Q3 2020 Wix.Com Ltd Earnings Call

20 earnings call joining.

Joining me today to discuss our results are obviously <unk>, our CEO and co founder Nir Zohar President and COO.

And Lior Shemesh CFO.

During this call we may make forward looking statements and these statements are based on current expectations and assumptions [laughter] consider the risk factors included.

Good in our press release and most recent form 20-F that could cause our actual results to differ materially from these forward looking statements.

We do not undertake any obligation to update these forward looking statements.

In addition, we will comment on non-GAAP financial results.

You can find all reconciliations between our GAAP and non-GAAP results in our press release.

The presentation slides shareholder update and our interactive analysts center.

The Investor Relations section of our web site investors Dot Dot com I would.

I'd also like to mention that we will be holding a virtual management update in early December. So please stay tuned for more information within the next few weeks.

With that I will now turn the call over to other shack.

Fantastic quarter and wanted to see opportunity again to think everybody at weeks for their incredible effort to help our customers. During this time and to say to all of our customers amazing to see what you guys have done.

And how many incredible businesses are now flourishing in weeks.

Christ packages like stores and you talked about other site ecommerce growth and then agencies and partners and so can you give us a little more insight on maybe the type of business. That's coming to weeks do you think this is newer businesses just in what we're all seeing the rise in business formations here or just existing businesses are realizing that they have to come online and and with that.

You know knowledge of your sub base, how are you ramping marketing and really targeting.

Continued growth and on the marketing side. So if you can talk about your marketing approach as you as you know who's joining the business. Thanks, guys. Congrats again.

Well thank you so much.

So I think that we're seeing both we're seeing a lot of a brick and mortar.

To businesses that are moving online and then obviously during the pandemic. This was a crucial thing because a lot of them had to close the physical store and this is a kind of a global phenomena, but we also see a lot of a businesses rebuilding their online presence so.

So thats the last part of that was saying so I would say on all front, we're seeing massive growth.

And I think that day.

Really you know I think this pandemic.

Actually push people right to do something that they always knew that they need to do right. We need all I need to move on I need to at the store.

And obviously as we gain more this subscription in the first couple of months, we can actually go to in higher absolute number right because it.

Divide absolute.

Cost of a.

Marketing we days so.

Subscription value so we see that in there and we're very happy about it.

Around the end with Wedbush Securities. Your line is now open.

Hey, good morning, guys. Thanks for taking the question so I.

I wanted to dig in a little bit on where you guys called out in Investor letter.

Elevation of brand perception, among the agencies and.

And just ask if you could expand on that a little bit more.

Obviously editor Axis is rolling out and you have the E commerce solution.

And maybe just highlight what it is among the conversations you're having with agency partners. That's that's getting used to be at that place and how much more room. You think you have to go before you're at the at the brand perception that you want.

From.

The agency partners and then and then the second question on collections the guidance range was a little bit wider than it usually is.

And you obviously had really strong conversion this quarter, you talked about negative churn cohorts from the first and second quarter.

Core value kind of accelerating.

As we think about that range.

And then they originated we can see that the composition has changed like in the past weeks was do you sell for now we can see a lot of them are discussing that is switched is today, it's probably the best choice also for them and that's anything that has to do with the brand.

It gets.

It's time for the two completely mature I think the driving force behind a lot a lot of product improvement you know for a CEO to performance to think that they love him to manage multiple accounts and manage teams so dishes and a lot of what we've been doing.

There and a lot of it is a.

Well give you. One example, I think that the one of the discussion that we're seeing a lot now is that.

Hey, it's about security right just additional to that to the agencies would use its workforce and a and obviously with wordpress.

Extremely hard to maintain the high level of security and a fully.

For the sites because most of the half year about that or more plus right.

And a an easy I don't know if you ever even heard about one week cycle was hot right. It's extremely hard to hakan doing site and they do have to do nothing for that's usually this is something they are spending.

Also energy.

Okay.

Let the brand perception is changing and the lot of doing now using and moving to use wix and we also have of course, they account management, where we work with them and help them understand the platform and what they can do so this is a not a contributing factor.

Hey.

Well its Mir I'll take the second question about Q4 and I think.

Obviously Q4 ties up directly to what we've seen in Q3 right right. You know even is I wish I mentioned, even as weve seen economy going into some form of normalcy and going back to two two regular core economy.

