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domingo, marzo 31, 2024

Wix.com (WIX): A Potential Phoenix In Website Creation And E-commerce


Taking a look at a very fallen angel

Wix.com (NASDAQ:WIX) the subject of this article, is a very fallen angel. It was one of the first IT vendors to see falling growth, and it has perhaps reached something of a nadir in that category. When the company last reported in August, it commented that it had seen nascent signs of demand recovery (top-of-funnel) activity in July and early August. We don’t really know if that recovery has continued into October. Wix derives revenues from ecommerce, but also derives revenues from web site creation. Ecommerce sales will obviously be impacted by economic headwinds-they already have been. Web site creation, though-it is an open question.

Wix also said that it hadn’t seen any signs to positive trends in its ecommerce revenue stream, and any improvements in top-of-funnel activity would not really impact results for a couple of quarters. And it certainly didn’t provide inspiring guidance for Q3 and no real guidance at all is now for Q4.

Signs of a recession abound-sort of. The Jolts job openings report, released Tuesday morning, October 5th plunged. The Challenger Job Cuts report shows rising numbers. Factory orders showed no growth last month. On the other hand the latest non-farm payroll report has been described as “solid,” although the private payroll report shows a weakening trend over the past couple of months. The ISM non-manufacturing survey showed continued expansion, and was considered an upside surprise.

The market seems to be of two minds, initially spiking on hopes of an impending Fed pivot based on signs of slower growth, followed by an opposite belief because of the solid jobs report and the decline in headline unemployment rate numbers-although the unemployment rate, specifically was a function of the labor force participation rate which fell last month. Fed speakers continue to focus on just how long they need to maintain a restrictive policy in order to stamp out inflation. NASDAQ, in particular, is making new yearly lows.

Just how long it might take for the Fed to acknowledge what they have wrought in terms of demand destruction is not knowable. While there are certainly some signs of peak inflation, they are not universal, and Fed speakers are still firmly focused on a tight labor market, and at this point, seem unlikely to be dissuaded from that policy perspective until…I really don’t know. The historical record of Fed projections has been totally abysmal. In almost any other field of endeavor, a group or institution with such a record would not be long employed. But this is not an article on the inability of the Fed to accurately forecast the economy or to effectively interpret forward looking data.

I think all readers recognize at this point that until the Fed pivots, it is unlikely that any recommendation I make about high growth IT names is going to show material, persistent alpha. And that certainly includes Wix. That said, this is an article recommending the purchase of Wix shares after their epic fall. It is not the epic fall by itself that has engendered this recommendation. But I believe that the negatives for Wix have been discounted, and more than discounted, and that its space, after a huge fall from grace, is now at a trough growth level, and that the company has some market momentum due to product innovations. And of course, its major cost remediation initiative, which is not really baked into current earnings estimates, should be market pleasing.

Usually growth stock investors/commentators want to look at which vendors/segments are best poised for growth. I still feel that is a core of any investment decisioning. But in this environment the question of which IT vendors have pivoted to a mode calculated to best thrive in a recession has become significant. There is no single answer, of course. It has been more than a dozen years since the last recession ended, and the analogs between that one, and what is thought to be an impending recession are far from exact.

The conventional wisdom for several months now is to choose “safe” investments to “recession proof” a portfolio. The problem with that strategy, is that it is already a crowded trade, and doesn’t position a portfolio for a change in Fed direction, whenever that might come, or for a recovery from a recession that hasn’t yet started. My advice, for what it might be worth, is that while the pursuit of such a strategy by investors whose risk tolerance is low, and who can be impatient waiting for a sustained market turn to emerge makes sense, it will not be the strategy to produce differentiated returns over the next 12 months and beyond. Deploring the fact that a monthly jobs report was not worse than anticipated may make sense if one trades bonds; deploring a high level of employment, especially after almost a year of sustained selling by many classes of investors, both institutional and retail, is more than a bit cognitively dissonant. A soft landing, if one might be engineered, is really a positive for almost all classes of investments, except perhaps long dated bonds.

There is no question that looking for beaten down IT vendors is a strategy with some risks. The stock market panic in the wake of the jobs report of Friday, 10/7 displayed some of those risks. And that kind of action has continued so far this week. A fair number of what might be considered as the fastest growing vendors in the IT sector lost 8% of their value just on Friday and again on Monday, although interestingly, they had gained so much when there was speculation about a possible Fed pivot that most of the big losers on Friday were gainers for the week. Wix shares in particular, lost 6% on Friday and are down by 14% in just 3 days.

