us a year and something in order to always get upward. But we had a place where we could actually leverage the algorithms and make things better in a massive way that we couldn't without it. So I would say it was very substantial. I do believe that the current technology enables us to do way more than we did before. So a few examples would be, of course, making a much more pretty and effective website. So those are very important things. And that always translate to conversion in Wix. Again, understanding your business in a way that we couldn't in ADI, with the way we generated text and content for your website was very naive. In fact, the algorithm that is behind the transformer and embedding algorithm behind ChatGPT was invented in 2017, right, a year after we released ADI. So obviously, it was much more naive. And -- but if we can capture the content that you want to have on your website in a much more detailed way and make sure that it's very easy for you to modify the website talk and the language and the narrative, then I believe that, that will be another massive leap upward in conversion and satisfaction from customers. So I'd say that this gives us a lot of opportunities. The other side is how we manage the success of your business. So currently, right, we kind of like have to wait for you to say, you know what, I want to optimize my SEO, right? I want to do a campaign on Google. I want to be able to add a few pages in because I see the users are looking. So we go to the customer and we work with the customer, we present the option. But the customer has to be engaging. In order to do that, they have to initiate it. And then we try to help the customer and do that. With AI, we can actually have AI approach you and say, hey, I analyze your business. Do you know that you really need to do that or that will be a great idea for your business, okay? And by doing that, we can actually make a customer website, more successful, of course, increase this business success but also allow them to use more of the Wix platform. So in many ways, also increase our average revenue per subscriber. So I think it's really going to be a win-win situation, I think, in the next couple of years where we leverage more of those technologies and utilize and allow our customers and ourselves because of that to capture more benefits. I just want to add a word of caution. A lot of those things are new and exactly like what had happened with ADI, which we really still have been optimizing from many years later and not get a lot of the benefit, it's going to be the same here. It's going to take time to find the best way to use such technologies.

Right, very helpful. One more, if I could. So in the presentation, there's an opportunity for self-creators to return to double-digit growth. How do you balance rates in the more penetrated market post-COVID and potentially increasing competition against the benefit of an improving macro? I would love to understand more some of the positives and negatives that you're balancing that drives your confidence in returning to that double-digit growth algorithm.

Fiona, so I think you're referring to my comments through the presentation about our thoughts about the future of growth of the self-creators. And I think you're asking about the confidence in it. Part of it is -- part of that future growth is based on the -- I think, the assumption that everyone in this room, and I would have seen everyone on this call, has that at some point, the economy will bounce back. Is it going to be later this year or next year? Or the following? None of us knows. And obviously -- but we all think that at some point, that is going to happen, and that has a direct influence on small businesses. They are very susceptible to the changes in the macro economy. They're very sensitive. And obviously, when we're going to see that recovery, it's going to influence the whole of that part of our business. But I think that the core of our confidence comes from the second part or second growth pillar that is attached to it. And that is the innovation that we're doing around self-creators. A lot of it is around AI. And I think, Avishai, in his -- he just answered, that's part of the question in terms of relating back to what happened with ADI and how we think that can influence the reduction in friction in creating a website and being more successful in building your business online. I think there's a lot of competition out there. And I think competition is a very healthy thing. It keeps you on your toes. It makes sure that you don't fall asleep, that you keep on innovating and trying to improve yourself in order to be the best for your customers. I think we've proved that we've done this on the product side for many years now. And we intend to continue doing this. Again, this whole approach about generating the websites with AI is part of it, but we're innovating also in their solutions for commerce and solutions for restaurants, solutions for hotels and solutions for people who want to book events or sell their time and scheduling. And I think that, that is where our strength comes from, and this is where we think that can be a great contributor to the growth of self-creators going forward.

Great. Thanks. Let's go to Trevor Young at Barclays.

