Wix.com Ltd. (WIX) Earnings Call Transcript
May 22, 2024
Earnings Call Speaker Segments
Hello, everyone. Thank you for joining us for the last fireside chat of the conference. My name is Alexei Gogolev, Head of Vertical Software Research team here at J.P Morgan. And today, I'm delighted to welcome Wix team with us. We have Lior Shemesh, CFO of the company; and Emily as well now as Head of IR, hopefully, at Wix. Lior, Emily welcome. And I guess I would love to maybe start the conversation about the -- your product and competitive landscape.
So maybe if I first drill into product differentiation of your specific solutions. Can you discuss some of those differentiations and the offerings? How are they different to competitors? And specifically, have you established a certain niche, which now is so successful with the professional web developers?
Sure. So before I move the question to Emily, I think that it's just to take a few minutes, 2 or 3 minutes, I think that for us, for me, this quarter was an amazing milestone. We think after many years where we dominated just self-care to our business with a super strong brand. Today, Wix is providing the platform as a -- also to professionals. So already about 1/3 of our revenue partners are growing more than 30% on a year-over-year basis. And now after we introduced our Studio, that was the main reason why we increased the guidance. So very excited about the opportunity also to serve the entire partners community. We're talking about partners, we are talking about people that's essentially building websites for others. It can be a very small kind of team. It can be medium agencies or mega agencies. And by far, this is like #1 growth driver for us in the next few years.
Yes. So specifically to your question around what differentiates us, and it really is the product. It's in our DNA. Avishai is our founder, and he still leads the company today, and he's very, very focused on product. So being a product-driven company with a really expansive suite of products for pretty much anyone that wants to build online. I think that's really what differentiates us, from our peers. Whether you're a DIY or self-creator looking to build a hobby site or a free site for your school project to a small business, building your first online footprint to sell your goods online. And now with these partners, we're attracting large agencies with dozens or hundreds of pipeline products for their clients, they can build all of these things on Wix. So the breadth and the depth of each of these products are really what we pride ourselves in. We're product first. And that means we actually, for the most part, build nearly all of our products natively in-house. And that really is something that we take a lot of pride in. I don't think most of our peers can say that. So that's a huge differentiator as well. It creates a much more cohesive and intuitive creation experience for all of these users I just spoke about. And then to your point about the partners, I mean, we've been a leader in the self-creator DIY space, for about a decade now. Our -- the Wix brand, the Global Wix brand is pretty much synonymous with web creation or website building. We've done tests and we track that regularly, and we know that. And then about 5 years ago, we started investing in moving upmarket. We saw that the TAM for these professionally built sites was huge majority, 8 to 9 out of every 10 sites on the website -- sorry, the Internet today is built by professionals. So this was a huge opportunity and we've done a really good job in making the investments, getting the feedback, having the conversations with partners and professionals to build something that they really want. And that's culminated all of these years of investments in infrastructure and support and sales and marketing and R&D has culminated in the launch of Wix Studio last year in August. And we've started to see really strong uptake, outperforming a lot of our expectations already, and our partners' business growth kind of reflects all of these investments and the strength that we see in that business. It's still growing above 30%. Last year we grew Partners business 35% year-over-year. And I mean, that's amazing. And we expect this momentum to really continue.
Absolutely. And it sounds like the progress has indeed been phenomenal, and it's now already almost 1/3 of your business. Where do you see the Partner network evolving? When do you think it could reach sort of 50% of the overall business?
Well, I think that in the next -- probably in the next couple of years. We just launched Studio. We mentioned that we already have about 1 million new accounts with about 60% of them coming from new agencies. So with a tremendous growth, I don't think that I'm not familiar with all the cases obviously, but I think that it's one of the best ever product launch, not just for Wix. So the traction, the use of Studio is amazing, the adoption. And we mostly -- we see the feedback. I think that we are engaging with the partners, we are talking with them. We listen to what they have to say. Remember that when we build this product, we build it together with them. After we launched Editor X, we sat with many of those partners, and there was like helping us, advising us what they are missing, how we need to do that and so on. So it was actually a product that was developed together with the community. And I think this is where the strength is coming from because it's like the best product for them, not just the back end, but also the front end, think about also Studio as a workspace for partners, working with their customers, managing their customers, collecting money through them, understanding exactly what they have and what they can do more. So definitely, we believe that it's -- as I mentioned before, it's a #1 growth driver for us in the next couple of years. Hopefully, it will be more than 50%. By the way, for GPV, it's already more than 50%.
