Wix’s quick fix: Website builder increases full year growth outlook after cutting 18% of workforce
Wix’s quick fix: Website builder increases full year growth outlook after cutting 18% of workforce
Wix reported a 10% growth in first quarter revenues to $374 million and now expects to end the year with 10-11% revenue growth, compared to 9% in its previous outlook
"While we are seeing signs of a modest recovery in the macroeconomic conditions, we remain cautious going forward and continue to focus on ways to drive efficiencies in our business,” is how website builder Wix summarizes the first quarter of 2023 and what is expected in the coming quarters.
The financial statements published by the company on Wednesday indeed signal an improvement in all indicators, including a 10% growth in revenues to $374.1 million - slightly above market expectations. Elsewhere, the efforts of the Wix management to improve its operational efficiency are evident, starting from the rounds of layoffs it made in 2022, as well as this February, to the significant reduction in marketing expenses.
Wix revealed that its workforce has decreased by 18% in the past year. As of the end of the first quarter, 5,006 employees worked at Wix, compared to 5,516 at the end of 2022. The company made the largest round of cuts in February with the closure of several customer service sites in the U.S., during which 370 employees were laid off.
Beyond that, Wix states that marketing expenses have dropped by 50% as part of a transition to a new marketing strategy. As a result of these measures, an improvement was recorded in the company's non-GAAP gross margin to 67% compared to 62% in the corresponding period in 2022. Although on the bottom line Wix still posted a loss of $10.4 million or 18 cents per share, cash flow from operations totaled $46 million.
Following on from the encouraging results, Wix raised its annual forecast for 2023. "Encouraged by these strong results, we are raising our expectations for revenue growth and FCF for the year and remain more confident than ever in achieving the 'Rule of 40' in 2025," noted Wix CFO Lior Shemesh, referring to a rule of thumb for profitability in the software sector which states that in healthy companies the growth rate together with the rate of profitability should be higher than 40%.
Wix estimates that it will continue to grow at a similar rate in the second quarter as well, which will bring its revenues to $180-185 million. Accordingly, the annual revenue forecast also rises from $1.52 billion to $1.53 billion and reflects a growth rate of 10%-11% compared to 9% in the previous forecast.
The biggest news is in the area of profitability, where Wix has historically suffered. The base of operating expenses should decrease to 58%-59% of the revenues at the end of the year due to continued cuts in the marketing and sales section and after the completion of the layoffs. Against the background of this change, Wix raises the expectation for the annual free cash flow to $172-180 million, minus the ongoing expenses for the construction of the new campus at the Gillot junction, where some of the company's employees have already moved in recent months.
This is a significant change compared to the previous expectation for a flow of $152-162 million and especially against the low levels of flow in relation to the revenue from which Wix suffered in the last two years. In 2022, it settled for a flow of only $32 million and in 2021 the flow was $51 million.
Beyond the financial performance, one of the questions that has recently been hovering over Wix is the disruption in its market with the introduction of generative AI. In recent weeks, its share has even suffered due to concerns about the damage ChatGPT and the like could do to its business model. “I believe AI will continue to make our business bigger, better and stronger,” Wix Co-founder and CEO Avishai Abrahami said. “As for anyone who bundles Wix with companies that will be negatively impacted by AI, I believe they will be wrong."
Meanwhile, Wix stock has lost 12% since the beginning of May and the company is currently trading around a market cap of $4.8 billion.