Only behavior, we still see have seen a tremendous amount of growth in Q3, which is carrying over to Q4, which is also why we're giving a strong guidance that we believe though it makes a lot of growth that being said regularly Q4 has some effect of seasonality its really hard to say how that is another.

Maliki will behave this year since some of that seasonal seasonality that is attached to a to consumer behavior, which is quite different this year.

It is attached to the fact that people are going to vacation, which is hard to believe that many people would be able to go and proper vacation. This year in light of that we'd be fed to handle what weather wise.

Hi, there range than what to use usually have at this part of the year, but obviously, it's still very a very very flexibly high level of growth, 35% year over year growth in Q4, which we're very happy about I don't see the also sets up sets us up very well into it.

2021.

Thank you.

Our next question comes on the line of Mark Mahaney with RBC Your line.

The open.

Okay. Thanks, two questions. Please you've leaned in heavily into marketing this year marketing intensity its percentage of collection.

Actions or revenue is up could you just talk about some of the learnings you've had from that and is that something that you think is.

Sustainable shift do you want to run the business with greater marketing intensity now than Youve done in the past and then secondly, just spend some more time on ecommerce solutions that you've rolled out in the middle of this year, you you announced a series of new products and.

And we are truly excited about it.

Hi, This is Ami shines you asking about ecommerce.

So in the last couple of years is heavily invested into making our ecommerce and product is great and there. We during the last few very things like drop kick in the channel is still multi currency shift.

This is where we are unique solutions for restaurant solution for his them solutions for a a booking scheduling where pretty much the only platform underwater data. So there we are definitely debit and I think that the combination of all of their strategies unique offerings, where we are able to go and really help so many businesses during the current crisis.

Yes.

And.

This again with all that dramatic marketing and it took us like ascend.

And really been in helpful for our customers and.

To learn and rapidly adapt to the changes that are needed to have.

In order to support the business.

So two questions one if.

If we look at business solutions collections in revenue.

Has been slowing over the past few quarters are basically following first quarter, while creative decryption revenue and collections of accelerated Amy.

Maybe how how do we think about that I mean, creatives subscriptions is more top of funnel.

Is that the leading indicator if we lost some business solution has increased as a percent of if you look like as a percent of.

Great a subscription so just how are you thinking about kind of one being the funnel for the other is a leading indicator than we might think about what that means for the next several quarters and then.

It's already happened.

But when you look at collection. So you understand that it's a combination of many quote are.

Certainly the new one.

But also the historic one actually when we started the year about 85% of our collection coming from historical cohort.

So the impact of the new course is very small.

If you remember last quarter, we mentioned that marketing increased by 90% on a year over year basis, but actually the value of the court also increased by 90%, meaning that those new quotes are going.

Thank you.

Our next question comes from the line of Ken Wong with Guggenheim. Your line is now open.

Great.

First question also to gain the payments.

We're just lucky love to get a sense of maybe how you're seeing the behavior of your installed base react to the payments product I know a lot of the benefits.

Come from the new cohorts coming in at 80% attach rate any benefits on the installed base anything you guys are doing to move those guys on your product.

Then second on the on the customer support initiative. It seems like it's it's grown to be something much larger and perhaps more strategic than any of us anticipated.

Maybe can you give us a sense for kind of how that that strategy might have evolved in the last six months post covered thank you.

You can see here I'll start with the first question about payments. So so you're absolutely right I mean.

Oh, the wide adoption so far has been of the.

The new users are adapting a payment and we've seen great levels of a really great levels of their document in a in adoption there.

I mean more of a more than 30% of all of the sales transactions that are happening with the system are already under under weeks payments.

With.

The base, we already managed to to to say to somewhat convert some of them are.

To be under the weeks payments, who then we're going to continue doing so.

In the in the next year to come this that'd be another potential for growth there.

And the second thing is you have to remember that that were also a gig.

He CB stores that just joined us earlier throughout the year starting to mature as they mature the volume on the stores is increasing and obviously that contribution to extreme. It's also is decreasing so I think that definitely do experiments is going to be a big success story for us in the in the next few years.

And then continue into a into 2020.

Because it's paid off big time, this year or we would not have had a chance to give proper customer care to.

To such a huge demand.

He manages subtly peak in growth had we not invested regionally into into the into the care.

