A first pass at Wix, a cloud-based website design and hosting platform. A company "founded on the belief that the Internet should be accessible to everyone to develop, create and contribute, irrespective of their level of coding skill." Aka, it started out as a DIY website platform for non-tech folks like yours truly. 

Though, when I started OMDV 2 years ago…. I had never heard about Wix. I went back and forth between Wordpress, Squarespace, Blogger, back to Wordpress and then back to Squarespace and that is where I am now. I’m not without complaints of course… but Squarespace was just so much easier for me then Wordpress. As much as I love Automattic (the parent of Wordpress), their product just was too complicated for me. This barrier is what leads to some characterizing Wordpress as being in the “Do-it-for-me” market inside of DIY.

So, what does Wix do? Starting back on Fisher’s 15 point checklist as the foundation:

1.Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?

Let’s start with history. Wix was founded in 2006 by it’s current CEO, Avishai Abrahami, in Tel Aviv, Israel. The company’s HQ is in Tel Aviv but they IPO’d in the US in 2013. 

Wix splits its business into segments: creative subscriptions (85% of sales) and business solutions (15% of sales). Creative subscriptions is the monthly/yearly fee users pay to have their website hosted and to build a platform. The business solution includes all the ‘other’ things that come into play like G-suite (i.e. emails), Ascend (i.e. marketing, Mailchimp integration), logo markers, payments and Wix marketplace (i.e. app store) and all kinds of third party apps and integration that come with various premium plans. This results to about 95% of sales being subscription-based since much of the add-ons come from the subscriptions. 

Unlike Squarespace, Wix has a freemium model. This means that people can build websites for free but will have limited features, have Wix ads on their site etc… This leads to 165M total users but only 4.5M premium subscribers paying $830M for an average revenue per subscriber (ARPS) of ~$185. 

With the free option to get users on board and easy drag and drop features, Wix primarily helps small/med businesses and individual creators build websites. They don’t target specific verticals but they have been building out products to make it easy for users in all kinds of verticals (i.e. booking, restaurants, hotels, ecommerce, music etc…). They’ve continued to move upstream from their novice/beginner users by launching various platforms (Wix Editor, Corvid, Editor X) to target more technical and advanced web builders to slowly push into the “Do-it-for-me” professional development market from their DIY market. 

So who are the players in the ‘website-building’ industry? Turns out, the answer is slightly more complicated. The broader ‘website’ industry is commonly referred to as the content management system (CMS) market. CMS help users build websites without technical skill requirements. 

In the broader CMS market, Wordpress is the big fish. But this combines every company from e-commerce players (i.e. Shopify, Magento, WooCommerce/Wordpress) to website builders (i.e. Squarespace, Wix). 

Narrowing in on who Wix actually competes with, it would be the simple website builders that run everything for you on their platform. The major players by % of websites are below: 

The overall CMS dataset from earlier doesn’t seem to use % of websites to measure share, as Wordpress powers about 34-37% of all websites… an explanation could be that the dataset ignores all websites with ‘unidentified’ sources. If we look at the website builder subsect, there is a separate game being played with Squarespace and Wix and both have continued to take the #1, #2 positions over the last few years.

Looking at the CMS market, there are various estimates of $6bn to $12bn in market size. But once again…. Websites aren’t a clearcut industry. Though, thanks to technology, every industry is interwoven with one another. But more and more people will build websites. Just like how everyone has an instagram account that is turning into a personal brand for them…. A website will be an extension of that. If I were to look out 10 years, I bet there will be way more websites than now. As more people come online, as more businesses go online, there will be more websites. 

Also, as the barrier to build a website comes down…. I remember I had to build my first website with janky HTML in high school…. I imagine less people will choose to learn the technicals and opt for easy low-barrier ways to build a website. I mean, that’s what makes Shopify so easy to use. 

Wix has a dominant position in the simple website builder industry and it’s not in direct competition with Wordpress or Shopify as the customers that use Wix come with a different technical background and use case. 

Now, Wix’s CAGR for users has been 21%, premium subscribers at 26% and collections (sales + deferred subscription sales) at 36%. This has been the growth as it took on 2% of the overall ‘known solution source’ CMS market. As it builds solutions to ‘grow up’ with its users, I do see the market potential to be there for Wix. 

2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?

As mentioned before, Wix’s mission is to ‘empower anyone to create their own website with no coding or design skills’. It resulted from the three co-founders (Avishai Abrahami, Nadav Abrahami and Giora Kaplan) getting frustrated at building their own website for a different startup idea they had. Given how costly and difficult it was for them… they decided to solve their own problem and that is how Wix was born. 

Wix is also a bit of a family operation as well as Avishai (CEO/Co-Founder), Nadav (Co-Founder/VP of Client Dev) and Yoav (Chief Architect of R&D) are brothers. In addition, Nir Zohar, the President/COO who joined in 2007, is married to VP Design & Brand, Hagit Zohar. 

