Wix.com (WIX) provides small businesses with software technology that enables them to build websites so they can conduct business online. Wix has more than 220 million registered users, and approximately five million premium users worldwide. The company’s headquarters are in Tel Aviv, Israel.
The stock is down more than 50% this year. I am bearish on the stock.
Reasons to Expect Further Bearish Sentiment
Current market sentiment is not favorable for technology stocks, as traders mainly prefer energy companies to take advantage of record fossil fuel prices.
Many investors remain focused on value during the current market turmoil caused by numerous uncertainties.
So, investors’ interest is currently shifting away from growth stocks, particularly technology stocks.
Wix stock has a 14-day relative strength index of 37.2, which suggests Wix has a few more share price falls ahead of it.
For beginners: the RSI is a technical analysis tool used to assess whether the price of a stock or other asset is either overbought or oversold. When the RSI is above 70, the stock is generally considered overbought, while below 30 is considered oversold.
Q4 2021 Results
A strong performance across its businesses helped Wix grow revenue rather than earnings in the fourth quarter of 2021, but surprisingly it only beat analysts on earnings.
Revenue came in at $328.3 million, up more than 16% year-over-year, and missing analysts’ median forecast by $4.5 million.
Pro forma earnings were negative as the company suffered a net loss of -$0.37 per share, reflecting a significant deterioration from the net loss of -$0.03 in the year-ago quarter. However, the consensus on Wall Street expected a net loss of $0.42.
By segment, Creative Subscriptions grew about 15% year-over-year to $246.67 million. Business Solutions grew approximately 19% year-over-year to $81.67 million. In terms of contribution to total revenue, Creative Subscriptions accounted for about 75%, while Business Solutions accounted for about 25%.
Other relevant metrics included annual recurring revenue (ARR) from Creative Subscriptions, which reached $1.01 billion in the fourth quarter of 2021 after growing 15% year-over-year, and total bookings, which grew 15% year-over-year and reached $351.6 million.
Outlook
Wix’ business is poised for further expansion as it will benefit from increasing corporate adoption of internet technology.
According to Statista, the global e-commerce retail market, worth nearly $5 trillion in 2021, is on track to double over the next four years and reach $7.4 trillion by 2025.
If e-commerce is going to make such a contribution to retail, chances are that small businesses won’t want to miss out on this growth opportunity.
As a web design services provider, Wix should benefit from the positive momentum and continue the improvement seen in the fourth quarter.
Guidance for Q1 2022
Looking ahead to the first quarter of 2022, the company is forecasting total revenue of $338 million to $343 million, an increase of 11% to 13%, over the corresponding period. Analysts estimate an average of $342.68 million.
The company will announce the results on May 16 before regular trading hours.
The company also announced that annual growth in total sales should accelerate in the 2022 quarters, including the last of the current year.
Balance Sheet
Wix’ balance sheet is not solid and needs improvement.
The Altman Z score of 2.2, which indicates financial difficulties, puts Wix – although only slightly — at risk of bankruptcy within a few years.
For those unfamiliar with the financial indicator, the Altman Z-Score measures the likelihood that a company could go bankrupt within a few years. When the ratio is between 1 and 3, “grey areas” appear, meaning the company could face some risk of bankruptcy.
In addition, Wix’s investments produce a return that is less than the cost of raising capital. This last aspect is highlighted by Wix’s weighted average cost of capital (WACC) of 9.87%, while the return on invested capital (ROIC) is negative at -42.2%.
Therefore, unless the company reverses the trend by achieving improved profitability as soon as possible, the company’s financial condition will deteriorate.
However, the company operates in a very fast-growing market, and if it seizes opportunities quickly, its balance sheet will surely improve, which is a good reason for the stock price to rise.
Valuation
The stock has a price/book ratio of 77.2, a price/sales ratio of 4.75, a price-to-cash-flow ratio of 65.5, and a price-to-free-cash-flow ratio of -498.
Wall Street’s Take
For the past three months, 17 Wall Street analysts have issued a 12-month price target for WIX. The company has a Moderate Buy consensus rating based on 11 Buys, five Holds, and one Sell rating.
The average Wix.com price target is $134.53, implying 89.4% upside potential.
Conclusion
Currently, the market does not favor Wix and other growth technology stocks. The share price, which has halved so far this year, could fall further due to the current market turmoil.
This company operates in a fast-growing market, and should be on track to improve its profitability and financial condition.
However, the stock price needs bullish sentiment to recover.
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