Q4 2020 Wix.Com Ltd Earnings Call

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to Lakes fourth quarter and full year 'twenty 'twenty earnings call.

At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone we ask that you. Please limit yourself to one question and one follow up.

Please be advised that today's conference is being recorded if you require any further assistance. Please.

That's star then zero.

I'd now like to turn the conference over to your host Maggie O'donnell Director of Investor Relations. Please go ahead.

Thanks Sarah.

Everyone and welcome to Wix is fourth quarter and full year 2020 earnings call. Joining me today to discuss our results are Amish why Abra honey, our CEO and co founder Nir Zohar, President and C O O and Liard Shemesh our CFO.

This call we may make forward looking statements and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent form 20-F that could cause our actual results to differ materially from these forward looking statements.

Do not undertake any obligation to update these forward looking statements.

In addition, we will comment.

And key operating metrics you can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and our interactive Analyst Center on the Investor Relations section of our web site investors <unk> Dot com.

With that I will now turn the call over to <unk> for some opening remarks.

Good morning, gentlemen, good morning, everybody and thank you for joining us today.

If you look at the numbers, it's kind of low vacancy that this was on basically your ever so it's really exciting for us, but even more than that I wanted to point out two things that might be less obvious that I get excited about it anymore and this is the debt we have incredible more than doubling growth on E commerce.

And.

Of course more than doubling growth on partners people that are building websites for others both doors.

Things that present, new kinds of businesses, which we said you live in new streams that we have now on wix and both by nature are compounding right E. Commerce, because you have multiple rating and also did more payments and Dan on that end.

All of the partners because he built multiple websites that the business can be more and more websites. So for us. It's weeks. This is a big turning point, where we actually extending golfer it to be.

Much wider.

In fact, if you look at that and you think about the grocery to weeks and decides and renew on a low things on the internet on the bridges on the Internet I believe.

Kind of.

Maybe it'd be ambitious, but achievable right to assume that in five years half of all the new things on the Internet will be built in wickes in.

In fact himself COVID-19 antibody that I have to say that.

If we continue to have great execution than this is something that we should should achieve and and and and for me as a shield with dish.

Super exciting, it's really amazing to be in a place that you see such growth in all the new things we released.

And of course that could position us.

As such a school part of the Internet going forward. So thank you everybody. Thank you for joining us and we got them go back to Maggie.

Thank you Avishai.

Alright, I think we are ready for Q&A operator.

Yeah.

Thank you as a reminder to ask a question you would need to press Star then one of your telephone to withdraw your question. Please press the pound key.

We also ask that you please limit yourself to one question and one follow up on.

First question comes on the line of Brent Thill with Jefferies. Your line is now open.

Thank you on.

Akshay just your vision of moving upstream to service not only small businesses, but mid enterprise and enterprise can you just update us in terms of the day.

And traction you're starting to see you know beyond that.

Small smaller startups.

And of course I'm bullish on it.

Yeah.

So actually interest goes in in a few different directions like so the first thing is that the product today you reported that sits right. It can build huge websites with wix.

But beyond that it's also.

The editor X, which allowed us to get these very sophisticated design going all the way to what you would see in the most complex websites existing today.

The business that's below that the ability to actually use very low and connect everything to go back into the enterprise offering and of course, the Chinese because most of the larger customers do not feel to us like himself. The work with partners day, if somebody that does it for them. So I'll be able to show a dose we think that offering as well.

And all of this is pretty much happened. This year. So for me, it's really exciting and we're already starting to see we shared some examples on daily to ex.

Launch two weeks ago and.

We're really starting to see more and more.

And larger company.

Companies using wix.

Thank you.

Of course.

Thank you. Our next question comes on the line of Sterling Auty with J P. Morgan. Your line is now open.

Yeah. Thanks, Hi, guys. Just one question from my side looking in the presentation materials on the discussion around the take rate on payments, it's a really impressive rate for our company being in the payments business as long as you have I'm curious what's allowed you to get to those level of take rates.

And are those take rates you know when you first start with a customer do you ramp to those levels are you at those levels from the beginning and they'll hold steady when a customer comes on to wix payments.