As far as insider ownership goes, it’s not high. The insiders collectively own 7.6% with many being in outstanding options. The CEO does have a decent amount that is worth ~$380M but I would’ve preferred to see more. I’ve also noticed the CEO sell small amounts continuously after exercising his options. That wouldn’t be too big a problem for me as long as he doesn’t materially reduce his ownership stake but at already a small base… it’s not what I like to see. 

I was rather excited to learn that Diane Green, the co-founder of VMWare and other startups, had joined the board… but this came as a result of the CTO/Co-Founder stepping down from his position. I scoured the search engines but couldn’t find an explanation as to why that was the case. It wasn’t mentioned in the shareholder letter nor annual report either. So that’s a bit concerning… 

The ‘family-like’ operation gives me the impression that this is more than just a mercenary team. Even the CFO, who joined just before the IPO in 2013, said he couldn’t imagine leaving even if he was offered $100M because he considers Wix to be like family to him. The entire C-suite are in their late 40s/early-50s so they should have plenty of energy to lead the business. 

I don’t have a great understanding as to whether the management is tilted towards intrinsic vs. extrinsic motivation… but from reading the shareholder letters much of what the CEO focuses on is the product and how it can help users (even how Wix stopped price hikes because of COVID).... And that gives me reason to believe he is probably tilted to the intrinsic. Wix is his 3rd company and given the modest salaries:

And equity comp that is average: "2019 options and RSU grants granted to Avishai Abrahami, Giora Kaplan, Nir Zohar, Lior Shemesh and Omer Shai on February 12, 2019, of $2,363,000, $738,000, $1,475,000, $1,305,000 and $1,305,000, respectively.” I think the management team isn’t in a rush to hit it big and then go home. 

3. How effective are the company's research-and-development efforts in relation to its size?

This is a crucial part of the business. More than 50% of Wix’s employees are in the R&D team and it accounts for 30% of 2019 collections. 

I used to consider sales growth as one additional indicator to assess whether R&D was working or not. I mean, you would sell more because your product is better right? As I think about it, I think that would be one such factor but there are so many reasons why sales would go up and it may not necessarily have to do with a superior product. 

If the product did not have a dedicated sales team, then maybe the power of the product (and by association the R&D team) may hold greater weight as that pushes us a little closer to the realm of ‘organic growth/adoption’. 

Retention would follow a similar vine of thought. Wix doesn’t explicitly communicate their churn rates. But with 84% of premium subscribers on yearly/multi-year contracts, combined with the how about 50% of new subscribers are free-plan users, premium subscriber growths being higher than registered user growth… it seems like a mid 90% retention rate. This means the R&D effort is decent enough to keep the product continuously competitive. 

Capitalizing the human capital costs of the R&D and S&M portion over a 4 year period (their equity options vest over 4 years), I get a 50% ROCE over the last few years on owner earnings. A solid result on their deployment of human capital. 

4. Does the company have an above-average sales organization? Do they need a sales org to peddle products?

Though sales & marketing (S&M) is their largest expense line (37% of collections), the majority of their premium subscriptions are generated from free traffic through SEO or even direct traffic. 50%+ of the costs of S&M are associated with CPC performance ads, social media banners and “partners” who use Wix as part of their own business and sell premium subscriptions through that service. 

The reliance on Google to drive the majority of their traffic highlights a similar risk profile to Tripadvisor. Something the brand will have to overcome when Google decides to change the rules on them in the future. I don’t know if they will… but I feel it's more likely than not. 

From going through numerous website review sites, Squarespace and Wix stand out as the best choices for non-advanced users. Wix seems to edge out Squarespace on all the website review sites I looked at. They each have traits that are better than the other but Wix seems to be getting the vote of confidence as the best ‘overall’ website builder. Taking this with a grain of salt but these were the sites I used in making my decision and I imagine many future users will do something similar. 

Overall, it seems like Wix doesn’t really need to rely on “forcibly selling” or needing to “convince” someone they need Wix. A good sign. 

5. Does the company have a worthwhile profit margin?

The 5-year avg. gross margin is 83%. Though, it has declined to 75% in ‘19 for a mix of factors. Wix made a large investment to grow their customer support team (which is part of COGS) and the growth of the Business Solutions segment (which has a 34% GM compared to 85% GM of creative subscription segment). Overall, pretty solid. 

They aren’t profitable on a GAAP basis but have FCF margins of 15% in recent years. But the margins are post-reinvestment so keep that in mind. If I took out the large reinvestment function, I could easily see 50% margins. 

6. What is the company doing to maintain or improve profit margins?

Wix is arguably the largest website builder in the market. The nature of the product is that it gets stickier over time. Having switched around from multiple website builders, I can tell you that it gets more painful the longer you wait. I’m probably going to be on Squarespace for a while. 

It’s the classic business where you are providing a crucial service for a business (every business needs a website now…. even before you generate sales) for negligible cost. The annual ARPS is $183. I pay about ~$200 for my website subscription…. Which is about 50 cold brew coffees. That’s not a big cost for most companies and individuals. 

