Wix released its 2022 Q2 earnings in August 2022. Here are the key points that you don't want to miss for Wix from this earnings!
In 2022 Q2, all the website or e-commerce builder platform companies saw a significant reduction in revenue growth, with Wix, Squarespace and GoDaddy all (coincidentally) recording a 9% y/y growth, and Shopify seeing a higher 16% growth (which was significantly lower than its 57% a year ago or 22% a quarter ago).
This slowdown has led to Shopify plunging into further (accounting) operating losses ($190m loss), Wix still recording (accounting) operating losses ($75m loss), while Squarespace and GoDaddy managed to continue earning positive operating profit ($9m and $125m profit respectively).
With both Shopify and Wix incurring negative free cash flows (FCF) in the latest quarter, to reduce their costs and cash outflows, Shopify had laid off ~10% of its employees in July, and Wix has started a set of comprehensive cost reduction measures to improve profitability and free cash flow margins.
Meanwhile, the other two players (Squarespace and GoDaddy) were still generating positive FCF in the latest quarter, and had both ramped up their share repurchases, buying back ~2% and ~8% of the total shares respectively in the first half of 2022, to take advantage of their low share prices recently.
Let’s explore these interesting developments, on the various players’ performances, product developments, price increase & cost reduction initiatives, and capital allocation in this article.
Key Financial Performances
Let’s start by looking at Wix’s latest key financial performances in 2022 Q2, and how they compare with the other 3 competitors, as summarised in the table below.
Total revenue grew by 9% y/y (to $345m), with both segments (Creative Subscriptions and Business Solutions) growing at the same rate of 9%, and with the Partners business growing much faster at 31% y/y (to $85m). This 9% total revenue growth is similar to Squarespace and GoDaddy, but lower than the 16% for Shopify (which has historically been growing faster). Wix attributed the revenue growth slowdown to mainly the slowdown in economy and industry, and also the foreign exchange headwind (with US dollars strengthening), although it said that “Encouragingly, we began to see early signs of improvement in top of funnel trends and higher return on marketing dollars in July into August.”
Gross margin was 61%, flat q/q, but slightly lower than the 62% a year ago.
Total operating expenses grew by 7% y/y (to $285m, or 83% of revenue), driven mainly by increase in R&D expense (+17%) and G&A expense (+9%).
This was offset by reduction in S&M expense (-2%), where Wix adjusted its marketing investments to align with current demand and to remain within its TROI (time to return on marketing investment) targets (as demand at the top of the funnel slowed).
As we had previously expected, share-based compensation (SBC) expense grew by 17% y/y (to $59m), from 16% of revenue a year ago to 17% of revenue in the latest quarter. Excluding the SBC expenses, the total operating expenses grew at a lower rate, at 5% y/y.
Thus, Wix incurred an operating loss of $75m (i.e. ~22% of revenue), slightly higher than the $72m loss a year ago.
On the cash flows front, Wix also recorded negative operating cash flows in both 2022 Q1 and Q2 (of $13.7m and $2.7m respectively), which was very different from the positive operating cash flows it had been generating every year since 2015 (to 2021).
On FCF, Wix had a negative FCF (before SBC) in 2022 Q2 of $6m or $10m, excluding or including the capex for new HQ respectively, so its total cash amounts had decreased.
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