Okay. Very interesting. And what helped you accelerate the adoption so quickly? I mean, as you mentioned on the earnings call, 0.5 million was added in the first 6 months and then another 0.5 million in the last 3 months. What drove this acceleration?
Well, I think that when you're talking about Partners, they are talking with each other, it's about community. Yes, we go to seminars. We go to conferences. We're meeting with them. And mostly, there is a lot of discussion between themselves in the market. I mean, did you look at the last Studio? It's an amazing tool. Do you know that it has also a rev share component into that. So they started to test it. I mean they are talking with each other. Remember that when you talk about partners, it's not like hundreds of millions. It's about millions. It's not a huge amount of people and because think about big agencies, how many do you have. So they definitely talk with each other, they explain to each other. And by the way, we see that also in the social. There's a lot of communities, and they are talking. And by the way, not just that they're helping each other to use Studio, which is kind of amazing. In some cases, when we launch it, we said, okay, we need to build a huge care organization in order to train them, for example, they are training themselves in many cases. They are going through the conferences, they are meeting. And this is what drove the traction to the product. Definitely, this product is coming in place in a time where they had enough from, for example, from WordPress. It's about the security. I mean, look how many WordPress website been hacked? Like millions. For Wix, it's zero. They understand the power of SEO and everything about privacy that I cannot do it just by themselves or just using Studio, providing it automatically.
And you mentioned social component and aspect of it. And if I may ask a question in a slightly different theme, bans in the U.S. of social media. Is it affecting the industry web developers? Do you think it will have a headwind for some of your competitors or maybe tailwinds for adoption of web building tools?
Again, the first part of the question?
The social media ban that is expected in the U.S. TikTok ban.
In any case, we are not a big users of TikTok because it's through mobile. Remember that usually when you go to Wix, it's through the desktop. So TikTok is not -- it's also not kind of the audiences that we are going to. It's mostly through Facebook, Instagram. And when you're talking about Self Creators, it's keywords. And the brand is so strong that when people are looking to build the website, most of the cases, they end up with Wix because they are looking for Wix. Meaning that the search for Wix is much, much, much higher than the search for website builder. So when you think about the different key words because we are such a strong brand over there, most of them end up with Wix. When it goes to partners, it's not really through key words or social. It has no effect. It's mostly about engaging with them. It's like if you ask me, okay, are you going to do a Super Bowl in order to attract partners? It's not the case. We do need to build the brand for partners changing the perception about Wix. Wix is not just stunning and simple and beautiful and so on, but it's also super professional. You have Wix and you have Studio. Changing the perception of those pounders coming through engagement with them, going to conferences, teaching them, working with them. And this is exactly what we are doing. So there is no effect on social on any of those things.
What about the most recent comments by Shopify around their strategy to invest more to various marketing and so on. Do you think customer acquisition costs will go up on the back of this activity?
We are not really competing with Shopify at the top of the funnel. People that come to Shopify, they are looking to build a store, usually big merchants and so on. people that come to Wix are essentially looking to build a website. And then you ask them, okay, do you need an online store. So essentially, it's not like the same audiences. We do compete for some extent, but it's very, very small. I think that Shopify is amazing, really amazing company. But it's not the type of the merchant that we are looking for. Meaning that there is some kind of overlapping but in 80% of the revenue of Shopify coming from huge net and merchants, it's not really the kind of the traditional customers of Wix.
And Lior, if I may switch gears to talk a bit more about your product and specifically the role AI played in it. Longer term, how do you plan to stay ahead of the curve as opposed to sort of incorporating those tools and making it more of a table stakes product for your business?