Just to be clear, I never anticipated the choice of the Fed to adopt demand destroying policies of the scale that it has, or to risk significant unemployment. But that said, rather than attempting to vaccinate a portfolio after the epidemic has peaked doesn’t seem reasonable to me as preparing for the next cycle turn or perhaps focusing on a company whose growth has already declined and whose outlook is already predicated on the potential headwinds from macro conditions. I would rather focus my efforts on companies such as Wix who enjoy a strong competitive position within a space that should show substantial recovery, when a recovery begins.

To reiterate, this is an article about Wix, a beaten down, erstwhile hyper growth company if ever there was one. At the end of the day, the company is an e-commerce story. There are certainly other ecommerce stories ranging from Amazon (AMZN) and Shopify (SHOP) to more direct competitors such as Squarespace (SQSP), Weeby, a part of Block (SQ) and WordPress, whose tools are probably the most popular with which to build web sites. ,

There has been some chatter amongst investors and commentators that the space is ripe for consolidation-probably true, and that there will be substantial merger premiums as that which a South Korean company, Naver is paying for Poshmark (POSH).(Actually the premium being paid for POSH is pretty modest, from my perspective-less than 14%-but the company is one I have never heard of and therefore I have limited insight as to its appropriate valuation.) While certainly Wix could be either acquired, or be part of a consolidation transaction, I think there are plenty of other reasons to consider the company as an investment.

Wix is probably never going to re-ascend to what I might call hyper-growth status. Indeed, its current 3 year growth projection that was presented at its latest analyst day calls for a revenue CAGR of 17%-19%, although like all such projections it should be viewed more as an informed guess rather than an anchored forecast. It can, however, be a worthwhile commitment as it pivots focus to restoring some growth in a changed environment, while implementing strategies to ultimately achieve 30% free cash flow margins. The shares have become cheap, while many investors, looking at is share price implosion over the past 18 months or so perhaps consider the company as well as the shares to be road-kill.

But is Wix capable of achieving high teens revenue growth and rising free cash flow? Wix is one of the more disappointing companies I have followed. I gave up on the shares in the high growth portfolio I publish for Ticker Target subscribers as long ago as November 2019, which in retrospect was too early as no one at that point knew about the impending pandemic and how it would spike growth for the sector that would become known as work-from-home. My last article on Wix was published on SA 18 months ago, and the world has turned upside down since then A few years ago, at the height of that paradigm, Wix was regularly achieving growth rates in the mid-thirty percent range with rising trends. At that point, the consensus view was that such growth was the new normal. It wasn’t.

Last quarter, reported revenue growth fell to single digits, and bookings growth, even adjusted for FX, was below 7%. Bookings fell sequentially-as reported bookings fell by almost 10%, although the fall was probably just more than half of that in constant currency terms. The current forecast is that revenue growth for Q3 will be between 7%-8% as reported, and just over 10% in constant currency. The implied growth for Q4 is about the same. Currently, the consensus outlook for revenue growth next year is almost 12% which implies some recovery, but is certainly still a depressed growth metric. Like many companies, Wix is having to contend with strong FX headwinds, and those headwinds probably impacted the results of last quarter, and will certainly be a component in the company’s guidance. Last quarter, 42% of the company’s revenues were coming from outside of the US. leading to stronger than average FX headwinds. That consensus forecast is clearly more of a guess than anything else at this point. Wix may not be in any danger of extinction; operating cash flow, despite the weak performance of revenues was about break-even last quarter and the company has announced a significant cost containment program and it has plenty of gross cash on its balance sheet. But the question is, what can be done to right this ship in order to restore profitable growth?

Wix shares have recently been buoyed by the announcement that Starboard, an activist investor, has taken a 9% position in the shares. In addition, the shares saw a positive reaction to a recent analyst upgrade by Oppenheimer. And the analyst at Bank of America, suggested the potential for Wix to become a consolidation candidate as Starboard has a 5% interest in competitor GoDaddy (GDDY). In addition, at the time of the last conference call the company announced a cost remediation plan that is slated to reduce opex by $150 million/year, allowing the company to meet 2023 profitability/cashflow targets, despite strong industry/macro headwinds.

While certainly it is helpful for a company to sharpen its focus, and to optimize spend when it is facing strong headwinds, both relating to macro conditions, and industry specific issues, the expense remediation program does nothing to answer the growth question. Consolidating the industry certainly makes some sense, but forecasting that it will be accomplished is not something this writer feels comfortable doing.

