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

All right. Thanks, everyone, for joining. Back again Ygal Arounian on the Citi Internet team. Thanks joining us here at the conference. It's the pleasure of being with Wix, CFO, Lior Shemesh and IR, Emily Liu right?

Yes. Yes.

Got it. Thanks for being with us today. We'll have some mics going around later if anyone has any questions, we'll get to that. But Lior, I want to start with Wix Studio. Probably not a surprise last year. when you guys were here, it was just rolling out, it wasn't even out in GA yet. It's been a pretty successful year by most measures for Wix Studio. But maybe just to start there, anything over the last year that surprised you that's been better than expected or worse than expected? Or kind of how to think about the trajectory from here on Wix Studio?

Yes. I mean I believe that this is like the most important question, Definitely better than expected. I believe that after a year or less than a year, I'm certain that the Wix Studio is a significant growth driver for us. It's a significant growth driver because it's open for us the entire partners market. I mean we've already started to see the numbers. It's already started to become more and more significant. And then we try to explain the reasons why. So first of all, it was the best ever product launch that we have had. In a very short period of time, we have more than 1 million users keep on growing by hundreds thousands every quarter. So definitely, I'm not familiar with many products that after less than a year, already passed more than 1 million users. And those users coming from all types of professionals and agencies, some of them medium-sized, small size, like 3, 4, 5 employees, 10 employees, and some of them big agencies. And the feedback that we are getting, and this is like the most important thing is amazing because for the first time, they have like a full platform. It's not a product. It's a full platform, that has like dashboard that they can manage their employees, looking at what they did in terms of the work, they can manage roles and permission. And I think about an agency right now, we build something and I want to send it to the customer, okay, to review, but they don't want the customer to basically destroy everything that I created, so I can tell him, look, you can just edit the content but not the design, for example. There's nothing like that. They don't have to take care of the maintenance, the security and so on. So definitely, the feedback that we are getting is amazing. And last quarter, we said that in terms of the collection for people that using the Studio Editor, it was growing by 20% on a quarter-over-quarter basis. So it's like a happy growth product for us. It's already like millions of dollars that generating revenue for us. So less than after 1 year, we feel very, very positive about the future about partners and the fact that our Studio is like the most significant platform within the partners strategy.

Got it. And so maybe to expand on some of those points. I think one of the misconceptions from people sometimes is Okay, now we're lapping Studio, we're a year in, but you're talking about it as a growth driver to come. Partner segment has seen 30% plus growth on a trailing 12-month basis. Much of that is probably outside of Studio, but like you talk to that, right? If we're talking about Studio not even being in GA at this time last year. How do you -- what's the -- maybe what was the key driver of the partner growth before Studio kind of started to ramp? And how much of an impact it is? And is it now? And as you think about the growth going forward, meaning you're not lapping that today becomes a bigger impact over time. Just what's the right way for people to think about all that?

So yes, I mean, definitely, it's a SaaS model. meaning the entire go down to the revenue, it takes time. I think that from my point of view, and obviously, you don't have those numbers. But from my point of view, I'm looking about newcomers and what is the growth of newcomers using Studio. And this is a significant growth. Yes, as any other SaaS model, most of the revenue is coming from existing cores. This is why the effect of Studio is not yet big or significant in terms of revenue. It's more significant in terms of bookings, meaning that if it will continue growing like that, definitely, we are going to see acceleration in terms of the growth for partners in the future, at least for bookings. And by the way, we really started to see that in the last quarter, the fact that bookings went up from 10% to 15%, a big -- one of the biggest reasons for that, it was because of the Studio. So it started to have its impact, but yet, it's not like a fully -- it's still kind of rolling into the revenue and bookings. Remember that also are very interesting because we talk about a SaaS model, for example, when you're talking about self-creators side, yes, it's -- this is the case. It takes time until it's actually we see that in revenue and bookings. But what we've seen something really interesting with our Studio, even existing partners from existing cohorts using Studio to build more and more websites like the second, the third, fourth because Studio enable them to use it for more and more projects because it has much more capabilities -- so we definitely see impact also on existing codes rather than just on new codes.

