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Wix.com Is Seeing Accelerating Growth

2020 has been brutal for many companies, but it's been a breakout year for Wix.com (NASDAQ: WIX). Year to date, shares of the website building platform have more than doubled. The coronavirus pandemic has highlighted the importance of Wix's offerings as companies increasingly turn to the internet to manage their businesses, connect with customers, and boost sales.

Highlighting Wix's momentum, the company has seen accelerating revenue growth for three quarters in a row.

Here's a closer look at how this tech company has impressed investors in 2020.

Image source: Getty Images.

Strong demand

Wix's third-quarter revenue increased 29% year over year. This was an acceleration compared to 24% and 27% growth in the first and second quarters of 2020, respectively. Growth was fueled by the addition of 7.8 million registered users during the quarter, as well as 302,000 new premium subscriptions.

"Our outperformance this quarter -- as well as our strong outlook for the remainder of the year -- further demonstrate the new state of mind of businesses and the enduring importance of an online presence," the company said in its third-quarter business update.

In an interview with The Motley Fool, Wix's general manager for the U.S., Joe Pollaro, said the company feels "strongly about the retention of new customers" added during the coronavirus pandemic. "Over the last few months, we're seeing more businesses using more of our vertical applications like Wix Stores and Wix Bookings, and other business solutions like Ascend and Wix Payments," explained Pollaro. As these customers adopt multiple Wix solutions, their retention improves, the executive explained.

Impressive cash flow

The high level of demand for Wix's solutions and the resulting rapid revenue growth are impressive, but so is the strong cash flow the tech company is generating. The company currently expects total 2020 free cash flow to be between $122 to $127 million.

Zooming out over the past five years, Wix's annual free cash flow has risen from $14 million in 2015 to $127 million in 2019. It wouldn't be surprising to see this important profitability metric continue improving rapidly.

Image source: Wix.com.

With strong positive free cash flow, Wix stands apart from many high-flying tech stocks that consistently burn through cash. Even more, this cash flow enables Wix to invest aggressively in the growth opportunities in front of it.

"We will always look at opportunities to acquire technologies or products that meet our users' needs and wants," Pollaro told The Fool when asked whether there are investment opportunities to put the company's excess cash to work. "In the meantime, we'll continue to invest in marketing and R&D to build products internally that will help our customers create, manage, and grow their businesses online."

With its $14 billion market capitalization, Wix stock isn't cheap. A growing base of entrenched customers positions the tech company to capitalize on accelerating digital transformations. The strong cash flow helps, too.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Wix.com. The Motley Fool has a disclosure policy.


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