Are Wix's Goals Out Of Reach?

In this article I would like to share my experience as a client of Wix and what conclusions I reached regarding the stock. I was with Wix (NASDAQ:WIX) since 2012. I decided to setup a website mainly for family and friends who knew me and want to follow along with my investment strategy. I decided to try out Wix because the full version was free and if I liked it I could pay to get rid of the ads and use a domain of my choosing. FYI, you don't need a domain or pretty much anything when going with Wix because they will give you an address based on your account name (eg. lastname.wix.com/yoursitename). As you see below, Wix is quite popular.

Click to enlarge

(Source: Wix Investor Relations)

This is fantastic marketing strategy because you end up dedicating time to put the site together. As a result you when you decide to take the next step then more than likely you will become a Wix client. Wix is easy to use with a drag and drop system. Over time it has become a little more complicated but I consider it to be quite intuitive.

Click to enlarge(Source: Wix Investor Relations)

After designing the website in flash, I had to pretty much start over if I wanted to move to HTML5. And I really had no option as the flash site would not work on all devices. Wix provided a "convert" option but was little help. The HTML5 site at the time had few options but was still happy with the product. As I added content and pages, I discovered I want to do more and more. Unfortunately, a lot of the features I wanted were not available and many quick fixes suggested were just not satisfactory to me.

I stuck with it though as I liked the design options and Wix kept adding more options and items. For example the galleries have a rich set of options under the following four categories: slider galleries, grid galleries, full-width galleries, and 3D galleries. There are 46 different gallery options!

I found the implementation problematic. As I tried out different galleries, I discovered they visually didn't turn out as nicely as I would like and it appeared that the monitor or browser also affected the result. When I finally found something I liked and worked, I discovered that it didn't look so good on mobile devices. This I believe is a huge disadvantage of Wix. You basically have to switch views from desktop to mobile and edit your design there was well. In other words Wix is not responsive. In a responsive design (such as offered under Wordpress) you make the change once and it looks great everywhere with any need to change anything. As I result, every time I made a change in Wix, I would also have to look at the mobile view and make changes there as well. For example, I would have to change the font or move things around. It was very tedious.

Over the past year I asked a friend to take a look at my website and help me improve it. She noticed even more problems. For example, when clicking through the pages, the alignment or fonts need tweaking. This is the beauty of a Wordpress website, which as you understand, I switched to. The theme pretty much takes care of all these issues automatically as design and content are separate while in Wix its all integrated together.

I finally gave up a few months ago when I decided to add ads to my website. I applied to Google Adsense, and was rejected due to insufficient content. This didn't make sense to me as there was content. So I googled the problem and found that I wasn't on my own. There was a lot of people on the Wix forums looking for a solution and the reply given by Wix support was not helpful at all. Most of the time it was the same copy/paste response! I was paying EUR 177 a year for this torture and I had enough. I was sick of looking up workarounds for Wix problems. In case you were wondering, my Wordpress site was approved by Google Adsense within hours! And in a few days the final review was completed and ads are now displayed.

For those unfamiliar with Wordpress there is a Wordpress.com and Wordpress.org. For maximum flexibility users go to .org (to see the differences look here). Basically with .org you need to find a host and do the maintenance work but you can install plugins, custom themes, etc. I went with Bluehost (recommended by Wordpress) which would cost me EUR 42 for the first year. Plus when I transferred my domains from Wix to Bluehost they renewed it for free. More importantly, I had direct access to real people at Bluehost via live chat. There was a bit of waiting but the Bluehost staff were excellent. They helped make the transition as easy as possible.

On setting up my new Wordpress website I decided to purchase a theme for USD 99 and went with Genesis framework and a child theme. Basically all the changes you do are on the "child" theme and Genesis is the backbone. This approach is recommended because when Wordpress updates their software some of the free themes have issues. Apologies if this sounds complicated, but its much simpler than it sounds. Studiopress (Genesis creator) has a setup page for the theme I bought and basically I learned how to use Wordpress by following the Studiopress instructions. Furthermore I would like to point out that there are several companies that offer a variety of themes that make the process much simpler for beginners. For example there are even drag and drop builders but I can't comment on them as I haven't used them.

Wordpress differs from Wix in its approach. There is the dashboard on which you have access to both design and content but they are essentially two separate things. As a result a design change can be implemented easily. You can go as far as switching themes and the posts and pages are now in the new theme. In Wix the content is in the theme so if you want to change it, you have to re-design the site from scratch.

Wordpress offers superior flexibility and support. There are so many people using Wordpress that a simple google search will lead you to the answer. I was shocked at how fast I found answers. If I wanted to do something on the site there was already someone else out there who wanted to do the same and the answer was there. Plugins work like the Wix App Market, however in Wordpress there are significantly more and better options. Furthermore you can find a free plugin or the basic version of a plugin and not need to buy the pro version. In Wix, I found the basic/free version of apps to be useless. As I result I can conclude that Wordpress plugins are far superior. (It reminds me of Windows mobile apps vs Apple App Store Apps). Finally, my website was no longer hostage, and I have the option of changing the design or moving it to a different host any time I want. The website is now truly mine.

So where am I going with this? The above is my story of a loyal Wix customer who switched to Wordpress because Wix has limitations and what is marketed as an easy to use platform results in many lost hours trying to get what you want to work and look good. This has implications for Wix's model. As we see below, Wix is not profitable.

Click to enlarge(Source: Wix Investor Relations)

While Wix has had impressive revenue growth, it is still losing money. Even adjusted EBITDA turns negative when we include stock based compensation. Stock based compensation has been rising as shown below. If we annualize 1Q16 then this expense will reach $24m vs $19M in 2015. Company guidance for full-year 2016 adjusted EBITDA is $30-32m. If we removed the stock based compensation that becomes $6-8m. Even with the company's adjusted value, the stock is trading at over 30x EV/EBITDA. P/S is a bit better at 3x guidance. Analysts expect Wix to be loss-making in both 2016 and 2017 with estimated EPS of -49c and -2c respectively. (Note that analysts estimates are usually non-gaap so they are not conservative...)

Click to enlarge

The problem that I see with Wix is their target model which is shown below. Over the last two years the company has more than doubled revenues but these cost haven't changed much. So it could be a while before these targets are reached...

(Source: Wix Investor Relations)

Below is the output from Google Trends which shows Wordpress in the lead, followed by Wix. From this chart we see that Joomla's popularity has dropped significantly.

Click to enlarge(Source: google.com/trends)

So over the next few years I wouldn't be surprised to see other firms go Joomla's way. We could have a new market leader or additional competition. But having seen the power of Wordpress, its following and abundant support, they will be difficult to displace. The one thing that is for sure is that Wix needs to continue spending in order to keep improving its platform.

The company could very well be loss-making for a while and plans to reduce costs may take longer. At the same time, there is a risk that other customers like myself walk away and use other platforms. (Note that when I type in google "switch from wix to wordpress" I get over 500 results while "switch from wordpress to wix" results in only 7 results). Overall for a product that may fail and is not superior to its competition, the stock is richly priced. I believe investors should stay away.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Are Wix's Goals Out Of Reach?