Got it. Okay. Let's talk about the capabilities for a second here. Studio was sort of an evolution of multiple products, predecessor products, right? Editor X, the most recent before it. It seems like it is the most kind of game changing of all these combined. What's next in terms of capabilities, the product road map for Studio? Is it kind of built out the way you want it to be? Or is there still a lot to come on that?

Well, so there are many, many things that we are going to launch. Look, it's only at the beginning. We just launched a product. We talk with our partners. We understand what they are missing, what is from their point of view about the performance, what more features that we need to release -- and this is exactly what we are doing. So it's just the beginning. Usually, when we release the first version, there is second, third and so on. So yes, definitely -- by the way also with the different AI capabilities and different AI services that we are going to launch. So there will be more integration with other platform. But like for one, for example, they want to have with [ Figma ], which -- this is like it was like a top request for partners and something that they're missing and we see right now the usage of it, and it's amazing because they're using [indiscernible] integration and creating many, many websites using this integration. So you can expect for the product to evolve to have much more integration with more professional tools and definitely much more capabilities, right?

Okay. Let's -- let's talk about the agency world a little bit more. I think for some people, sometimes it's a black box to a certain extent, right? On the sub cater side, it's 1 person, 1 website, maybe 2, whatever. Agencies can build a lot more than that. And you've talked about larger -- or smaller agencies, but also larger agencies adaptiveness too. Where is the share coming from? I know like WordPress is part of it is it predominantly WordPress? And how penetrated are you in that, let's say, an agency builds 100 sites. How many are they building on the Studio for now?

So first of all, there was -- I think it was a report that I read like a few weeks ago. Don't remember the name of the report, but it was talking about the fact that actually looking at WordPress, about 80% of the website built on WordPress have been built by actually by small agencies. The 1 that are like up to 20 employees. We are talking about the mega agencies, meaning that still those small to medium type of agencies, they are responsible for most of the website that actually built out there. And when you look at the overall, we said about more than 1 million users and is growing by hundreds of thousands. Those are most of the users. But actually, those up to 10, 20 people that using Wix to build websites for their customers. Now while you see a very big penetration because it's very easy for them. You don't have like -- when you change platform and you have like a mega agency with 200 employees, it's really hard because you need to train them on new platform. So those ones it's the early penetration is quite easy because they have like 3, 4, 5 employees. It's very easy for them to convert from WordPress to Wix, and this is exactly what we see. So this is 1 chunk of the agencies that we see like a big penetration for us. Actually, we see the strength of the brand. We're looking at the search for Studio right now on Google and it's increasing dramatically, meaning that people already started to realize that Studio is the best platform for them rather than use WordPress. It's very easy for them also to convert existing website to Wix from WordPress. I think that the fact is that right now we see the words -- the entire work ecosystem shrinking is a result of that, meaning that we are gaining more and more and more market share. Now when it comes to the big agencies, like the mega agencies, we have a few that we already started to work with, but it takes time because you need to train them, it's not easy for them to convert. We might provide them with more tools in the future based on the AI to help them with this conversion. But Basically, they need to change a platform, they need to train their employees. It takes time, and we started to see that happening, but it's not significant in terms of the revenue because it's something that it's a process. It takes time until it's actually started to happen.

Okay. And my -- agencies means, it's like an agency at a holding company level?

Take for example [ Tesla ]. From my point of view, it's a huge factory. It's a mega agency. So we started to use Wix, right. [ Tata ], for example, can build thousands of websites in a year. This is what I call mega agencies. But let's remember, most of the website is actually built by the small one, not by the big well, right?

Okay. Got it. Let's shift to talk about AI or I guess, partially shift. So AI has components on the agency side with Creator and then with a Studio and then it's got on it on the self-creators side as well. One of the big GenAI focuses right now is around the business assistance, you got 17 that are launching, right? You have more to come. So I don't know, I'll leave it up to you to a certain extent, but can you talk about the difference between the AI features and functionalities for the professional side and the self-creators side? Is it the same thing of people looking for different things and do you have different tools for...