I can take that one. One thing we always try to remind everyone is AI is something that I think a lot of our peers or new players in the space have invested in and launched heavily in the past 2 years or so. We launched our first AI-powered tool called Artificial Design Intelligence, back in 2016 in July of 2016. And back then, there was nothing else like it on the market. we were definitely leading innovation even back then. And what we're seeing from the market now from our competitors, a lot of the things that they're rolling out is similar to the things we rolled out all these years ago. So obviously, they've invested heavily in AI. But after launching ADI in 2016, like we were like, that's it. We've launched -- I mean we've invested quite heavily in AI internally, and that's kind of obvious in the very expansive and AI product suite that we have that spans some of the table stakes items that you said primarily around text creation and image creation, but we also have very specific and kind of one-of-a-kind AI tools that span layout, design, commerce enablement and also developer tools as well. So I mean, we've been investing in these products. And now over the past year or so, we've come out with, A, not just new products, but some pretty proprietary like products that really set us apart. Primarily, we have this e-commerce or commerce enablement product called AI chat for business that helps businesses, merchants that join Wix for the first time. They're looking to build a website for their business. They don't know where to start with a short AI dialogue with our Chat. They get a fully customized dashboard of website templates, but not just for the website, but the commerce verticals that they might need to attach, which might be more than one. It could be stores and bookings. If you're yoga studio looking to sell services and also apparel on the side, it gives you the business applications that you can add on that we think are curated for you and things that you might need. And that really helps them online a lot quicker. It helps us kind of drive monetization a lot earlier, exposing them to products that are good fit for them that they may not figure out on their own for 6, 7, maybe even years on the road. So that's been really beneficial in terms of our conversion, and some of the other top of funnel benefits. And then, of course, earlier this year, we came out with a very highly anticipated AI product. AI Website Builder, which is really one of a kind. I know there are other website builder kind of named products out in the market, but this is something that isn't just going to create a landing page for you from a short prompt, it will create a fully functional and customized website for you with inner pages. The landing page, of course, again, the commerce verticals that you might need, the business verticals -- sorry, the business applications that you might need, all completely customized to you. And on top of that, you have access to the infrastructure of Wix, the SEO capabilities that we have, the analytic tools that we have, the marketing tools that we have. So I mean that's -- we've seen really, really great uptake on that product. And these are the ones we're most excited about.
Thank you, Emily. And internal application of AI to drive optimization, what sort of benefits are you hoping to see over the next 2 years?
Yes. I can talk to that as well. Internally, we have many use cases for AI technology. I think the most prominent use is for our customer support or customer care org, where users get exposure to an AI chat that really increases the productivity of our customer care team. It drives efficiency. It gets people into that support funnel without having to have a real person to talk to. And something most of the time, they have simple questions that the AI chatbot kind of takes care of. Internally though, on the back end, our customer care organization has access to internal AI tools, a chatbot that they use to answer questions live. They have AI generated library of answers and questions. They also have a transcription and kind of like post client care efficiencies from a lot of these internal AI products. And then broadly, I mean, we have use cases for AI across our entire kind of organization, forecasting analytic trends. Even our R&D team, we have products that drive -- that help drive product velocity. So definitely across the gamut.
I definitely think that going forward, long term, I think that not just for Wix, but also for Wix, most of the traffic will be handled by self-service. And I think that the AI is a great example of many, many tools how to do that. And you know what, we also see that it's not just about being more efficient, but it's actually also helping the KPIs. The response time is by far less than it used to be like 2 years ago with more headcount.
Yes. Absolutely. Lior, if I could change gears and talk about your freemium model. It's quite different to what many of your competitors offer. Could you talk about the value that you see that this model contributes to your brand and to your business strategy?
Well, you're right. I think that you know as opposed to other companies, we kept the freemium model. I think that we are using the freemium model in many examples, not just about the website, but also about using all kinds of capabilities before you start to pay for them. So we have nearly 270 million users, right, growing by 1.5 million users every month. Now think about the ecosystem. Think about each and every one of those users using Wix and is very happy with the results and how many of this trend is bringing? Think about 270 million salespeople that you have. I think that, that was kind of the secret sauce of Wix for many, many years. I think that it's also -- looking at the behavior of the court. So you have a long tail. So perhaps you are a student right now, and you register 3 weeks and you have free users and you build the website, and then you got married. Hopefully, you didn't get divorced. And you have kids, and then you have your business. And then you started to become a premium because only then you have the need to pay and to connect your website to domain. So I think that we see many of those examples because it started the universities. And I'm not sure if you are familiar, but many of elementary school and universities in the U.S. they're using Wix as part of the study program. And this is when you start to build your brand using Wix together with Microsoft Office together with Adobe. But this is when you start to build your brand and people understand from a very early stage, Wix is the place to create an online presence, and it's continuing, and you have a business, by the way, if and when you have a family, and you want to create an album to your family, you're getting married, you're creating a website for your marriage. And this is part of -- I think the evolution of Wix and the brand is super strong, mostly as a result of that.