Despite the share price bounce, which had been as much as inconsiderable 30%+ since the low made in early September, Wix shares have fallen long and hard since they reached a peak in February 2021. At this point, the shares have fallen by almost 78% from that high point and they are down by almost half thus far in 2022 (calculations as of Oct. 4,2022). That has brought the EV/S ratio down to well below 3X, based on expectations for minimal revenue growth from the company’s current run rate-I actually used an estimate for 4 quarter forward revenues of $1.48 billion, below the current published 1st call consensus for revenues of $1.55 billion in 2023. I have reduced my expectation for the company’s 3 year revenue CAGR to 14%-perhaps too conservative, but reflecting expectations that it may take some time for the company’s efforts to rekindle growth to reach fruition while industry conditions also need to improve. Even at that level of growth, WIX shares are below average in terms of the EV/S ratio relative to growth. Of course, at the moment, the free cash flow margin, at around 3%, is also far below average for that level of growth; simply put, the investment case relates to the ability of the company to raise its growth rate substantially, and to achieve far higher levels of profitability.

The company presented a 3 year plan in May; conditions have changed/deteriorated in many areas of the economy and in terms of the growth of ecommerce as a whole since that point. That said, on this latest conference call, the company reaffirmed that it would be able to achieve its 10% target for free cash flow margins in 2023, regardless of macro headwinds, basically because of the impact of the company’s cost remediation efforts. Wix is no Snowflake (SNOW) in terms of growth nor will it ever be so, nor does it have the potential to be the next Shopify either, but at this valuation, I think risk/rewards are tilted in favor of investors.

On the conference call, Wix management said that it had seen signs of improvement in top of the funnel trends running from July and into August. The specific dynamics of the Wix market space are quite different than those of most enterprise software vendors. In an environment in which companies are reducing employment-and that is the case for many tech vendors-it is quite possible the Wix might see some positive influences as some tech workers want to create their own sites/businesses if they have been laid off or have limited prospects at their current employer. This space was just too nascent at the time of the last recession for any meaningful correlations to be drawn. The improvement in top-of-the funnel activity really will not impact reported results for the current year. But the trend, if it is more than ephemeral, will start to impact growth rates throughout 2023. So far, basically, analysts are not convinced that the trend is much more than a blip in a darkening sea. But I think it is appropriate to let management speak for itself, with the following quote:

I think we did, of course, a lot of product improvement because we always do. So some of that can be contributed to that.

The other thing is that it does look some recovery in the macro of our users. I want to emphasize that if you remember, last year, we were the first — Wix was the first to actually notice the decline, right? And I think our customers are reacting faster than most to changes because they are small and very agile. And so maybe that’s what we’re seeing now. It’s very early to say. We’ll keep you guys updated. But I think if I have to take a guess, I would say that our customers are starting to act differently. Okay? Again, it’s very early, and that’s why we don’t want to declare anything there and say anything big about it. But we are seeing some positive changes.

Lior Shemesh

With regard to the guidance, as Avishai mentioned, it’s still too early to call it a trend. Further, new subscriptions booking over the last quarter and the half of the year will have very little impact on revenue, as we all understand, because we recognize revenue over time. Also, I think that it’s important to mention that we do not yet see an increase in commerce activity, which has a big impact on our revenue.

Wix has been one of the go-to offerings for individuals and agencies wishing to create web sites to support a new business. Of course there are many competitors in that space, with the 600 lb. gorilla being Shopify, although most often the key competitors for Wix are considered to be Weeby, (a business acquired by Block, Squarespace, GoDaddy. GoDaddy is really more of a domain registrar and a site hosting service, although it has tools that are used to create web sites. WordPress is has been and remains the most popular choice as a tool set with which to build web sites. Some companies like Squarespace have tools that are really intended to build sites on which blogs are posted. There is a fair level of differentiation between competitors with regards to which tool is best for which specific purpose. And just about all of these companies, as well as other companies in what I might term adjacencies have seen their percentage growth rates fall precipitously, or disappear. It is hard to say that Wix has done much better or worse than its competitors in the space. It might be argued that the tools that Wix offers to build web sites, and web stores are a bit different than other offerings, but that is more of a quibble, I believe, as opposed to some existential differentiation. These days, in this space, a key factor is what is called search engine optimization (SEO). This has recently been a focus of Wix, and reviews of the product suggest that the focus has been successful.