Yes, I can up for that. I mean, in general, we have a really comprehensive suite of AI products, the cornerstone being our AI website builder, and that is more geared towards self creators. When they come in and start building on Wix when they enter our funnel, a majority of new users today use AI website builder. So that's our cornerstone AI product for this kind of group -- this cohort of users. It builds out a fully functional ready to edit -- sorry, ready to publish website with inter pages, landing pages, verticals attached, applications attached all ready to go and ready to publish. So that's been really compelling for this, and we've seen conversion and ARPU uplift just from this product in our new user cohorts. And then for all of the other products that we have out there, we have a big suite of AI creation tools. We have specific e-commerce tools driven by AI. We have advertising and marketing tools that are also AI-driven. And these are kind of appeal to both self-creators and partners. Partners are also utilizing this -- they use our text generation and layout generation tools to help them kind of have a -- they're not starting from scratch, it build something for them. It's easy for them to edit and fine-tune and it saves them a lot of time. So they've been really enjoying that. That's the -- these are the tools that are available on our classic editor. And then in our Studio product, we have specific studio -- sorry, specific AI products there, and that's used primarily by professionals. So we have responsive layout in capabilities. We also have an AI code assistant, again, were those more sophisticated partners and professionally users. But in general, we see that both kind of cohorts, these both types of users are utilizing AI to drive efficiency and help them build better products faster.

Okay. Great. That's great to hear. Let's -- on the sub creator side for a second, right? So the bookings are accelerated slightly in 2Q. We're kind of in the mid-single digits. You talked about -- well, you've talked about AI driving acceleration in bookings in the second half in the self-creators side. Also talked about the 10% target -- 10% booking growth target getting back to that and AI driving that. So any way to kind of frame what the contribution has been in terms of the bookings growth so far? Is it early like Studio? Or has it been more impactful so far?

So your question was specifically about the self-creators.

Yes, let's focus on self-creator for now.

Okay. So first of all, we see in the second quarter, a significant increase in bookings self-creators. It is not yet 10%, but not so far from that. But there are mostly 3 reasons for that. And we'll talk about the fourth one because that will also enable us to be more than the 10% that you mentioned before. Looking at what we call the [ bad creation ] or the newcomers to the sales creators and the fact that you are using the different AI tools, it's increased conversion significantly. But remember that when you -- when you start the quarter, about 90% of the bookings coming from existing cores, okay? This is like a very kind of healthy basic subscription model. Let's assume that you increase conversion by 20%. So the impact on the 10% it's only by 2% when you think about it. So it's very, very small. But the impact on the use to come, super significant, okay? So when you're thinking about AI when it comes to self-creators, there's a few opportunities. We didn't release all the tools and what you are planning to release, but I will talk about it like briefly. The first thing, in terms of the opportunity to self-creators is to increase the overall addressable market with different AI tools. Meaning that today, most of the self-creators you know they are coming to Wix because they are looking to build the website. Actually, the search for Wix is much, much higher than the search for website builder because the brand is super strong. But the AI without getting into too much details will enable us in the future to bring also to increase kind of the top of the funnel, meaning to increase the addressable market for people that can come and use Wix. The second type of AI tools is the one that, for example, we just launched a couple of quarters ago, the AI site builder. Well, this is -- the most of the important impact when someone can start to use Wix is to enable him. Remember that it's a freemium model to complete the website with satisfaction. So this is exactly what the AI Site Builder does, and it's helping you create a website, fully designed with content fully integrated into whatever you are looking for. t's actually asking your questions and also helping in terms of the discoverability because you're not always really understand what you need, do you need, okay, I have a business right now? Do I need events? Do I need online store? What kind of capabilities do I need, for example, all kind of e-mail marketing or how to boost my business. All those type of integration can be done through the AI [indiscernible] about, okay, you asked a question, I knew exactly in order what to offer you. It means it's not just about completing the website, but also making it more successful in terms of how you operate the business. So this is something that we already started to see right now. The impact of it is obviously better conversion but also higher ARPU because of the discoverability, because I can offer you more services that you actually need. The third type of AI tools that we are going to launch is all kinds of services that can help you with the day-to-day business, okay? It can be financial decision. It can be a marketing decision, okay? How do we build it? How we use this after I become a freemium. And this is something that probably we are going to charge more in terms of using it. By the way, some of it will be like a very plain vanilla, very easy, like a freemium model. Some of them will be more suitable for cell theaters. Some of them have been very sophisticated more for partners. So I expect that those kind of 3 effects, increasing the addressable market, increasing conversion and increasing the ARPU, some of it already decided to take effect. The other thing is obviously that has a big impact this quarter is a price increase. Now looking at the price increase that we've made compared to the last one that we've made like 2 or 2.5 years ago, the result was different, much, much better, meaning that we see that people were less sensitive to the price increase. I think that when we started to learn and try to understand it because we actually saw a different type of customers -- different type of customers, they are more mature, and they are more mature because of the partner strategy, meaning people that come in with more GPV, more mature businesses and so on. And obviously, they are less sensitive to the price increase, but it makes us believe that we can actually use the strategy of price increase on an ongoing basis. Every 2 years, every 2.5 years. Obviously, every year, we are going to be A/B test it. The last effect on self-creators is obviously the macro. Those guys don't be wrong. Those guys are very sensitive to interest rates, because they need to take loans and credit to invest in their business unless the interest rate go down, it's always going to be an issue. So I do -- it's not something that we can control, but I assume that once interest rate is going to be down. It will be extremely helpful for us to get a bit behind more than the target of the 10% that you mentioned.

