Wix – 2021 Q2 Earnings Results
On 11 August 2021, Wix released its earnings results for 2021 Q2. Revenue grew 34% y/y to $316 million, but collections grew slower at 29%, with Wix seeing lower growth in new users and subscriptions. Due to the uncertainty caused by new variants of the COVID virus and associated government responses, Wix revised down its full year revenue guidance by around 2%, and its share price crashed by around 20% after the earnings.
Here are our key points from the earnings results and call!
Revenue grew 34% y/y to $316 million in 2021 Q2, above the high end of its prior guidance range of $308-312 millionCreative Subscriptions revenue grew slower, at 24% y/y to $236 million in 2021 Q2.
Creative Subscriptions revenue was slightly ahead of its expectations due to a higher mix of monthly packages, slightly offset by lower growth in new users and subscriptions than predicted.
Business Solutions revenue grew faster, at 75% y/y to $81 million in 2021 Q2. Business Solutions revenue was slightly ahead of expectations, driven by better than expected results from business applications (primarily Google Workspace and Ascend) as well as from Wix Payments.
Compared to competitor Squarespace, Wix had higher revenue growth in the quarter – 34% vs 31% for Squarespace.
Total collections grew 29% y/y to $343 million in 2021 Q2, which were at the low end of its guidance range, mainly due to
Creative Subscriptions collections grew slower, at 21% y/y to $263 million. Collections were lower than expectations due to the cohort performance outlined earlier (lower growth in new users and subscriptions than predicted), as well as lower partnership collections, partly due to a delay in timing of B2B partnerships that was different than predicted.
Business Solutions collections grew faster, at 66% y/y to $80 million in 2021 Q2, slightly ahead of its expectations, driven by the same reasons for Business SOlutions revenue growth (i.e. better than expected results from business applications (primarily Google Workspace and Ascend) as well as from Wix Payments).
On the lower growth in new users and subscriptions, Wix is experiencing some headwinds in the short term. When Wix entered 2021 and through 2021 Q1, Wix assumed one of two scenarios would happen: scenario #1 was that COVID continues and business online keeps growing and scenario #2 was that vaccines would work and be widely distributed and offline business – in-person events, services, fitness classes, etc – would grow. Its belief was that if either happened, it would achieve our outlook as it has always believed that its business is positioned to do well in both environments
This belief was confirmed in 2021 Q1 when COVID seemed to be less of a threat and behavior shifted quickly. People started to move to offline activities like going to restaurants, seeing concerts and traveling – a change in trend from what it saw in 2020. As a result, it felt comfortable providing the annual guidance that it did.
More recently, new variants of the COVID virus and government responses have caused a great amount of uncertainty. This scenario #3 was one it did not predict. There isn’t a clear answer out there about the future of lockdowns or restrictions, and consumers and business owners are uncertain whether they should move offline or remain fully online.
Beginning in mid-May, Wix began experiencing two trends that caused subscriptions to finish at the low end of its prediction. First, a reduction in new user traffic at the top of the funnel. Second, a faster conversion that occurred in 2020 from all of its existing cohorts created a greater pull forward effect in 2021 Q2 than it predicted.
Given the current state of uncertainty, Wix has revised its revenue or collections guidance for the full year 2021 down by a bit (~2%), as discussed later.
Gross profit was $195 million, a growth of 18% y/y (17% for Creative Subscriptions, and 25% for Business Solutions), or 4% q/q. The 18% annual growth is lower than the 34% revenue growth, due to lower gross margins for both Creative Subscriptions and Business Solutions, and higher growth in revenue for Business Solutions (with lower gross margins) compared to Creative Subscriptions.
Overall non-GAAP gross margin was 63% in 2021 Q2, in line with the previous quarter, but a decline (as expected) from the 71% a year ago. Wix is in the early stages of seeing gross margins begin to expand, as it starts to see returns on its investments in Customer Care and infrastructure.
Creative Subscriptions non-GAAP gross margin was 77%, in line with the previous quarter, but a decline from 81% a year ago. In 2020 and early 2021, Wix hired a significant number of Customer Care experts to serve its rapidly growing user base. The management believes this gross margin will be ~76% for the full year 2021, and that it will increase in 2022.
Business Solutions non-GAAP gross margin was 23%, a slight decline from the 24% in the previous quarter, or a larger decline from the 32% a year ago. This is due to a greater mix of revenue coming from Wix Payments, Shipping and Paid Ad Campaigns, which have lower margins due to the recognition of revenue on a gross basis (instead of net basis). The management expects Business Solutions non-GAAP gross margin will be ~22% for the full year 2021, a slight improvement over its prior outlook of 20%.
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