Hey, Sterling, it's Nir so thank you and it's I think it's a great question as you're crazy there relatively early on and actually I'm, 100% sure that the take rate is actually going to improve over time as you've seen it improving so far when you look at the at a specific customer. Then then we you don't ramp up we started at a higher take rate.

But obviously the our ability to increase the overall take rates on the platform.

Comfortable with the ongoing improvements that we apply to the platform and the expansion we are doing through the platform also internationally.

Got it thank you.

Thank you. Our next question comes on the line of Ron Josey with JMP Securities. Your line is now open.

Thanks for taking the question maybe a similar question in terms of the graduation rate for free users I was pretty impressed to see 37% of of 2020 Covid revenue from newer online customers are subscribers or commerce subscribers and I think you talked about maybe a two ex increase in terms of the rate of those subscribers adopting G suite and ascend and <unk>.

He spoke edge can you just talk about the journey of how a new commerce subscriber. It goes about adopting these products is this something immediate is it something that happens over the next couple of months once they start using the product that would be helpful. And then maybe lee or on subs I have to ask with 185, new subscription 1000, new subscribers. This quarter can you just talk.

About the strategy here I think they declined sequentially and just maybe a little bit more about just the new subscriber growth. Thank you.

Of course, so most of the time I was saying is that people will start with the very basic.

And with a very basic ecommerce business.

And as time passes day with extended on new things to it. So it's not like you've come in one day and build everything I've ended that day.

For example, if you look at the automaker advertising product that can happen after a few years.

After a few months, but it's almost never happened in the first month right in there and we're seeing that the consumption of additional tools from US is something that these are the multiple noticed system to understand this since day, one and actually I appreciate it and as trustworthy strike, that's where you start looking around and saying, okay. How do we can ex out the business.

Indeed.

And so normally people would come two weeks and in the first couple of things I would say, we could show their they'll build their online presence for like the basic offering right. So if it's a shopping card business on the products. They set up the billing day payments the policies and then try and start selling I should say.

It would be timing of instant booking the build the basic operating on booking it at some of the teacher Osama day classes and started working from that after guy they usually start using the applications right. So day, making application and after that they start going deeper and deeper into business tools. So it's usually a process that takes a beat and day.

Yeah.

So it usually takes something that takes time and that's what we're seeing by the way a lot of things that we're seeing is that a lot of them will start adding different tools for somebody that is booking business will start selling products right to these customers that were starting to see it there and then somebody just doing selling product wished offering classes.

And teaching them and things that we're seeing a lot of just gross and between the verticals hotels, obviously, they have a store a day, which is about so there's a lot of.

A cross between the vertical so it's more of a vertical offering necessarily vertical customers in many places in many cases, Neil you wanted to do the second one yeah.

Hey on.

So with regard to the question about the net subs.

So Q4 2019 actually the growth was about 107% more than our Q4 2019, we needed a 'twenty 'twenty 'twenty actually growth was doubled more than doubled in Q2 than Q4 of last year.

That said Q4 was in a way also impacted by typical seasonality.

With the veto for heightened volatility.

Due to the epidemic.

And probably also because a we came out of a very strong Q3. So so obviously, we see that the impact of these kinds of temporary for the fourth quarter and it's also reflected in the Q1 guidance that we provided at the growth for example of creative subscription is more than 70%.

I think it's also important to mention that the value of each subscription is so different so it's really hard to measure and compare.

And this is why by the way we we in a way, we all value 18 or looking at.

Uh huh.

It's all self on the value of the cool just on an example, and I think that we also provide it to you in the shoulder the update the 'twenty 'twenty cool generated nearly 7.5 ex.

The amount of revenue.

Compared to 2016 quote I think that it's a great indication to understand that each subscription today the value of it is much higher than our subscription are you tool two years ago.

So I hope this answer your question.

It does thank you very much.

Thank you. Our next question comes from the line of <unk> Khan with Chewy Securities. Your line is now open.

Yeah. Thanks, a lot so I wish I on the on your there's enough maybe.

You now accounting for 50% of new sites and five to seven years, where do you think you are on that on that metric today in terms of share.

And then maybe.

If I heard you correctly, just a clarification did you say that'd be confirmation on the growth and partner channel.