Great. Thanks. In the pre-recorded session, there wasn't a lot of talk about the international side of things. How are you thinking about maybe reaccelerating growth outside North America as that's more than 1/3 of the business in all 3 key regions outside of North America are still in single-digit territory? Are there any sort of like puts and takes to think about such as branding Partners internationally? Or would international accelerating for the year provide some upside to the revenue growth that's kind of baked into your guidance?

Trevor, so I think first of all, yes, absolutely, Partners are going to play a big role in it. The launch of Studio is a global launch. It's already translated to languages, which means that all of our -- as our launch is, first and foremost, is an internal launch to all of our existing Partners. And then later, sometime in the fall, we're going to proceed and open it up for mass market. Then obviously, that should have a significant and positive impact globally and as well as outside of those regions that are outside of the U.S. and North America. You do have to remember that generally, especially if you look at the EU, but not only the macro headwinds are still, I would say, stronger or at least I would say that there's better signs of recovery at this stage in the U.S. and North America. So that's going to play another role, I think, in that kind of improvement and returning to accelerated growth in those regions as well.

That's helpful. And just as a follow-up on one of the earlier questions, you talked about some of the key verticals that you already serviced. Are there any verticals that you think there's opportunity? Anything like on the social side and kind of like individual creators who make their own content for social platforms or any other verticals where you see some opportunity going forward?

The answer is obviously, yes. But obviously, we're not going to disclose which one for the same reason that...

Great. Next question, let's go to Naved at B. Riley.

Yes. Maybe a quick clarification. So you guys shared that partner growth was 35% and partner revenue was at 36%. I'm just trying to figure out the compounding effect in existing accounts or going there. But if I see the existing for linear, so is there something that I'm not looking at right when it comes to the math there? And then I have a follow-up question on AI.

You are talking about between partner growth and partner revenue growth?

Yes.

Okay. Remember that when you get new partners, it takes time until it rolls into the revenue, meaning that you take -- you have a partner, you start to play with the platform, we build one website or two websites, right? But I think that the compounding effect is something that is happening a few months after you get the partner join to our platform and start to build websites and so on. By the way, very similar to how GPV is acting, you get your customer that you start to sell this product, it takes time. And then you get the compounding effect of the GPV. So it's obviously very similar to that. When you have a very high growth or a hyper growth business like that, it takes some time until you see the differences. But definitely, we are going to see that in the future, the revenue growth is obviously going to be higher than the partner growth because of that compounding effect.

Got it. And then a follow-up on AI. So if I think about how AI can have an effect on the cost side of things, as well as any of the opportunities, so how should I think about the cost of infrastructure as you kind of deploy more and more AI? And then on the monetization side, maybe can you talk about the opportunities to sort of -- maybe drive our growth as you build out all these feature sets. And what do you have embedded in your models for 2025 forecast in terms of being able to monetize...

All right. So I think the first part of the question is actually a very important thing, which is you don't get AI for free, right? You pay for it and it's actually -- some of it can be very expensive. And so if you look at it, for example, if we do AI chat agent for support, right, we might be able to have less support agent, but you actually have to pay for GPU time, right? So the combination here -- and that's the question, is the balance. And obviously, we're going to have to be smart about it and monitor it, right? We don't want to have -- create AI's agent that is as effective as a human, but costs 3 times more, right? We want to -- but I've got to say that if I look at the trend the last couple of years, obviously, the prices are going like that for GPUs usage and from what we can test now, there is a huge gap between the salary to the cost of the computer GPUs and computation. On the other side, when it comes to conversion, that's even easier to manage and to understand when you use AI to do search generation, element like that. The cost is probably going to be smaller and most cases and then it's very easy to measure the effect and the value from that. So I would say that this is going to be on us, right? We're going to have to make sure that we are smart about it and don't do projects that's going to cost more than what they generate. The next question you had is about how it's going to increase the ARPU. And I think it's a combination. It's not just one thing. The number one thing, and I go back to what Fiona said, is that we want to make sure that we book conversion, right, and retention. And I think this is where we've proven in the past with ADI that it can be done. It works well when you do it well. And I'm a strong believer that we can do it again now that there are better technologies here of AI, and we can do way more than we did in the past. So this is the #1 thing. Another thing is that AI, the thing that can help you manage your business will also allow us to offer you more tools and more elements. So we actually believe that we can increase ARPU by allowing you to utilize more of what you can do in Wix today. By being the one -- that having Wix create initiative and then guide for it instead of you taking the initiative. The last part is that there are going to be some AI models and that we do intend to charge money for it, right? And so I do believe that, that is going to be part of it. And it is still something that we have to test and prove in order to say how big the effect on that is going to be.