The E-Commerce paradigm: When will growth return?

It is my opinion, that no matter what Wix does in terms of expenses, and growth initiatives, its operational performance, and the performance of the shares from this point forward will be highly dependent on the strength of e-commerce. I obviously can’t answer the question above in any dispositive fashion. If I could, I wouldn’t be sitting in New York on a cold rainy Tuesday in October. But the most serious problem faced by Wix, as well as by other e-commerce titans such as Shopify, and even Amazon, is when the cycle reverts to former trends. That’s just nor something within their control. The hiring freeze announced by Amazon in its e-commerce business is a desolate signpost of the current state of the e-commerce market space.

Many companies, and that includes this one, are looking at 2019 as a baseline and talking about a reversion to the trends in place before the impacts of the pandemic. The optics of that are…nice, I suppose, but really don’t provide any insight as to when growth will return to the ecommerce sector. And the ecommerce sector exists within the broad category of consumer spending, and for the most part it exists in the discretionary component. So, there is a major macro-headwind at this point, that makes looking at growth over the past 3 years not entirely helpful.

Last quarter, US ecommerce growth was reported to be just a bit above 7%. Some of the modest growth was suggested to be a function of the shift in Amazon’s prime day event to July. That said, last quarter, was the first since early 2021 in which ecommerce revenue growth surpassed overall revenue growth in physical stores. European ecommerce growth has apparently been a bit greater in percentage terms, at least in constant currency. It would be surprising if ecommerce growth in Europe didn’t decelerate given the spike in energy costs, although government actions to cushion that phenomenon, may stabilize consumer spending, and ecommerce spending. And of course, ecommerce spending as expressed in USD will be bucking significant FX headwinds.

I have linked here to a Global ecommerce revenue growth forecast that extends through 2025. There are, as might be imagined, many such forecasts. This one is probably as representative as any. It suggests that global ecommerce revenues will grow at around 10%/year through the middle of the decade, by which time, they will be 23.5% of total retail sales. Many other reports forecast ecommerce growth in the mid-high teens over the same period.

Wix, at its latest investor presentation, has projected a 3 year revenue CAGR of 17%-19%. There are several factors that should allow the company to grow at rates higher than the overall ecommerce growth rate. Some of these factors include new offerings in specific spaces, increased revenues per active users, and basically market share gains. I will examine some of those factors in a bit more detail in the section below.

Some Wix specific factors in its outlook

Perhaps the most significant Wix specific factor in the company’s outlook relates to its plan to reduce costs by about $150 million over the next few quarters, mainly through headcount reduction. About 20% of the $150 million/year benefit should impact 2022 earnings with the balance improving EPS in 2023. Wix currently has about 58 million outstanding shares, so eliminating that level of cost would have a very material impact on EPS. The current consensus EPS estimate for 2023 shows an improvement of about $1.41; self-evidently analysts believe that not all of the cost remediation will be realized in the next year and are also not convinced that there will be double digit revenue gains next year either. Wix currently has a non-GAAP gross margin of almost 64%, so the potential for double digit revenue gains coupled with $150 million of cost remediation could drive 2023 EPS well above consensus levels. The company has projected a free cash flow margin of at least 10% next year under any kind of possible revenue scenario. That would result in a free cash flow yield of a bit above 3%, and would put a lower bound on the company’s valuation, I believe.

Many of the KPIs that Wix management tracks are showing reasonable trends, somewhat similar to trends seen by Shopify when it was a much smaller and less dominant company. In the case of Wix, the company is seeing significant revenue growth from partners, increases in average revenue per live customer, and a continued adoption of Wix payments. Those are all positive indicators, but one issue for Wix and many others in this space is simply that its top of funnel, or potential new customers is no longer seeing growth-or that had been the case until recently. Indeed, while not wishing to diminish the importance of those positive metrics, they serve to highlight just how difficult it has been for Wix to obtain new customers in its traditional business. It is very much an open question as to whether the company continued to see positive trends in top of funnel activity; some resolution awaits the company’s next earnings release and conference call scheduled for early November.