Last year, and how should we think about gross in that channel for this year.

Yes, so I did mention that and I think that hopefully it was more than doubled this year as well.

This is something that day, two and three years ago, we spoke to everybody here and we mentioned that we're gonna investing today in to that and I think we're seeing really a massive success.

Yeah, you know, 50% light of day, and new site of the new.

So that's been going on the Internet built in weeks, obviously, it's an ambitious goal right and I think that the company wanted to be ambitious, but I think that there could just play a little bit with them a commodity slide and you'll see that it's not hard to imagine that would be the it's actually very likely that the only staffing changes right.

We will be able to achieve that of course would be that we'll need to do.

Excellent execution and we've got to continue to.

And innovate and drive product Buddy.

I think this year's growth rate and we look at the history of the growth rate is such that is showing that it's very likely.

To happen well it could be not five years six years right, but can also probably four years. So I think it would be when I say five to seven years I believe that determines that is very achievable.

And for the fingers of message.

Internally for the company to very important.

On the same because.

This is really something we believe we can achieve and this is something that works very hard we work very hard to achieve.

Thank you.

Thank you. Our next question comes on the line of Ken Wong with Guggenheim Securities. Your line is now open.

Great. Thank you for taking my question guys.

I wanted to maybe touch on payments again.

Previously you guys updated us at about 30% of the installed base had attach payments and 80% of the new any any refresh of those numbers and then on the take rate as you think about where you guys could go.

Any rough sense of what that feeling is you have some some of your competitors out there have roughly 250 basis points.

Is that what we should be thinking for for wix payments longer term.

He came to me so it gives us I think the 30% 80%.

On.

It's growing it hasn't changed dramatically I don't think that there's a something different to reported this stage, but it's the adoption continues at a high pace I think that in terms of the take rate and yes, I think that definitely over a longer period of time, we will get to our two industries to industry standards as we keep on evolving the product.

And expanding it.

Definitely to go.

Great. Thank you.

Thank you. Our next question comes from the line of Nat Schindler with Bank of America. Your line is now open.

Yeah, Hi, guys. So and you mentioned in the gross margin discussion that there was a the decline was partially due to the customer care expansion how much of that is leveraged level and longer term, where do you think the.

<unk> gross margins will settle out.

If I look at your tier one awards slide.

Think this is one of the first time to see just didn't like on the Q1 slide which should be I think on average 10 on a half months.

Of time from that event.

On the Q1 result, and it still hasn't gone into positive return so a little off your seven to nine with that a J.

Function of just Q1, this year and some seasonality or is that an actual trend that youre looking to expand your T. R O y.

Okay. So I will start with the first question about.

About the gross margin I think that.

I want to divide the question the answer into two first let me talk about the.

Creative subscription.

So you're absolutely right the creative subscription is actually the gross margin.

Went down as a result, mainly over the expansion of our customer.

To address the huge demand that we see right now, but also on the future obviously we.

And we see that demand if you know continue to grow so we have to make sure that we prepare ourselves prepare our ability to support.

Neutrals that come two weeks.

And looking to build an online presence.

So we hired about a 700.

Agents in 2020, which obviously has a full impact on 'twenty and 'twenty, one, but we continue to hire more about 600 more in 'twenty and 'twenty one.

So it's having a fixed wheel question, you're absolutely right.

That.

And we mentioned that the second half of 'twenty 'twenty two.

We are going to be back to about 80% of gross margin.

Although we still powering an accelerated mode.

And also there is a lot of infrastructure improvements that we've done in order to support this growth.

But we want to do on obviously you know in the in the new future.

So definitely saw kind of a temporary effect in order to answer the growth.

And we feel very good about it with regard to the business solution.

Nothing dramatically changed except of two things. The first one is the change of mix well payments become.

More dominant.

In terms of the visa solution actually in 'twenty 'twenty, one it will be the like the number one.

Our revenue stream on the business solution.

Kind of amazing.

Taking into consideration that we just started this business.

And the gross margin of payments is increasing.

As we scale up we talk about the pick rate for example.

So we also.

We're investing a lot in order to build the infrastructure to support payments.

And we think about the on boarding process about the support.

So next year for example, we are not going to invest as much as we are in.