You want to mention any -- what you model, how you captured it in the long-term model?

Yes. So as I mentioned before, we took under the model assumption what we see right now, both in terms of the cost, the run rate of the cost and the run rate of the growth. As Avishai just mentioned, I believe that there are 2 components over here. It's -- first of all, the most important word about it, is about the ROI, okay? If there will be more cost, we need to make sure that we get a positive return. It can be in a way of more revenue, for example, better conversion or saving in other places. I didn't take into consideration both. I didn't take into consideration the opportunity, but I also didn't take into consideration the cost of it. I believe that when you talk about positive ROI, it's just going to have a positive impact on top of the numbers that I took.

And I mean, we have -- it's not as if a lot of this is new to us, right? We've been utilizing AI within Wix for many years. We have a very good grasp on this balance that you were talking about Avishai, and how to manage it in the model as well on the financial side.

Absolutely, absolutely.

Okay. Great. Let's go to Mark Zgutowicz at Benchmark.

Really thoughtful presentation, so thank you for that. Two questions just related to top line. I was hoping you could break out just the segment guidance targets between creators and partners. You have partners -- just looking at this slide, your Partners free cash flow breakeven in 2024. So I just wanted to understand sort of top line assumptions to get there. And then just overall, you mentioned that you can reach your profitability targets under a variety of growth scenarios. And it looks like you're using the second half run rate and carrying that through to 2025. Just curious if we see a run rate below that level, what year it is would be -- sort of, I guess, gain for making further OpEx reductions.

So Mark, I'll start with the first question. I said that we are using the current run rate of growth. It means that if you want to understand exactly what will be the split between the revenue. So just take the current run rate of growth of Partners and just continue that. I didn't make any changes. It is exactly the same. No, even 1 percentage more nor 1 percentage less. So this is with regard to that. And again, I think that based on our assumption, we can always look at what we have right now and then better control it, right? I believe that from the last few years of experience, I think that, that will be the best way to handle it. But by the way, it's very important for me to mention. The way that we are running the plan or the budget is very simple. We are looking at the current year plus 2 years, meaning we don't take any decision today without understanding the impact of it in a couple of years of now, meaning that next year, we are going to do the same, but 2026 will be included as part of the model. So we have a very, very good control of what we are doing in terms of the cost. And to your question, if we're going to see that for some reason, we -- the growth is less than what we see right now. So the first thing that we need to understand is the reasons. For sure, we are going to align the cost to meet this growth rates in order to make sure that we will get to the target of our profitability. But to answer your question, how we're going to align the cost is really very much depends on the reason why we see less growth. And then we are going to react accordingly. Remember that many of our expenses, especially when you plan this kind of a model are embedded into the revenue, meaning that there is a direct effect of revenue. If revenue is lower, it means that you have also by definition, lower expenses. But if it's beyond that, or much more than that, we will have to align the cost. And again, the way that we are going to do it is based on the reason why we see less growth.

I think this is actually a good transition to a question we got sent an e-mail. I mean thinking beyond 2025, we laid out pretty clearly the incremental cash flow margins that we're going to see here through 2025. How should analysts think about the incremental margins beyond 2025?

