The trendy Wix.com cannot continue flying until the end
Wix.Com Ltd. turned the tables when its stock gained a 49% in the market which initially had a very rough and somewhat sloppy start. This is incredible, isn’t it? Due to its impressive performance, it received a 27% return with a profit of a one hundred percent last year. However, the question here is for how long can it keep its momentum going with such a fast-paced equity?
It looks all smooth at first glimpse with the perception that everything is going at perfect pace.
WIX has worked aggressively to up its advertising presence by using its “celebrity endorsement” marketing strategy. It has a long, growing list of celebrity endorsement which is quite unlike Godaddy Inc. or any other of its rivals.
One of the company’s biggest competitive edges is its website generator that has no match in the market. I won’t be wrong when I say that it has one of the most valid and reliable graphic interface that allows you to put customized element or text at any place on the website without any struggles.
From my experience, many website builders will take up too much of your time but won’t let you put for example an element at any specific places and will only allow just fewer areas. Another huge plus point for Wix.com is the fact that it has a collection of visually appealing templates to choose from.
Website building is not a new concept and with that said that amount of success Wix.com has achieved in just three year does force you to raise eyebrows. Now, I don’t want to sound a pessimist or someone that begrudges corporate success but let’s not forget with companies like Shopify, Amazon.com, and Facebook in the game it’s not difficult to lose market share.
The question arises here is does Wix.com stocks have the potential to continue delivering with such momentum?
The financial situation of Wix.com stocks is doubtful
Wix.com lost $50million last year which is a huge concern for it. According to Lawerence Meyers of InvestorPlace’s, “never made a profit but has a $3.2 billion valuation”. This shows that something is not right here, however, taking into consideration this case Meyers believes that the “company can grow into valuation”. Mix.com has a loyal customer base that gives an edge to it in the highly unsteady and competitive website building industry. As Meyer said,
“Of the 18,513 premium users that joined in the first quarter of 2010, 17,712 are still there. That’s incredible retention — 68% of gross new subscriptions are for one year or longer. And 82% of total subscriptions are as well.”
It cannot be denied that the sales have increased up to 200% over the past couple of years and the Gross profit has also grown up by 208% simultaneously, a result of gross margins was improving at a steady pace. But, at the same time the expense for SGA and R&Ds has also gone up.
At the end it there is an average of $49.55 loss per year. So no matter how the management works, this tell us that the company is losing money and the dynamics are quite odd knowing the fact that Wix.com spent vigorously on it company’s growth strategy.
In a business as common as website building we should always keep in mind that sales saturation can always happen and for that purpose, we can keep Godaddy as a deterrent example. Godday made money equal to none if we keep the non-recurring income aside in the year 2017.
A big question Wix.com stock investors should ask
Saying all that I said above, I am in no sense trying to an emphasis on the negatives or trying to warn from buying WIX stock. It is a great platform with tons of creative potential and I also support Meyer’s argument about the customer loyalty towards the company.
Another InvestorPlace writer James Brumley expects Wix.com to have a 40% revenue growth. Keeping the above fact in mind we can say that the company is making a legitimate profit.
Unfortunately, I just go back to the cut-throat nature of this business, which has low barriers to entry. In addition, customers have too many options. Facebook has the social media angle covered. Shopify is trying to do the same for small-business merchants. Then you have low-cost web-building competitors, such as Weebly
However, as I said before and I will say again the harsh reality is the nature of the business it is, it has a very low barrier to entry along with many substitute options for the customers. Competitors like Facebook that has the social media side covered, Shopify is trying to come up with something for small business merchants and let’s not forget the low-cost web building competitors.
What I am saying here is the easy task has been done and now WIX’s growth will be extremely challenging. This makes me doubtful about WIX stock growth in the future.