So I think that our strategy continues as we wanted it to be which is getting better and better care going more proactively and talking more to a user's helping them convert helping them move along the journey build the food business understanding that it will contribute to first of all satisfaction and happiness, which directly.

Actually impact our brands it impacts the conversion to premium it impact or adoption of higher priced services. So it increases ARPU and obviously definitely it reduces the churn increases loyalty overtime. So we are very happy with the returns. We are we've seen a as you see that there is a very big demand.

Foundry services and the growth continues obviously will continue to to invest into a into those areas of care into into next year.

Thank you.

Our next question comes from the line of Sterling Auty with JP Morgan.

Morgan Your line is now open.

Thanks, guys. So I'm just curious I want to make sure I understand there was a comment in collections talking about the partners and and.

I don't know if it's agencies as well, but just partners are prepaying. The collections are that's what counted in collections can you give us.

Usually the structure of the deal is with our commitments by the way, it's not that significant yes, a few.

Millions of dollars of I assume for this year, but.

But it's not that significant.

So basically they will get a commitment.

For payments or for now.

Weeks in order to make sure that you know they get a better service to their customers and to keep the brand strong. It is what's happened with NTT with Vodafone.

And a few other examples that we already had.

And they feel really really good about it and they actually benefit from Twoq.

This is the first one is obviously keeping the brand strong.

By the fact that they're providing the best platform in the world and second they make sure that the business. Our most successful and obviously the benefit in in direct way from that fact.

Thank you. Our next question comes from the line of Deepak Mathivanan with Barclays. Your line is now open.

Hey, guys. Thanks for taking the question two quick ones. So first can you talk about what you're seeing in the early days from any direct monetization how has attach rate progressed, where is your expectation.

Agents and who are you seeing as the only buyers of the product any anything you can share on customer profile will be great. And then second question. Leon can you provide some additional color on the fourth quarter guidance. What are you seeing in terms of net customer adds growth in October and November so far is the ROI for customer acquisition on the paid channels.

Relatively stable our fourth quarter, obviously, the us elections is a little bit of.

In a volatile quarter. So just curious on what you are seeing right now.

Andy This is avishai, so editor as well.

While the product is in beta right, we are still not pushing it aggressively while we're seeing already.

Thanks unique to the exact level that they need.

So we're seeing that it's been mostly adopted by its been adopted a lot by the higher.

In agencies and brands.

And.

So were very excited about it of course, it's a professional.

And the data bases and the CMS Mexican unique offering nothing else in toward as far as I know at this stage is even close to be similar to that so it's a really broad offering all the functionality that for now seems to be achieving exactly.

Throughout what we've already seen in October it's going very well with the same.

With the same efficiency and I feel that we are going to invest more in the fourth quarter as we've done in the second and the third quarter about the marketing expense.

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Thank you.

Next question comes from the line of Josh Beck with Keybanc capital markets. Your line is now open.

Thanks for taking the question I wanted to follow up on partners certainly seems like you have some really good momentum collect collections have doubled their adding new.

Agencies, so I'm just kind of curious with the conversation that you're having with these partners are you benefiting because the category awareness has gone up because the way the world has changed in the last six months is that maybe more specifically around which is brand capabilities.

His level, a little more color on that topic.

Of course, I think that data when you look at Fandstan question is like.

I have been window.

When you bought it widens, becoming so successful I.

I think the thing so.

So this is obviously not a pandemic conversation right those people do what they do.

They've been doing that before epidemic of their continues to doing after the can mimic show.

The condition selling the change in how we are being perceived and now we are being used a lot of it is coming because of functionality on weeks that have changed right. We built specific solution for partners to manage multiple accounts in which to manage teams.

As shown anything in our fishing they are doing their customers they really still the COVID-19ien.

Accordingly.

Platform.

And all dosing supported growth that we see there and.

So it's pretty much brought maturity.

Really helpful and Lee or maybe a follow up for you.

The collections growth has really outpaced revenue growth the last couple of quarters certainly thats.

Better than previous years. So I'm just wondering as you go into 2021 is your visibility improve.

Proving with this dynamic.

Of course, because we didn't have a very you know.

Collection is transforming to our revenue.

And what we actually see win win the gap between collection and revenue increases which means that we are.

The increase can Williams yours, you have seen for the last two cohorts you brought and how much of an improvement is that versus.

You have seen historically.

Hey.