Yes. I think that it's also related to the question about the long term, where I said that it's going to be not before 2028. So I believe that everyone should assume that 2025 is not the end target, meaning that 25% of free cash flow is not the end target. We obviously see that it's going to be higher than that. And later on, the target will be set to 35%, for example. So yes, I believe that the leverage that we are seeing right now and will see in the next couple of years will continue. And therefore, I believe that somewhere -- like it won't be before 2028. But if you take this revenue or the leverage and just continue, you will get to the same -- exactly the same calculation that I'm doing. So yes, in the future, I think that we are going to generate more revenue, most of it is going to go down to the bottom line and increase the profitability even further, especially with the Partners business. Remember, Partners business is going to be more profitable, so when the mix is changing, it will be much easier for us to see this leverage.

Great. So let's go to Matt Pfau at William Blair.

Great. Just one for me. I wanted to ask about Wix Studio. And as you make it generally available, curious as to what type of investments that you're going to need from a marketing and support perspective. And the reason why I'm asking is because you're releasing a very significant product here, while at the same time, if I look at your expected ramp in the profitability of the Partners business, really making significant improvements there. So just trying to understand the relationship between those two dynamics.

Sure. Matt, it's Nir. So -- and Lior can talk about budgeting aspects and modeling later on, if needed, but generally, you have to remember from -- that from our standpoint, everything that we have to do in order to market a studio are activities we've done in the past. It's also you have to remember that we are already well known and appreciated in this community and within this crowd. So we have a great starting point. And the goal, once Studio is out there, and Lior spoke about it in kind of -- when we're going to be starting -- when we're going to start the investment of marketing in Studio, obviously, only after we released the product, which is in the second half of the year is to start growing and building and strengthening that, the Wix Studio brand, to the point where we can reach the adoption and reach the new crowds of Partners that we want to bring in. So from that standpoint, I think we have a very -- I cannot go into the details naturally, but we have a very, very strong and solid plan. We've been working on for a while now. We have the resources in place. We have the right people and the right expertise. In terms of the customer care associated with it, that's also something that has been taken into account, both on the cost side, but also in terms of the training, the creation of the community around it, the adoption of more technical solutions for a more technical crowd. And that's again something that we're not just starting just now but we've been working on and adopting over a long period of time.

Yes. So I will relate to the modeling part. And I think that it's a great question because I think that it will enable you to understand the way that we are managing our model and plans. We took into consideration millions of millions of dollars in terms of marketing for Partners, especially around branding activities. Remember, guys, that I told you that in the second half of the year, we are going to invest more in branding activity for the launch of Studio. And obviously, this is something that will continue. So the model from one hand, taking millions of dollars of investment into the Partners business, in terms of marketing. But on the other hand, I didn't take any consideration to any increase in revenue as a result of that. So I believe that the model is actually taking everything into account, from one, is I think the marketing investment that we need to do. But on the other hand, we are not taking the upside as a result of that. And I believe that it will be much better right now when I'm doing the model to be more conservative around it.

Okay. We'll go to John at Jefferies.

This is John on for Brent Thill. So on the cost side of things, obviously great margin targets. But one thing, maybe on the other hand, you're planning not to add much fixed cost at, all very, very restrained on head count -- additional headcount. But is there a risk that you maybe state to lean on cost and potentially maybe some of the opportunities that have more return paybacks. Wondering how you think about that.

So I'll kick it off. I think, generally, we feel that at the current size and availability of resources we have internally, we are in a very, very good place. And in order to achieve our targets and grow towards both the Partners side and the self-creator side. Now I think that naturally, if eventually, as Lior said, he is not counting the upside at this point. But if we do see the upside, and that's going to be also driving a better margin, it will also allow us to increase some of the cost and go after more resources to go after further growth opportunities. Our sense is that we first need to prove to ourselves the current investments and the current growth acceleration before we go to that next level. That being said, I think that over the past year, and I think we are humble enough to say that, we also saw that there is a lot of good learnings and smart decisions to be taught throughout going after more efficiency, I. Think we proved so in our new marketing strategy, and we're very happy with the results. And we're also very happy with the fact that even in the year in which eventually growth was lower than what we hoped for when we were here in the last year's May Analyst Day, we managed to make the adjustments in a way that allowed us to both be -- meet the targets of the margin, but also meet the targets in terms of execution and deliver Studio and deliver the new initiatives and deliver the AI innovation on the timing that we intended to.