<unk> this year, so gross margin you'd expect it to grow up as well.

But it's also important to mention that the focus of business solution is about the product for use of Lantus facility the gross margin.

Because in the end of the day, each generate incremental free cash flow to our balance sheet and this is very important. It also has an indirect effect over the retention of the creative subscription.

So this is obviously something that is very important for us.

And I wish I was just wondering about your question about T O Y on the first quarter.

It was influenced by a couple of things and.

First of all it was that if you remember in the first day and mindful of the pandemic everything actually slowed down a bit and then accelerated salvage things in that call. It. The second thing is that we launched.

And we spend marketing dollars and launching new products and that always you know you always spend there to start to creating this pool. So that was mostly and so that was the effect of that they're not at the last part of it was that.

We still have an ambition to do E commerce product and the behavior of retaining and cash is influenced vessel by of course Arctic of payment and that's I think that we have to learn how to include better interest. They might have two day mathematics, However, I wanted to say that as the CEO. We came up with the number seven to nine months, because we felt that day.

It means that we're efficient in the Senate, but are for.

My feeling is we're in 10 months or it's actually better than if we are in six months right because that's actually items why that would be worried about more.

And by the end of day by the way last year, we came back again to the same range of seven to nine months.

But it.

Thank you for noticing that and I think it was in place again by that.

Endemic releasing of new product and then and there.

Trying to think about why is the model.

We should measure and all day commerce things, which of course is a different way to be every day as a return on investment because they tend to go more in the future right. So the first thing you'll get ex usually in the second year, you'll get one five or two ex from them. So maybe we should be a bit more open to spending.

<unk> a bit more on those guys.

Makes sense. Thank you.

Of course, thank you our.

Our next question comes from the line of Jason <unk> with Oppenheimer. Your line is now open.

Hey, everybody. Thanks, So maybe start with a question about.

Your comment that you're targeting half of all new sites or things.

And five to seven years, where are you today, so kind of what's the starting point.

On that you're using to get to that glide path.

And then.

<unk> about.

<unk>.

The GAAP between collections and revenue maybe.

Take us through just the puts and takes because we get a lot of questions from investors on kind of.

We go through periods, where obviously.

The GAAP rate to deferred revenues, expanding and then it narrows it just kind of take us through that thanks.

So I think that the.

Sure.

A question for as far as I know if you look at the Internet and you have to divide it.

Between a few different sectors. So the first thing would be and people that are building small business web site. Most of the building himself and I think theres specific creators, which is by the way it trades at these super growing on the Internet right. So that training itself is growing and in that trend today, which is already above 50% of it close to 50% of new sites.

Been created on the Internet today, so from shelf creators on the Internet.

And then if you look at a partisan designers. So it's very hard to estimate exactly by that day numbers on the planet, but I assume always thought there, but nonetheless on the planet is probably equivalent to the amount of people using photoshop on.

It's not exactly but very similar so about free.

Free of $4 million and we are getting to be about well I don't know if you disclosed that number or not but but we're already double digits in that front.

That's right and this is a new offering that we have so it isn't without doing it just continue to go into the same rate that we go we'll be at 50% of dose now those guys are responsible for to kind of websites day responsible people a day.

That's by websites right to have somebody else designing their website and of course for enterprise and for most of the enterprise. The large companies web site. So I think just looking at those two key and key factors right. You can see that its virtue of price to be 50% of all new internet websites.

The one thing that we don't address as much today, but we are seeing growth already with Edo ex happening today, our company's buildings on website. So enterprises, so medium sized companies a large sized companies and again, we're seeing growth with edge or ex which is surprisingly fast 10% month over month.

Modern day percent month over month, so I think that if you factor all of that it's very easy to extrapolate that would probably be at 50% of all new websites been building toward.

I mean, we didn't five years.

Hey, Jason with regard to the second question about our collection and revenue.

A general comment about it.

I think that's all we need to relate.

Two two different behavior of the first one is a creative for fusion, which mostly is recognized over time as you know business solution is mostly recognized immediately for example payments.

So collection is equal to revenue.

With regard to payments for example.

In Q4, we had.

More collections coming from payments than what we anticipated initially.

Therefore, the revenue was all recognized immediately and it was kind of a.

