Wix.com (WIX) recently reported earnings for its second quarter of Fiscal Year 2022. Adjusted earnings per share came in at -$0.14, which significantly beat analysts’ consensus estimate of -$0.42 per WIX share. In the past nine quarters, the company has beat estimates six times. The company achieved this result by beginning to implement a cost reduction plan that will save $150 million in annualized expenses.
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The company stressed that these savings are not a one-time thing and are meant to be continually realized going forward. The plan includes reducing WIX’s workforce and focusing more on high-conviction growth opportunities. It doesn’t include any reductions to user acquisition marketing.
A look at cost of revenue and operating expenses clearly shows why the company has decided to make these changes. Sales increased 9% year-over-year, with revenue hitting $345.2 million compared to $315.6 million. However, gross profits increased by 8.1%, which means that the company did not demonstrate any operating leverage since it increased less than revenue.
Indeed, the gross margin contracted from 61.7% to 60.9%. This, along with an increase in operating expenses, caused the company’s operating loss to increase from $72 million in the comparable period to $75 million now. Therefore, by reducing costs, the company will improve its chances of achieving operating leverage.
Website Traffic Still Remains Strong
When taking a look at WIX’s website traffic, we can see that the company saw a dip in visitors for the month of July. This is likely due to people going on vacation and probably not a reason for investors to be concerned. Indeed, the overall trend still remains upward, indicating growing demand for its products.
It’ll be interesting to see if this trend continues in the face of slowing economic growth, as consumers become more focused on purchasing essential goods and services instead of discretionary ones.
Is Wix Stock a Good Buy?
WIX has a Moderate Buy consensus rating based on nine Buys and four Holds assigned in the past three months. The average WIX price target of $96.91 implies 25% upside potential.
Takeaway – WIX Stock is Responsibly Managed
WIX’s management team has realized that the macroeconomic headwinds are going to impact its growth and has decided to shift its focus to profitability in order to ride out the turbulence. Investors appear to appreciate this move, as WIX stock was up 12% halfway into Wednesday’s trading session.