Wix is a freemium model so adoption is even easier compared to Squarespace (which only has a 14 day trial). I think Wix’s approach of lowering the barrier to make adoption as easy as possible is crucial. It’s like Spotify. Get the user hooked on the product and prove the value prop and then when they get serious, they’ll sign on. It’s just an easier way to win over premium subscribers who will stay on for a while. This makes Wix’s premium subscribers stronger than others that don’t have a freemium option. As mentioned earlier, I’m assuming they have some mid-90s retention rate. 

I don’t have much information on this but I wonder if Wix’s dedicated shift to mobile in 2011 made a difference. Most mobile web management experiences aren’t great but with more and more people using mobile over desktop, it is the intuitive transition and that’s something Wix seems to have done well. But this is just one execution they did in the past. Wix has continuously been building out product verticals to add more value for the various tiers of premium subscription and I think their growth is much more intuitive as well. 

They started with a free version that was a simple drag and drop for the user. Then, they moved upstream to provide more tools/products for users on the higher level of ‘technical know-how’ to now challenging Wordpress’ space. It’s like how I would start a website knowing nothing and as I stay on longer, I’m constantly learning to build it further and adding small codebases onto it. If my behaviour is proxy for the average user, this seems more organic than front-loading learning with Wordpress. 

7. Does the company have outstanding labor and personnel relations?

First off, Glassdoor has Wix at ⅘ stars with 307 reviews. Not bad. Though, in the race for talent, Wix has an advantage that companies like Atlassian, Spotify and Shopify have. They are all large tech companies with HQs in small cities (compared to Silicon Valley) and that gives Wix a talent advantage. 

There hasn’t been much shared on the culture by management other than that they believe their corporate culture of innovation has been a key contributor to their success. But many companies say that. One interesting thing of note is that they have an org system where they create self-sufficient teams called “companies” internally so people can make decisions faster and work as a startup within the larger organization. Kind of like how Spotify has its system of squads and tribes. 

Stock-based compensation made up ~13% of collections. This seems reasonable and I’d much rather work in a company where every employee gets equity in the company than one that is stingy on ownership. This is how everyone will literally think like an owner (at least for 4 years). The best case would be that everyone gets a cash bonus that is mandated to be spent on buying equity on the open market like everyone. 

8. Does the company have outstanding executive relations?

The only red flag at the moment is their CTO stepping down. Other than the other management factors I noted previously…. Management compensation is well within reason and not much of an indicator of abusing the “family” culture they’ve built to their advantage. 

9.Does the company have depth to its management?

In the senior team, yes. Most of C-suite has been with the company for 10+ years. 

10.How good are the company's cost analysis and accounting controls?

They recently started breaking down business segments and sharing annual recurring revenue. They won’t share subscriber numbers quarterly going forward and I think that’s all well. 

11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?

Being based in Israel definitely makes them unique. Tel Aviv is known to be a fast-growing city with great talent and this is an exciting factor to the business. I also imagine this will create some unique styles of management given the difference in culture. I’m not too familiar with Israeli business culture but this would be interesting to observe further. 

12. Does the company have a short-range or long-range outlook in regard to profits?

I think long-range. Most of their disclosures show a 5-year history in the annual report. Management does share guidance in their presentation (which breaks things into quarters) and I’m not sure I like that. Actually, I don’t like it but I don’t want to judge management negatively because of a bias I have against appeasing to Wall Street….. But I guess, at the very least… it shows management has an eye on the short term since it impacts their options

13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?

They are in a net cash position. Their convertible note has a 0% coupon. Unless they were going to do something huge. Like elephant hunting…. I don’t imagine them needing equity financing. 

14. Does management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?

Not enough on this. Will need to read some transcripts but so far from the shareholder letter, the CEO has been open with talking about high churn from COVID and how an influx in users made up for that initial loss etc… 

15.Does the company have a management of unquestionable integrity?

Wix paused price hikes to help users during the COVID times. That’s one point of positivity. 

16. Valuation

I get something of a 4% yield on the business at ~13x P/S. It’s closest public competitor is GoDaddy and Square (Weebly)... but website building is not a core part of their business function. 

For Wix to 10x…. It would need to become a $100bn company. If ARPS stayed constant at $185 and the sales multiple also stayed constant…. I’d be looking at an annual collection of $8bn…. Which would mean 44M premium subscribers. There are currently are 1.7bn websites online right now. It doesn’t sound outrageous to me. They already have 160M users. This would require Wix to compound annually at ~20% over 10 years.

Disclaimer - I’m writing this for myself. For my past, present and future self. Much of what I write is my opinion. If it somehow ignites agreement in you then great, I’d love to hear about it. If it sparks disagreement in you, don’t reach out because I don’t care for it. There always are obvious exceptions and the flawed person in me hasn’t considered them all.