Got it. Okay. So we're talking about better conversion, better ARPU because you're attaching more products and then just general better ability to drive a price because you're driving more value or higher value.

Exactly, it sounds pretty good. I agree.

Okay. Another thing from this past quarter, really driven by all the things we're talking about here is commerce on the platform. So you're kind of moving up market and it's driving an ability for more commerce on your platform. Can you talk about how that's changing with the evolution of the product.

Yes. So we kind of mentioned these -- we're bringing on more partners and these new partners, especially with Studio and the new [indiscernible] that we're pushing out, they tend to be those larger agencies. And these large agencies, just by default, they have the tendency to be building more business sites, more commerce sites and not just more commerce sites, but sites for larger businesses and more mature businesses like Lior just mentioned. So with this new profile of these new merchants onboarding, these merchants are coming on to Wix with more GPV already as a base. they're seeing more stable GPV base and stable GPV growth that's still growing quite robustly for them. And they are also -- we see a lower level of churn from them, too, just because, again, they're more mature. They have that lower rate of potential failure or closing the business, and that has benefited our churn numbers a good bit as well. So that's been really exciting. And when they have their GPV on our platform, this bigger base of GPV from the get-go, that's really when our product suite starts to show value. We have a huge range of commerce tools that help them drive success. We have advertising and SEO and marketing tools for them as well. And we just have all of these other applications that help them grow their business and, in turn, their GPV on Wix grows and we get what we call compounding growth from them. So we expect that to continue, especially as we continue to roll out more commerce tools, more partnerships, more cross-selling abilities, a lot more capabilities in that realm. And you've kind of seen it over the numbers over the past few years already. Partners today contribute to about 50% of our total GPV, and they're only about 1/3 of our revenue base. So as more partners bring on these larger businesses with these large bases of GPV and more stable and more mature, that portion of GPV from partners should consider -- should continue to grow.

Got it. So let's -- I want to talk about the competitive environment for a second because you've continued to move up market. And I remember since -- really, since I've been covering you guys starting in 2018, that's been your strategy to keep moving on market. We get questions often about where you fit in that landscape. And it sounds like you're continuing to move further up Shopify, obviously, is one that comes up regularly. I won't call you guys enterprise yet. I don't know, maybe you do view yourself on the path towards that. But as you're moving up, is it still just WordPress. Do you compete more on the enterprise side? Like how do we think about that?