Wix, for some time now, has been focused on its efforts to court agencies/partners. It offers Editor X which is specifically designed for that market. I have linked above to a brief introduction to the product. Overall, this is the part of Wix that is still growing rapidly; the company reported 31% growth from its partners segment last quarter. In Q2 partners revenue was $85 million, or about 25% of the total, up from 20.5% of total revenue in the year earlier quarter. The sequential growth in partners revenue was only about 3.6%. The weak growth in partners revenue was partially a function of both FX headwinds, and to an extent, the impacts of the war in Ukraine. A significant proportion of the company’s employee base has been in Ukraine, and they needed to be resituated. The company didn’t do a detailed reconciliation with regards to sequential growth, and to a certain extent, given that it is just a month away from reporting, the numbers that it achieved in Q3 and its guidance will be more important than what happened in Q2. The company has emphasized the expansion component (cohort growth) of its partners offering, and despite the overall macroeconomic headwinds, the company’s net retention ratio has risen. The company has a major NYC event for the company’s leading partners this month at which it will release a host of product enhancements. Sometimes, depending on the market phase, events such as that can move the price of shares.

While the contribution of the partners segment is rising, obviously Wix still relies heavily on self-creators for revenue generation, and that segment of the business still needs to expand for the company to achieve reasonable levels of growth. The question as to what it will take for the company to see a recrudescence in self-creator growth is really not quite discernible at this point.

Based on the current projections, If Wix is going to see a specific operational inflection, it will be the return of the self-creator segment of its business to substantial growth. That almost certainly didn’t happen in Q3 and seems very unlikely to be a reasonable expectation for Q4. When asked, this is what company management spoke about in terms of potential growth of its self-creators business segment.

In terms of self-creators, I think that the inflation actually influenced more the formation of new innovation and people investing in their business. I mean that has created some effect. In fact, we’re pretty much there in the self-creator back to a similar state of 2019. So the demand is similar to 2019. Of course, our ARPU is better. And of course, now we also have GPV as a source of income.

The potential for the self-creator channel to see stronger growth is a possible revenue tailwind for the company that is certainly not baked into current estimates. While there is nothing that Wix can do to change macro conditions, it is introducing a new significant product for self-creators called Editor 2. For the last several years, Wix has offered two products, its classic Editor, and what is called ADI which is an automated solution to build sites using AI technology. Editor 2 was announced a few weeks ago and I have linked to the announcement above. Essentially Editor 2 combines the features in the antecedent products most desired by users. The company also recently announced Wix Portfolio which significantly extends prior capabilities. Are these offerings going to significantly change the state of demand in the space? Probably not, but they at least maintain the market position of Wix, and perhaps max it easier for some self-creators to use the product.

The other factor in the company’s slowed growth has been that of the stagnation of GPV transacted on the platform. GPV volume was flat at $2.6 billion on a sequential basis, although it did grow 6% year on year. To a certain extent, revenue growth in payments is not really within the control of Wix. It can, and it is has been able to increase the penetration of the offering amongst its installed base. But there really is nothing they can do about consumer spending, and in particular, the commerce categories on the Wix platform tend to be more discretionary, than other areas of consumer spend. With real disposable income of consumers hobbled by inflation, the short-term outlook for Wix GMV is not very positive.

Wix: Its market position and the growth of its market

As mentioned earlier, Wix management during its most recent investor day in May spoke to a revenue CAGR objective of 17%-19% through 2025. At this point, I doubt that anyone either owning or writing about Wix shares actually anticipates that there is realistic chance for the company to achieve that kind of growth in 2023. No one really knows just how the macro headwinds might have impacted the company’s business activity last quarter, or how such headwinds, that seem to be intensifying, will really impact the company’s growth in 2023.

As someone who has analyzed IT companies for decades now, I wholly endorse the observation made many times, in many forums, that companies, at least, can’t save their way to prosperity. So while the $150 million cost remediation program will certainly have positive impacts on earnings and on free cashflow, I think the real issue for investors is what might be the CAGR for the company in a stable macro environment. Of course it has been nearly 3 years (2019) since the last reasonably stable macro environment.

The expected percentage growth of the web site builder space has come down quite a bit over the past couple of years. One analysis, linked here, suggests that the market has a CAGR of only 8% over the next several years. Other market research services have the growth of the space a bit higher, with estimates from 10% to the low teens. One issue with the analysis is that the base year, 2021 was a year at the end of a 2 year spike in growth of this space. Another factor, and one that can be a concern, is just how saturated the space might be. There are plenty of web sites available for just about everything-so finding new self-creators who are creating new sites and becoming paying customers has become more difficult.

