In 2022 Q1, as with other e-commerce or Internet economy players, Wix’s business has slowed down considerably compared to the year before. Some key financials for the quarter are summarised below, with the things that we like and don’t like about Wix’s recent developments to follow thereafter.
Key Financials
Revenue was up 14% y/y to $342 million (2-year CAGR of 27%), with subscription revenue growing slightly slower at 13% (to $255 million), and business solutions revenue growing slightly faster at 17% (to $87 million).
The total revenue growth of 14% is slower than Squarespace’s 16%, and Shopify’s 22%.
Avishai, the CEO, said “We, like many other companies, have seen a considerable slowdown in online activity since last summer. The drivers of this are clear – overall global uncertainty around reopenings and COVID, rising inflation, changes in FX rates and reverberations from the invasion of Ukraine.”
On the revenue slowdown, it’s partly driven by a slowdown in net subscription due to churn from the large cohorts gained in the last two years, where Wix had very large cohorts of new subscriptions in 2020 and 2021, and when they renew in 2022, although the cancellation % rate was similar as in the past, the absolute number of cancellations were naturally higher, creating a headwind against the new subscription.
This effect should wear down over time, with the management saying, “Since last summer, conversion of users to subscriptions and retention remain stable, indicating that our business is in a steady state of growth, not a deteriorating one, giving us confidence that once macroeconomic conditions improve, we will return to higher levels of growth.”
Gross margin was 61%, slightly down from 62% a year ago. Subscription gross margin was 75%, flat from last year. Business solutions gross margin was 19%, down from 22% a year ago, due to stronger growth of Wix Payments which has lower margins.
Total operating expense was 94% of revenue, an increase from the 91% a year ago.
This increase is driven by an increase in R&D % from 32% to 35% (due to investments in headcount, which has slowed down now), and an increase in G&A % from 11% to 13% (due to increased headcount).
Meanwhile, S&M % decreased from 48% to 46%, as Wix focused on optimising returns on our marketing investments and TROI targets amidst the market demand slowdown.
Non-GAAP net loss (which excludes mainly SBC expense, and the unrealised losses from drop in share price of Monday.com investment) was a loss of $41 million, higher than the loss of $31 million a year ago.
Free cash flow (excluding SBC expenses) was also negative, at negative $34 million, or negative $18 million excluding the capex for the new headquarters office.
For full year 2022, Wix is expecting revenue growth of 10%-13%, or 12%-15% excluding the negative impact from FX rates headwind (and minorly, from suspending activities in Russia & Ukraine).
Meanwhile, competitor Squarespace is expecting a similar overall growth of 11%-12%.
Things We Like About Wix’s Recent Developments
Now let’s talk about the things that we like and don’t like from the earnings.
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