Oh sure Theyll take the Uh huh, the customer care and can then can I pass it on for two New York.

Oracle and talking to them.

Standing not only what is their current problem that they are calling in with but actually helping them.

Having the agent fully understand what is the goal of the customer where he is trying to take his business than 10, holding them and helping them along the way is something that that we discovered has a big impact on.

On on the on conversion.

After three X conversion.

In some of the cases of the people Oh, we speak with so naturally as we want to we want to engage more not less and this is a big part in big chunk of what we set up to do so.

So you know it's.

It's not only about having a larger.

Force of people, who can can can answer the phones or take on chat, but it's also about the different approach that is much more engaged with the customers.

That approach is definitely proven to be effective very effective in the past years. Since we started testing it and we will keep on ramping it up.

Keeps into that investment.

In terms of gross margin during one ticket.

Yeah with regard to the gross margin I think that you know the best way to look at it.

Dave.

We'll try to understand exactly you know what is the contribution.

I'll support right.

I mentioned before about 80% gross margin.

A short to medium term I also long term I might fluctuated a little bit based on when we exactly invest.

The money for us for the support team, but nothing has changed in.

Term of the model.

Hey, David its Nir again.

In terms of the equity the heightened conversion so.

First of all you are correct, we are probably at the highest conversion we had in the past two years and there is there is a few there's a few drivers to it a first of all if I circle back to the beginning.

We've done around the support the product functionality in support for for partners, but it's not only that it's you know it's everywhere around the product. It's in our editors it's only the guy it's it's on our online scheduling product wix bookings.

Restaurant vertical the missed.

Musician the artist the photographer is pretty much across the board in all of these improvements obviously always improve conversion.

And then I would say that the last part is that is that new state of mind that we are actually seeing where it is much higher demand and higher intent people are coming.

Customer.

Yes, So August and ecommerce packages are more expensive.

And unlike touched drive numbers by day, a the biggest having different varieties in the payment.

And because were weeks payment and this is something that they were seeing that.

He enhance.

Relative cost so much probably at least a should be valued at twice the average value of a lease customers normally with customers, but when.

And then we've got to continue to monitor because.

And to see how we developed a lot of it is new and a lot of it is influenced by the pandemic.

No.

All right. Thank you so hoping you could maybe comment on the the uniqueness and what happened with the three you through Q quarter conversion you mentioned it was.

You're a two year high levels and I'm, just curious how that might be representative in for Q.

And how that may carry into 21 does that imply.

Hi.

Net add growth in 21 or is that.

Unlikely given the comparison thanks.

Yes, we do believe that increasing conversion.

Spendable right you know, we talked last time about ER revenue.

The new state of mind buckets.

Got to do also with the Fox weight people are coming with more intense.

And we have a more products out.

I wish I mentioned, you know all the different product for example that we actually launch all now equal mix solution.

So this is like you know this is the major contribution.

Fusion with increasing conversion. So this is all going to stay with us it's not going to disappear.

So we obviously assumed that also the fourth quarter and certainly next year.

It's going.

To benefit from this increase in conversion you know and I have no actually we know from the.

If.

Historical numbers of weeks.

We always get a some kind of an upside to our numbers other results or even more increased conversion as a result of launching new products and so on so obviously this is something that.

I think that will continue also the next few years.

Hi, there I think we have time for just one last question.

Thank you.

Last question comes from the line of Matt Pfau with William Blair.

Your line is now open.

Hey, guys. Thanks for taking my question and congrats on the strong results.

Just wanted to you sort of understood.

And seeing the results come in over the past few quarters. Thanks.

So I think you know we've seen that we've definitely seen or I would say, we've seen all geographies grow, but probably a little bit more strength coming out of the U.S.

Are you didn't have a very strong Latin America has been has been accelerating a a over the over the last few quarters. So a I would say generally you know its an overall growth it's not only in one geography with the tendency of the U.S. to be a little bit are stronger than others.

We always spend a lot.

Lots of time and effort and also in increasing our international expansion, whether it's adding languages of solving local solution for local solutions that are different from one market to the other you know it could go into market is going to product development Oh all across.

But weve definitely seen a huge.

Global information business formation.

What do you mean by business formation.

Yes, so in the in the third quarter. The U.S.. So I'm really strong growth I think about 80% year over year in terms of applications for tax ideas for new businesses and so obviously you have a lot of new business.

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