Obviously, a lot of R&D goes into product development. Emily talked about the investments in AI. Can you talk about price increases you've had one earlier this year. What sort of cadence should we expect in terms of price increases going forward?
More or less the same, meaning that, first of all, we always test it. But I think that every -- when you think about it, every 2 or 3 years, when we do that, the reason why people are willing to pay more because they are getting much more value. Emily talked before about the AI tools. We don't charge -- we might charge, by the way, for some of them in the future, but most of them are providing you with much more -- much more services, much more capabilities. And you're getting a lot of value. I mean if you're looking at the Wix platform 2 years ago, it's totally different. Now you're getting so much value with analytics with all kind of verticals, with applications that's helping you to create a better business and actually using Wix is boosting your business and making more money. As a result of that, you're willing to pay more meaning that we are not charging for every component, for every feature that we are releasing. We are providing it in order to create much better experience. But on the other hand, I think that it makes sense, like every 2 or 3 years, to increase prices. We know that it's a very sticky business. And this is what we've been doing in the last few years. So I believe that, that will continue. I mean it's not like I can tell you that precisely every 2 years. But yes, definitely, every 2 or 3 years, we are going to test price increase.
And you mentioned that you don't charge for AI at this stage, but some of your competitors started using thing called paywalls, where you reach a certain level and then you start charging for additional services. Have you thought about that? Is it something on the agenda?
Look, definitely, it's something that some of the AI company that we are going to launch in the future, we will charge for it. But for us, it's very simple. I mean we talk about the freemium model, right? It's really easy to because of the data that we are analyzing, it's really easy to assess, okay, what does it make sense? Perhaps, I should charge for it $50 a year or I can actually increase conversion by 10% of 1.5 million new users every month. And this is exactly what we are doing. We are doing the calculation, what makes sense for me? I want -- in the end of the day, if I'm increasing conversion without charging for it because I'm providing some of the tools to make sure that the customer with the AI is, first of all, is able to complete a website to his satisfaction. This is like the most important thing. Now when you finish the website then and he's happy with it, and he connected to a domain and so on, then he's happy to pay. And this is like the increasing conversion that I'm talking about as opposed to go to only premiums and tell them, okay, now you need to pay. Remember that GoDaddy and others, they don't have the freemium model. So it doesn't make sense for them to do that. But this is kind of what I said about the secret source of Wix. First of all, you want to help people to complete the website. Now if we are talking about a separate tool, for example, some kind of an agent that's helping merchants and so on, we are going to have more of those in the future. We definitely are going to check if it makes sense to charge? But then you are testing it again and saying, okay, does it make sense to charge for it the merchant for some -- getting some kind of AI helping you with the business or perhaps it's increased the GPV, and I'm also benefiting from the fact that increased the GPV because it's using Wix Payments. So this is kind of discussions and analysis that we are going to do many, many times in the future. But there will be cases that we are going to charge for it. But as opposed to other companies, we -- it makes sense more for us to increase conversion.
You provided a great GPV example, and I would like to ask a question about that, but maybe we could also see if there are any questions in the room. If you have a question, please raise your hand. I can see one.
I guess I was just interested in this kind of like talk around the future of websites and how LLMs and SSG is going to impact that both from a traffic perspective. But I was just kind of interested in your take. You're very close to the source. You would have lots of really good data on it, and I appreciate a bigger picture, but I'd be interested to know how you're thinking about it and kind of what you're seeing so far?
Well, I believe that first of all, you know everything that we see right now, especially with the AI and those kind of technologies, I think that it's just going to making the websites become much, much better. It's also going to help many people to do that as opposed to what was in terms of the capabilities in the past. I think that in the last few quarters, we actually saw that those kind of -- this kind of technology, it's actually super helpful. First of all, for people to create their online presence. So there's no reason to believe why this is something that we'll not just continue in the future. Remember that also many of the tools that we are going to show in the future are some tools that helping you to have a better business to manage your business, tools that's helping you as a merchant, for example.
