Wix.com Ltd. (NASDAQ: WIX) offers a leading cloud-based development platform with over 110 million registered users in 190 countries. The company went public in 2013 and has a market cap of over $3 billion.
Wix’s platform enables users to create HTML5 websites and mobile sites through the use of online drag and drop tools. The platform is available for free, but users can also upgrade to a premium plan to get access to more advanced features.
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So is Wix stock a buy? Let’s take a closer look at the company to see if it’s worth investing in.
Fundamentals:
Wix has been growing its top line at a rapid pace, with revenue increasing from $52 million in 2012 to $650 million in 2018. However, the company is not profitabile, with net losses widening from $13 million in 2012 to $127 million in 2018.
Wix’s losses are primarily due to its heavy investment in marketing and R&D, which totaled $257 million last year. While this investment has helped fuel the company’s top-line growth, it has also weighed on profitability.
Wix.com Ltd. (NASDAQ: WIX) stock has been on a tear in 2020, rising over 160% since the start of the year. The company is a leading provider of cloud-based web development and design services.
With the stock up so much, is it still a buy? We take a look at the pros and cons to help you decide.
Pros
1. Strong growth prospects. Wix is growing at a rapid pace, with revenue rising 39% year-over-year in the most recent quarter. The company is benefiting from the shift to online businesses as more companies move their operations online due to the pandemic.
2. Diversified business model. Wix has a diversified business model with three main revenue streams: premium subscriptions, advertising, and ecommerce. This diversification provides some protection against economic downturns as businesses cut back on advertising spending during tough times.
3. Positive cash flow. Wix is generating positive cash flow from operations, which gives it plenty of dry powder to invest in growth initiatives or make acquisitions.
Cons
1. High valuation. Wix stock is trading at around 11 times sales.
Looking ahead, Wix is expected to continue growing its top line at a rapid pace. For 2019, analysts are expecting revenue of $867 million, which would represent year-over-year growth of 34%. However, the company is still not expected to be profitable on a GAAP basis this year, with analysts forecasting a net loss of $140 million.
Valuation:
Wix trades at a premium valuation, with a price-to-sales ratio of 5.4. This compares to the average price-to-sales ratio for tech companies of 4.
Bottom line:
Wix stock is not a buy right now. The company is growing rapidly and has a solid long-term growth story, but it remains unprofitable and trades at a premium valuation.
