Wix Plunging 10% As Earnings Fall Far Below Expectations

Shares in web developer Wix.com (WIX) are dropping 10% in Thursday’s trading after its second quarter earnings fell short of investor expectations.

Specifically, Q2 Non-GAAP EPS of -$0.26 missed Street estimates by $0.51 while GAAP EPS of -$1.06 also missed consensus by $0.56 due to increased investment in marketing.

On the positive side, revenue of $236.06M beat Street estimates by $3.09M- and represented year-over-year growth of 27.3%. Creative Subscriptions revenue came in at $190.2M, up 21% year-over-year, with Business Solutions revenue of $45.9M, up 62% year-over-year.

Lior Shemesh, CFO of Wix referred to an ‘immense uplift in demand’ in recent months, driven by the rapidly increasing importance of having an online presence.

“We are responding to this continued heightened demand by increasing our investment in marketing, which based on our historical data, will drive continued collections and revenue growth in the near future” he stated.

Indeed, WIX added a record 9.3M users (up 18% year-over-year) and 346,000 net premium subscriptions (up 17%) in the second quarter, with users purchasing Business and eCommerce subscription packages and annual and multi-year packages at a higher frequency.

The company also revealed that it is expecting revenue growth of 26-27% year-over-year and collections growth of 31-34% year-over-year in the third quarter. That’s alongside free cash flow of $16-18M (down 38-45%).

“Wix is taking market share during the pandemic with 50% of users coming to Wix with a domain registered elsewhere, and the company continued to lean in on marketing spend in Q2” comments RBC Capital analyst Mark Mahaney.

He thinks Revenue could potentially accelerate in H2 with the sustained momentum for Digital Presence and the launch of Editor X in July expanding Wix’s Agency opportunity. Indeed, Wix is trying to beef up its e-Commerce capabilities to close the gap with competitors like SHOP.

As a result, the analyst has a buy rating on the stock with a $350 price target. Despite shares having more than doubled year-to-date Mahaney’s price target indicates further upside potential still lies ahead. (See WIX stock analysis on TipRanks).

Overall WIX scores a bullish Strong Buy consensus from the Street although the average analyst price target indicates that shares will continue to pull back from current levels.