John, did you have a follow-up question or...

Yes. I'm trying to unmute. A couple of -- couple on Partners. One very quick one. First, a quick one is, will Studio replace Editor X and Velo, would you be winding those down? Is Studio kind of the next thing? And then on the Partners side, I mean, you've been at it for quite some time. Wondering how things are going in terms of winning over partners that kind of are married to the work Wix ecosystem or used to kind of whatever tools that they're using, in terms of the momentum of them switching over to the tools and adapting to the overall Wix ecosystem. Just wondering how that's changed from the start to now?

To the first part, I think it's simply a yes. We do see Studio as an extension of Editor X. And when we felt that it Editor X was built for professional designers, people that are really, really spending a lot of time designing things, and we saw a lot of agencies that have been using that at a growing number. Frustrated, because it was really aimed for design and not for agencies, so we said, well, let's improve the UI and make it that agencies can use it in the same ease of use that they want, but have the control in the design. So that's the evolution of Editor X into that.

But I think he asked whether we're going to replace our Editor and Velo as well?

Well, Velo is just part of it. So Velo is not going to be replaced. But I think the big question here is will it be a different product line, you're going to have Editor X, Studio and Wix and we're going to market all 3 of them or it's going to be just 2? And the answer is just 2. We are winning over WordPress. That's the simple reality of that. We showed some information this time. But every year, we are saying that the amount of new content that's been created in Wix and compared to WordPress is growing. As far as I remember, if last year was a year where we actually had more new Wix websites built than WordPress. Again, this is according to the data that we have and analyze, so I don't want to commit and be like 100% behind it because WordPress does not disclose the number, because they're not a company and they're not public, and they have nothing -- they don't know the numbers. But from what we can do when we search and browse different domains and do estimation based on that, that was something that we noticed. So I would say that all of the SaaS CMS are gaining over WordPress and taking that. But there are other tools there that -- Drupal or a host of companies growing company solution that we take market share from much faster.

One more question that was submitted over e-mail was about the share repurchase program that we announced, the new commitment. The question is about just the cadence of the repurchases, but maybe since we haven't spoken about it yet, Nir, could you give maybe a little bit of background about how we came to the share repurchase authorization that the Board gave and how we're going to plan to execute it?

Sure. So I think in a very clear manner, looking -- having a 3-year plan out there that calls for a margin but also for the generation of the absolute number in terms of cash flow, both Board and management felt that it makes a lot of sense to match it also with kind of the same period, general methodology to how we want to approach the repurchases. We've done repurchases in the past, and I think, as we gain more maturity in it, we wanted to put something in place that was going to create more clarity. And we believe that looking at kind of the general different metrics of the company and where we stand in terms of capital, deploying roughly 50% of the cash flow over those -- the excess cash flow over those 3 years is what makes sense. Obviously, the way we're going to deploy it is going to be associated with decisions we're going to make at the right time and market conditions. That being said, as an Israeli company, we're still bound with approval of the Israeli court system in order to be able to go out and get their approvals so we can exercise the repurchases. Our goal, at least for the time being, will be to try to go for a cadence, which is as fast as possible.

Okay. Well, with that, I think this wraps up our Analyst Day this year. Thanks, Avishai, Nir and Lior. I also want to thank Michal, Gali and Hila, who contributed to the presentations. And I also want to thank all the other people at Wix who helped put together all the presentations, the videos and today as well. So thank you all.

And thank you, Joe.

Sure. Thanks.

Thank you, guys. Hope everyone has a good day.

Cheers, everyone. Bye-bye.