We came across a bullish thesis on Wix.com Ltd. (WIX) on Substack by The Dutch Investors. In this article, we will summarize the bulls’ thesis on WIX. Wix.com Ltd. (WIX)’s share was trading at $180.01 as of Nov 15th. WIX’s trailing and forward P/E were 142.87 and 23.47 respectively according to Yahoo Finance.
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Wix.com, founded in 2006 by Israeli entrepreneurs Avishai Abrahami, Nadav Abrahami, and Giora Kaplan, revolutionized website creation by enabling users to build professional websites without technical expertise. The company generates revenue primarily through Creative Subscriptions, accounting for 74% of its FY23 revenue at $1.15 billion, and Business Solutions, contributing the remaining 26% at $410 million. Competing with platforms like WordPress, Shopify, and Squarespace, Wix distinguishes itself with unique advantages that create significant customer stickiness and long-term growth potential.
A critical factor in Wix’s success is its robust competitive moats. First, switching costs play a significant role in retaining users. Wix’s ecosystem, integrating tools like email, CRM, and business apps, makes transitioning to another platform cumbersome and time-intensive, discouraging customers from leaving. Additionally, the platform’s ease of use and customizability further enhance user loyalty.
Second, Wix benefits from economies of scale due to its vast user base of over 190 million. By spreading fixed costs across millions of users, the company achieves lower average costs, enabling competitive pricing and significant reinvestment in innovation. These investments enhance user experience, expand market reach, and fortify Wix’s market position. The scale also facilitates rapid feedback loops that drive continuous product improvement, contributing to strong customer retention and satisfaction.
Third, Wix leverages network effects through its app marketplace, where developers create apps that enhance the platform’s functionality. As the app ecosystem grows, it attracts more users, who in turn attract more developers, creating a virtuous cycle that strengthens Wix’s offering and locks in its user base. This dynamic fosters a sustainable advantage, ensuring Wix remains a leader in the website-building space.
Despite these strengths, Wix faces challenges in a competitive market. Rivals like Shopify and Squarespace exert pricing pressure, while high customer acquisition costs and low margins present obstacles for capital allocation. Additionally, Wix’s current valuation appears elevated, reducing the margin of safety for potential investors. However, the company’s innovative platform, strong management, and founder-led structure with significant insider ownership remain appealing. Its 105% net revenue retention rate signals satisfied, growing customer usage.
While the current valuation may not provide an immediate buying opportunity, Wix operates in a growth market with favorable tailwinds, particularly in Asia and Europe. Investors should keep track of the company’s progress as it continues to innovate and expand, as Wix’s long-term potential and market leadership could present attractive opportunities in the future.
Wix.com Ltd. (WIX) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 42 hedge fund portfolios held WIX at the end of the second quarter which was 42 in the previous quarter. While we acknowledge the risk and potential of WIX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WIX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.