Well, obviously, it's too early. I think that definitely Studio with its capabilities will enable us to compete more on enterprise. Because when you think about -- when you think about Studio, I mean, we build it, obviously, for our agencies. For example, take the fact that you can control content from 1 place, roles in permission perhaps multisite and so on. But it's exactly the same thing as enterprises looking for. We see many cases actually, we see enterprises using Wix not necessarily for their main website. But they can use Wix, for example, for marketing campaigns, all kinds of lending pages where they can control the content in 1 place on the corporate. So we see a lot of use cases, not necessarily for the main website, but also for internal needs for their employees and so on for their customers. So definitely, I think that Studio with its capabilities will enable us to compete more on the enterprise, not necessarily for Shopify in terms of online stores, but definitely for enterprises or big enterprises, who are looking to use Wix for all kinds of services. I think that in the future, we will be able to say exactly what are the niche or what are the places. We believe that enterprise will be much more relevant for Wix. But we started -- we already started to see that's happening. We're already starting to see hundreds of enterprises using Wix. I believe that Studio open and you know it's a good question, but Studio opened for us a market that it's not just the agencies, but also enterprises. By the way, when you think about it, it's connected to each other because some of the big agencies actually building websites and services, for example, for enterprises. You have marketing agencies that using all kinds of tools today to build capabilities for an enterprise that need their help in terms of doing campaigns. So obviously, they can use also Wix for that. We started to see that happening. It's too early to say, wow, is it going to be like a huge business for us, but I truly believe that it's a huge market.

Yes. Okay. Great. Let's go back to commerce for a second. And so GPV had a big quarter, that was partially driven by an increase in the take rate. You talked about 1 new partner there. Can you expand on that? And how we should think about adoption of Wix Payments and take rate over time?

Sure. So okay. So take rate. I believe that it will continue to increase. I mean, look, we understand the take rate cannot be 3%. The maximum can be 3%, obviously. But definitely, we want it to be more than 2%. How we do that? Right now, I think it's about 1.68%. How we do that? One is keep on integrating Wix Payments to more partners. The last 1 was with Square. It's a big partner that started to be integrated into Wix Payment. So it means that those people that using Square right now will be part of the Wix Payments, so it's increasing the take rate. So we already integrated with Stripe with Avion and with a [indiscernible] in Brazil. But there are also many local partners in many places of the world that we can integrate. So it's like the same strategy. It's not just about increasing partners to the Wix Payments platform, but also penetrating to more and more countries. There are still countries that Wix Payments is not available, for example, Israel, it's mostly because of regulation, but it will change. Once you include a specific country and a specific partner immediately increased the take rate. And this is what we've seen in the last quarter. The other thing is about providing more product that can help you increase take rate. For example, the last product that we included is the Wix Donation, which is part of Wix Payments, right? Now you can use the Wix platform to build the website for donation and Wix Payments is part of it. Wix Proposal. Wix Proposal is a great example of how you move GPV from off-line to online and increasing the take rate because right now, you can use Wix to send a proposal, meaning that you provide some kind of service, you send a proposal using Wix to your customer and it's immediately you can also charge money advanced payment or the entire amount, okay? And this is all in Wix Payments. The other thing is about the Wix POS. POS is a great way. By the way, Shopify are doing the same thing. How you can move off-line to online, but also increasing take rates. I think that Wix and Shopify are the only company that provides -- provide a full omni solution online and off-line together, including the POS. So this is the strategy. I believe that we see that continued by doing that, it actually increased the take rate. With regard to the overall GPV, we've seen that this quarter, what's happening this quarter is not just about the increase of take rate but as an increase of GPV as a result of the fact that we see a higher dollar per transaction for our users. And let's go back to what Emily spoke before about we see more mature businesses joining Wix with existing GPV in day 1.

Got it. Okay. Let's now kind of boil us down to the financials. So bookings was ahead of expectations in 2Q. You talked about the self-creators side, driving some of that. Maybe anything else to think about in that number? And then I guess the bridge to the second half were 16% in the second half coming out of the quarter, some debate around whether there was a pull forward, but the high end of the full year guidance came down a little bit. There was some FX in there ins. So I think some I'll just call it general confusion on how to think about the second quarter results and what that means for the second half and how to think about bookings going forward?

