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3 Reasons to Buy Wix Stock Right Now

Wix (NASDAQ: WIX) has been a disappointing performer for shareholders in 2021. The stock price is down around 32% this year, while the broad market S&P 500 index is up roughly 25% as of this writing. As an investor, it is never fun to see the value of your holdings go down by 32%. However, as long as the business quality hasn't changed, large drops in the share price can provide buying opportunities for investors with a long-term time horizon. This is exactly what is playing out with Wix stock today.

Here are three reasons to buy Wix stock right now.

Image source: Getty Images.

1. Wix has durable website revenue

Wix's core business is website-creation subscriptions. This is classified under its Creative Subscriptions segment and brings in the majority of the company's revenue right now. The website platform's business model is simple. Individuals and businesses pay Wix a monthly or annual fee for a URL, access to website-creation tools, email marketing, and many other products.

In the third quarter of this year, Creative Subscriptions brought in $241.3 million in revenue, up 19% year over year. This segment is very profitable, with gross margins of 76%, indicating that it will have high profit and cash flow margins once it scales. On an annualized basis, Wix estimates it has annual recurring revenue (ARR) of $992 million from Creative Subscriptions.

Even better, since this business is highly predictable, Wix estimates it will collect $15.4 billion from existing customers (this includes Business Solutions customers) over the next decade. With the Internet's expanding global presence, Wix has a clear path to growing these estimated collections over the next five to 10 years.

2. Wix has optionality in e-commerce and payments

On top of the consistent website subscription business, Wix is moving into Shopify's territory by offering customers e-commerce and payment tools to run their businesses online. This is classified under the Business Solutions segment in Wix's earnings report and is the fastest-growing segment at this time.

In Q3, Business Solutions grew revenue 55% year over year to $79.5 million. The segment has low gross margins of 19% right now, but that is because it is ramping up its in-house payments solution, Wix Payments. Right now, the take rate the company is getting on these dollars is low, but over time, management expects that to rise as the product scales, raising the Business Solutions gross margin along with it.

Wix's business strategy is to offer easy e-commerce building tools, a native payments solution in Wix Payments, and specific tools for business verticals. For example, the company just revamped its Wix Fit category, which caters specifically to fitness trainers, gyms, and studios. Not even Shopify, the leading e-commerce platform, has this type of specialization for its customers -- and it could be a differentiator for Wix over the long term.

3. Wix has a reasonable valuation

With the stock down so much this year, Wix is now trading at a reasonable valuation based on its forward sales estimates. With a market cap of $10 billion and $1.265 billion in projected 2021 revenue based on the low-end of management's guidance, the stock has a price-to-sales ratio (P/S) of 7.9. Given the high margins of its Creative Subscriptions segment and the durable growth of the last few years that should continue for the foreseeable future, a P/S of 7.9 seems cheap compared to how much profits Wix may generate in the future. And don't forget about the fast-growing Business Solutions segment either.

Data Source: YCharts. TTM = trailing 12-month.

Wix has a multiyear track record of compounding its sales at a high rate. In fact, since its IPO in 2013, the company has grown its trailing 12-month (TTM) revenue per share by almost 1,000%. If this sort of rate continues, buying Wix stock at a $10 billion market cap will likely work out nicely for shareholders over the next five to 10 years.

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Brett Schafer owns shares of Wix.com. The Motley Fool owns shares of and recommends Shopify and Wix.com. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.


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