And since we were talking about GPV earlier, you can see that Partners bring about 50% of your GPV contribute about 1/3 of your revenue. How do you think about this dynamic going forward, payment adoption specifically?
Let's first try to understand why it's 50% of GPV, while the revenue part is only 30%? I think that this is part of the evolution that the company made, and this is why I'm so excited about. Because it drives -- when you think about it, many -- it has many things that are super important for us to understand as a company. Because when you are talking about partners and you are going after partners, they are mostly building websites for others, right? So it's been much more mature businesses. Usually, when you are a mature business, you don't do it yourself, you go to a professional in order to build the website for you. So when we are talking about more mature businesses, we are talking essentially about companies that are also more stable. So it's also mean better retention. But it also means that when you are a mature business, you are using more of business solution capabilities. You're using more application, you are using Wix Payments. You already have a large amount of GPV running through your business. You are using email marketing capabilities. Those are kind of stuff that you are using only when you are more mature. And you start a business and you start an online store. So payments is very small because it just stared. Business Solution, yes, you will be using some of the business solution capabilities we have, like e-mail marketing like Google ads, like Facebook ads and so on automation that enable you to do all those kind of stuff, but it takes time. So from my point of view, when you think about it, each of those customers that have been brought by those partners is overall lifetime value is much bigger from all aspects, from all KPIs. So definitely, this is something that is really exciting. This is also one of the reason why we increased the guidance for the year. And definitely something that will continue.
And Lior, partner revenue sharing, how does it affect the dynamic, how it evolved? And can you maybe update us on the revenue recognition with those partners?
So first of all, for revenue recognition, we are recognizing the net, meaning that if we get, for example, a $1,000 for a Partner and is using Wix, obviously, using Wix Payments using Google ads through us -- using all kind of capabilities, definitely the subscription, we are sharing revenue with them -- with him. So let's say, for example, after the $1,000, you got $300. We are recognizing the $700 net. And what I can tell you in terms of the progress, we launched it like a quarter ago. There is a huge adoption. When Avishai, the CEO came to me and said, "Wow! look, how much you need to pay every month now, and it's keep on growing." I told him, you know what, I'm happy to pay that because it means that we are super successful. I think that the combination of Studio -- remember that it's mostly applied to those that are using Studio. The combination of Studio and the rev share program is powerful because it's not just bringing to our partners or to new partners, the best product with the best capabilities. It's also providing them for the first time, the ability to be a SaaS model. because up until now, those guys will charge like a onetime fee, creating a website, yes, some of them also provided maintenance. But now they're actually moving to a SaaS model as long as I'm collecting money from the website, they will get part of it. And this is why it's so powerful because it makes them be a much more resilient business, and they can mostly right now going after new businesses and bringing a new one because they don't have to take off the maintenance of the website that it used to do with, for example, using WordPress. So yes, it's a very powerful tool, I think, but it has to come with a combination of a great product.
And Lior, now that the approval process of buybacks in Israel has been simplified. Can you talk about the approach that you have towards buybacks, and overall capital allocation strategy?
Sure. So we already said that we are going to use at least 50% of our free cash flow for buyback. What does it mean at least? It means that we have a certain amount of kind of a model in head that, for example, there is a limit of how much cash do we need to have in the balance sheet because we don't do a lot of M&A. Let's be honest about it. Most of the growth that we managed to generate was organic as opposed to many other companies that we know. And I think that it's even more successful because when you do M&A, there's a lot of risks. Statistically, most of the M&A fail. I think that we manage for many, many years, you asked before and Emily answer about the strength of the company. We are a product technology company. We know how to do that. And we know how to generate growth through organic resources. So definitely, now even when I increased the guidance for free cash flow significantly, I believe that we are going to use more and more for buyback. We're actually right now executing on a buyback plan of more than $200 million that we also announced about it. So with that, it will be more than $500 million already. Up to date, after this program is over, to be on more than $1 billion of buyback that we did, I believe that you should probably expect that we'll do more of that.
Perfect. Lior, Emily, thank you very much for joining us today. We're very glad to have you, and thanks, everyone, for coming.
Thank you for having us.
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