So the second quarter results came exactly according to my expectations. I think that the only thing that I was under surprised we got a budget from our most significant partners from Google for marketing, and it was like a few millions of dollars. Usually, it's happened in the second half of the year. It's happened in the second quarter. I don't know if we have that extra budget. But in any case, without it, excluding that, the growth in the second quarter would have been 14% not 15%. So sometimes you have this thing on booking that kind of fluctuating the booking, but it is not significant. So definitely, when we provided the guidance in the previous quarter, we actually aim to 16% in the second half of the year. It is still the case even with this budget actually coming earlier in the second quarter. So beside of that, there was no surprises. I believe that going up from 10% to 15% in the second quarter is a result of many things. The first one, we said it's Studio. It's the AI initiatives, is the overall e-comm and the price increase. It's still going to happen, all of those reasons, all of these cases, all of those trends still going to happen in the second half of the year, meaning that thing has changed. We actually feel much more comfortable about it. I mean, we see the numbers and it's exactly according to our expectations with the fact that actually Studio is more impressive. But I believe that it will continue next year, and we feel very comfortable about the numbers. So there's really no change between the guidance that we provided last time to the actual results in the second quarter and the guidance for the second half of the year.

Okay. Do you feel good about the booking strength next year even on the tougher comps as we worked our way through this year.

Look, there's always tough comps. We will come to the price increase, obviously, but for all the other reasons, we just started to see the impact of Studio and AI. I believe that they will compensate for that. this is why when you're looking at the numbers of the AI initiatives and Studio, definitely its impact next year going to be larger.

Got it. Okay. Any questions from the audience?

Shopify has come up a couple of times. Can you talk about how your overlap within might increase over the next few years?

Look, Shopify is a great company. We do not intend to compete with them on the most of the business. About 80% of the business coming from about 20% or 25% of the merchants. It's big chains. And probably, Shopify is a better platform for them. You don't want to compete with a solution that is really good. But I think that for about some of the customers, yes, there is some kind of competition. Remember that people that come to Shopify, people that's looking to build an online store, people that come to Wix looking to build a website. If you want to have like a much better design website with the e-com capabilities, probably Wix is a much better solution. It doesn't mean that if you are running like $10 million of GPV, I mean, we have those kinds of customers that Wix is not the best platform for you. But if you're looking for more kind of fulfillment capabilities. So yes, I mean, probably you will be using Shopify. But remember that we are growing at scale. And I think that you know Ygal talked about it before, but take, for example, the fact that we had with an integration with companies that provide all those kind of fulfillment capabilities, when -- especially when you are selling from 1 country to the other. So yes, we are moving upscale, but also Shopify doing the same thing. I don't think that we'll ever compete kind of the main business.

I'll also say to where something that really differentiates our commerce platform is that it's very diversified. So actually half of our GPV comes from nonstore service selling merchants. And that's actually been the highest verticals. We talked about bookings and events. These are 2 service focused verticals that are growing 20%, 25% every quarter and Shopify doesn't offer that.

A quick one. I was reading -- can you just talk about what you've done with price -- just pricing? I guess you did a price increase last year and that went well. How do you feel going forward? And how are you priced compared to some of the 1 or 2 key competitors?

So yes, I think that the result of the price increase were was better than I expected. I think that it was also in the first quarter when we provided the guidance, we actually increased the guidance, some of the reasons because of that. . We see -- I mentioned before, we see more mature businesses. I mean we've planned to kind of evolution in terms of the type of customers that we are getting. So we're less sensitive to the price increase. We saw much better results than the previous one that we did like 2.5 years ago. Definitely, we are going to AB-test every year price increase. It can be the case that we will decide to do price increase in one country, but not on the other because it's -- remember, it's really different from one country to the other. We did increase pricing. But for example, not in Brazil. So every country is different. We did increase pricing, but we didn't increase pricing for Studio because they want to get more market share right now at this point of time. Definitely, we are going to test price increase, and we will decide. We mentioned before, I believe that it will be a strategy that we are going to use on an ongoing basis.

[indiscernible] roughly [indiscernible] price.

It was somewhere between -- it depends, but somewhere between 10% to 20%. It depends on the country, it depends on the product.

All right. That's our time. We didn't get to talk about margins or Rule of 40, some now.

Rule of 40.

I don't know if you have a closing remarks on margins. Otherwise, the next conference we're have make sure you start off with that.

Okay. No problem. But we said that we are significantly going to pass the Rule of 40 next year. Just 1 sentence about it. I think that it will be a combination of better growth, but also driving better margins.

Got it. Great.

Thank you.

Thanks for the time. Thanks, everyone, for joining.

Thanks.

Bye. Bye.