Q4 2023 Earnings Summary
- Significant Improvement in Business Solutions Gross Margin Driven by Payments Scaling: In Q4, Wix's Business Solutions gross margin increased to 33%, up from 29% in previous periods, primarily due to increased GPV (Gross Payment Volume) during the holidays, which led to better profitability in their payments business. This scaling is expected to further improve gross margins in 2024.
- Positive Trends in Commerce Activity Indicate Improving Macro Environment: Wix is observing positive upward trends in GPV across various commerce activities, including online shops, scheduling, digital goods, events, and bookings. This suggests a positively trending macro environment, which could drive growth in their commerce-related revenues.
- Strong Cohort Performance and Improved Conversion Rates Leading to Accelerated Growth: The latest user cohorts are performing exceptionally well, with the 2023 cohort approaching cumulative bookings levels of peak COVID-era cohorts. This is due to improved conversion rates from higher-intent users, better monetization, and strong engagement with new products like Wix Studio and AI tools. Wix expects these factors to accelerate bookings growth in 2024 and revenue growth in 2025. ,
- Decline in revenue from Asia and other regions: The company reported that revenue from Asia and other regions saw a slight quarter-on-quarter decline, attributed to fluctuations due to reliance on specific customers and channel activities. This suggests potential weakness or instability in these markets.
- Pressure on premium subscription conversion rates: Premium subscriptions as a percentage of registered users have been pressured over the last few years. While the company suggests this metric may not be the best KPI, it's unclear if conversion rates will significantly improve in 2024, indicating challenges in converting free users to paying customers.
- Dependence on price increases for revenue growth: The company is implementing price increases of roughly 5% to 15% across different geographies and subscriptions to drive revenue growth. While this may boost revenue in the short term, it could risk customer churn and may not be sustainable long-term, especially as the increases have not been fully implemented globally.
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Revenue Growth Acceleration and Rule of 40
Q: How will revenue growth accelerate and affect Rule of 40 in 2025?
A: Management expects revenue growth to accelerate in the second half of 2024, leading to further acceleration in 2025. This growth, combined with stable operating expenses, will drive increased free cash flow, significantly surpassing the Rule of 40 in 2025. -
Drivers of Bookings Growth
Q: What are the main contributors to bookings growth acceleration?
A: The primary drivers are launching new products, especially Wix Studio, growth in the partners business, advancements in AI, optimization of pricing strategies, and improving macroeconomic conditions. -
Pricing Increases and Guidance Impact
Q: Can you provide details on pricing increases and their impact on guidance?
A: Prices have increased by approximately 5% to 15%, varying by geography and subscription type. The increases are already in place in the U.S. and Europe and will expand globally. The impact is included in the guidance where implemented; further implementation could present upside to guidance. -
Sales and Marketing Leverage
Q: How sustainable is the sales and marketing expense leverage?
A: The leverage is due to both scaled brand recognition and growth in the partners business. Organic traffic has replaced paid traffic, allowing marketing investment to remain relatively fixed while revenue grows. Management believes this is sustainable, especially on the self-creator side. -
AI Product Developments
Q: What can you tell us about new AI products like the AI Site Generator?
A: The AI Site Generator has been released in version 1, significantly reducing website creation time by 70% to 80%. Future enhancements will further integrate AI to help users manage and grow their businesses with automated content and recommendations. -
Partner Revenue Share Accounting
Q: How does the expanded partner revenue share affect accounting and revenues?
A: Revenue is recognized on a net basis; for example, if they receive $1,000 from a partner with a 20% share, they recognize $800 over the service period. This has no impact on profitability or margins and is expected to be a significant future growth driver. -
Business Solutions Margin Expansion
Q: What drove the 33% margin in Business Solutions in Q4, and what's the outlook?
A: The 33% margin was primarily driven by increased payments during the holiday season, boosting GPV and profits. Management expects Business Solutions gross margin to increase in 2024 due to scaling payments and improving margins. -
Self-Creator Growth Outlook
Q: Do you still expect self-creator growth to return to double digits?
A: Despite recent deceleration due to lapping price increases and a higher mix of monthly plans, management believes self-creator growth will return to double digits in the long run, driven by new products and AI enhancements. -
Positive Macro Trends
Q: What positive macro trends are you seeing?
A: There is a positive trend in new businesses forming on the platform and increased Gross Payment Volume (GPV) across user websites, indicating an improving macroeconomic environment. -
Asia Revenue Fluctuations
Q: Why did Asia revenues decline quarter-on-quarter?
A: The decline in Asia and other regions is due to fluctuations impacted by specific customer channels and activities. Revenues in these regions can vary based on individual customer dynamics, especially from channel activity.