Wix Stock Forecast: Website hosting and building software company Wix (NASDAQ:WIX) is one of several growing tech companies that could hold outsized value for investors today.
Wix is currently moving toward profitability and cutting its costs aggressively, both of which could support higher share prices in the near future.
Wix Investment Thesis
The core of the current investment thesis for Wix stems from its valuation. A discounted cash flow forecast analysis suggests a fair present value of $95, but the stock trades substantially lower at the time of this writing. This leaves a potential upside of nearly 25 percent for investors.
In addition to valuation, Wix has recently announced a large share buyback program. In late 2022, management authorized up to $300 million in repurchases. A similar program for $200 million in buybacks was announced in 2021.
Given Wix’s current market capitalization of just over $4.3 billion, these buyback programs have the potential to significantly concentrate ownership for remaining shareholders.
Wix has also achieved great success in the area of revenue growth. Revenues have climbed steadily upward for the past 12 quarters, showing the ongoing popularity of Wix’s website-building tools. Since 2013, the company has raised its quarterly revenues from just $21 million to $355 million.
A final point that’s worth noting as part of the Wix investment thesis is the cost-cutting that management has undertaken recently.
In the Q4 report, Wix announced savings measures that were expected to save as much as $50 million in 2023 alone.
This plan was added to a previously announced set of cost-cutting measures. In total, the company now expects to reduce its expenses by $200 million this year. This, paired with Wix’s lack of long-term debt, is a sign of healthy financial management that may benefit investors over the long term.
Wix Forecast To Be Profitable In 2025
In Q4, Wix reported $355 million in total revenue. Revenue for the full year beat management’s previous guidance, showing the strength of Wix’s growth run in a challenging market environment. Much of this revenue comes from Wix Creative Subscriptions, which currently generate over $1 billion in annual recurring revenue.
Importantly, Wix also expects to achieve non-GAAP net margins of up to 66 percent in 2023. This would mark an important step toward overall profitability. Non-GAAP margins for Creative Subscriptions revenue could be even higher at up to 80 percent.
Although Wix now expects to achieve profitability in FY2025, the company is still losing money for the time being. In the coming year, the company’s losses are projected to shrink from $2.43 to $1.65 per share. With a plan for profitability in place, however, steady improvements in the company’s bottom line could begin to drive share prices higher by the end of this year.
Wix’s current strategy relies on a combination of continued innovation, cost-cutting and ongoing market share growth. In 2022, the company rolled out a new editing program, as well as an AI-powered text creator. These tools are among the technological innovations that Wix hopes will help drive continued brand growth.
The company has also reached a point where organic growth can continue with much lower marketing expenses. In 2022, management reduced acquisition spending by nearly 50 percent without seeing a significant drop in overall bookings.
Analysts Forecasts For Wix
Although target price estimates for Wix range widely, all 18 of the analysts offering price forecasts for the stock expect it to rise in the coming 12 months.
Analysts price target is $105, somewhat above the fair value based on discounted cash flow. At this price, Wix would generate a return of 38 percent.
The range of target prices for the stock runs from $78 to $125, representing potential returns of anywhere from 2.5 percent to 64.3 percent.
200 Million Users But Steep Competition
One of the main risks for Wix is its significant reliance on small businesses. With inflation and other macroeconomic factors reducing small business budgets, Wix could find it difficult to sell its customers additional products. Although Wix does have a handful of large enterprises among its customer base, the company’s website builder is much better suited to the needs of small businesses.
Wix’s freemium model may also be difficult to scale effectively. Despite having over 200 million total users worldwide, Wix has only about 367,000 premium sites.
This is because Wix’s basic features are available to customers at no cost, and the company’s free plans allows users to build highly functional websites. In order to continue growing at a rapid rate, Wix will have to be able to convince more of its users to switch to paid services.
Website hosting is also becoming an increasingly competitive business. With companies like Squarespace, GoDaddy and even Amazon vying for customers, Wix must provide superior value in order to alleviate competitive pressures.
Although Wix has been able to grow rapidly up to this point, the ongoing struggle for revenue from website hosting could hinder its ability to maintain that growth going forward.
Wix Stock Forecast: Is It A Buy?
As an investment, Wix appears to be something of a mixed bag. With a solid plan for achieving profitability, prudent financial management and a seemingly attractive price, Wix has many of the characteristics of a good growth stock.
Management’s ongoing commitment to share buybacks only bolsters the bull case for Wix, as investors who choose to hold their shares could see their ownership in the company increase in the coming years.
It’s important to recognize, however, that Wix could still be a fairly risky stock. Without realized profits, the stock is still a largely speculative investment. If Wix fails to achieve its profitability goals by 2025, the stock’s seemingly strong value proposition could turn into a value trap.
Overall, Wix could be a good choice for risk-tolerant investors looking for potentially outsized gains. More conservative investors may prefer to watch the company for concrete signs of profitability before buying. Given its room for future revenue growth and rising margins, Wix has the potential to be a good long-term buy-and-hold growth stock.
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