Through the growth downturn, statistics seem to indicate that Wix is improving its market position. To some extent, this is a factor of the company’s focus on agencies and partners, both because of specific product focus such as Editor X and a significant sales and marketing investment. Wix actually has some large users who have adopted its platform including SAP (SAP), Deloitte, Hilton (HLT), Lyft (LYFT) and Ruby. Further, while GMV transacted on the Wix platform has stagnated, essentially because of the overall recession in ecommerce growth, the company continues to see additional penetration for its payment option on the part of its customer base. Finally, as mentioned earlier, the company does have some product initiatives, in particular Editor 2 that have been recently released. At this point, the company has about 234 million registered users, and about 6 million active users who are generating revenues. While most companies using Wix are small, 735 customers have more than 10,000 employees.

Trying to evaluate Wix vis-à-vis its competitors is a fraught undertaking. Most of the reviews that have been posted have been favorable. I have linked to a couple of reports that provide data about Wix from the perspective of customers. Like everything else, there is obviously a great deal of subjectivity, and user specific comments. I work with a web site developer whose evaluation of Wix is positive, but he also likes Word Press and has used other tools. He loves Figma.

Wix has had a relatively efficient and effective marketing motion for some time. It has been able to gradually improve its net revenue rate to 116% despite some factors that are headwinds in this economic climate. The company uses a metric called TROI (Time to return on Investment) which is the time it takes to collect dollars from a marketing investment. TROI for Wix has remained consistent for some time now, and while the top-of-funnel metrics have deteriorated, cohort upsell has continued unabated.

This is a difficult economic environment with a plethora of risk and uncertainty. Wix exists in that environment, and its results will be significantly influenced by that environment. But so long as the company provides measurable value for its users, and those users in turn continue to increase their investment in Wix offerings, the strong likelihood is that the company will be able to reverse the current trends it has been dealing with when macro headwinds abate. At the end of the day, that, in a sentence, is the meat of the case to invest in Wix shares.

Wrapping up: Wix valuation/ Evaluating the risks and rewards.

In some ways, valuing Wix shares is highly subjective. It could be said that all valuations in the current environment are subjective, but I think that of Wix is a bit more so than most. Fortunately, with the shares down almost 80% from their high point, trying to triangulate a precise valuation is a bit less necessary than otherwise.

The real issue is can Wix come even close to achieving the 3 year target the company set during it May analyst meeting. At that time, it laid out a path to reach revenues of $2.5 billion, with a free cash flow margin of 20%. Indeed, the company placed its long-term FCF objective at 30%. As Wix has a current enterprise value of just $4.6 billion, if it can achieve anywhere close to those numbers in the next 3 years the shares are dramatically undervalued. That would be particularly the case if real interest rates recede from expected peak levels (dot plot) levels to something less restrictive by that time.

In order for the 3 year projection to be realized there are 2 major premises that need to verify. One of these is the return to some growth for the segment of the business that is composed of self-creators. Right now, the revenue growth of the self-creator segment is just barely positive reflecting cyclicality and macro headwinds. For the plan to work, the revenue growth of self-creators has to be between 17%-19% in the years between 2023 and 2025.

In addition, Wix has to increase the margins on its partners business from current levels that show a notable cash burn, to a breakeven level by 2025. Getting there requires both a significant ramp in gross margins as well as a substantial cut in opex expense ratios. Of course the partners contribution has to continue to scale, in order to achieve some volume-based expense ratio economies.

While I believe that the likelihood is strong that the company will at least achieve its margin enhancement goals, and while I think the 3 year expectation for growth in the self-creator segment is realistic and will be realized, the path to that kind of result is likely to be bumpy and its cadence is uncertain. That is both the issue for investors, and the concomitant valuation implosion is the opportunity.

These are perilous times for investors, and many investors have chosen to move to the sidelines as various indices suggest. Many strategists believe that the period between now and when the Fed ceases its rate hiking policies is one of maximum peril for all stocks. Wix shares are not going to go up while the rest of the market is in retreat. They didn’t do so Friday, and investors are simply not going to value free cash flow next year in this environment.

My view, however, is that all of the negatives are on full view for Wix, and the shares reflect that with a valuation of less than 3X EV/S. I don’t like price targets, which in many respects are lagging rather than leading indicators. But if Wix does nothing more than achieve 5% growth and 10% free cash flow margins next year, a conservative forecast, I believe, the upside opportunity of the shares should be substantial, and more so if the Fed rate hiking policies come to an end. I believe the shares offer a compelling opportunity to achieve substantial positive alpha.

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