Increased.

More than what we anticipated as I mentioned before so obviously, you'll note the GAAP between revenue to collection, it's really depends on the nature of the growth EBITDA growth is more coming from creative subscription you will see that on the <unk>.

Copies.

Increasingly.

You'll see that the growth of business solution is increasing so the opposite so it really depends but again this quarter.

It was a nice it was very nice to see how big the solution is scaling up especially payment.

Obviously it was all recognized.

Thank you.

Okay.

Thank you. Our next question comes from the line of <unk> Gao Iranian with Wedbush. Your line is now open.

Hey, good morning, guys. Thanks for the question I wanted to ask around the $60 million in increments on about since this year and how.

How you think about that that being the right level of investment on how that flows through to.

The revenue collections guidance this year and next year as well and then within that.

You got two real big initiatives, I guess right at editor X and.

At better rates on the partners.

Commerce.

Is that interacts with the 200000 subs kind of tracking where you know where you thought you'd be at.

This moment and.

How does the editor X contributes a commerce or are you seeing more commerce sites being built on on editor X is it is it a boost to the commerce initiatives.

And then I have a few kind of technical follow ups on Alaska out there.

So I would start would be 60 million incremental investments.

Right.

So we mentioned that we're going to use it for a full several things. The first one is about.

Expanding it.

So.

It's a good question because you know internally, we try to understand how many people on how many agents we need to support the continued growth. We also fueled the growth will continue I mean, we took also last quarter about the new state of mind and it's actually happening.

The growth continue and the demand is actually increasing.

So we know that the support that we have to recruit more people.

More agents and it takes time to train them.

So I believe the 2021, we are going to increase the investment as we mentioned before we are going to see the benefit of it already in 2021, but mostly in 2022 has the girl of the gross margin actually increasing again to 80% for creative subscription.

We are going to use it in order to support payments, we talk about the payments on the product and the growth.

And how we increase the take rate and there is a huge opportunity for us on payments payment has already started to deliver free cash flow on the bottom line. It seems that next to it would be much more significant for us and.

And the same goes for account management.

So we believe that this is like the appropriate amount that we need to invest obviously, we are not doing it in day one it will be based on the actual growth that we are going to see and witness.

12 to you.

Okay.

I just wanted to add that I think that Ah.

Many companies.

The balance sheet is as strong as ours will use that in order to grow the business through M&A I think that we as you know our approach is that most of our growth will always come from from innovation I think we've we've proven that investing into innovation.

It works best for us to generate that future growth.

Okay helpful and I wanted to start just a couple of mechanical things that some people have asked about payments on the take rate can you just explain the gap between the 1% and what's what's there on your web site, which is which as you know.

On a amounts to 2.5% to 3% already what what what's the difference between what.

What's listed on your site and while you're recognizing our charge backs being accounted for in the take rate or as a cost.

And then.

Again going back to the to that.

Creative subscriptions collections, which decelerated this quarter and you're expecting to accelerate again next quarter is that all coming from.

That kind of pull forward you talked about <unk> and normalizing again on <unk> or are there other seasonal elements that are causing that.

So I'll start with the second question.

Actually what we said before about.

Seasonality.

Effect that we've seen and the volatility that we had in the fourth quarter again, especially after a very strong Q3.

But we already see on January number that is going to up again to more than 30% on a year over year basis.

So it seems that it's a great indication.

For the fact that it's only a temporary effect and we are back to the growth that we've seen before.

As for editor X you ask about Gulf weighted to Rx.

No.

I've got to say that.

<unk>.

Your first question was about the.

About gross already drags on the.

For me I think this is day by far the fastest growing product we've ever released.

And in terms of growth.

And taking into account that this is not something that you just can.

Broadcast and use regular marketing channel because you're growing up to professional people I think this is amazing.

Yeah.

System on to the quality of the product into the quality of day marketing team working on this product on.

On the in regards to.

Does it do.

It's growing over 10% month over month 200000 day.

And users already so really it's fantastic.

<unk> contribution to income as we do see more E commerce, there and we do see more complex projects, there and I think a big part of the reason for Dod is that this is not to ex is really a tool for professionals I struggled to finish a website with it. It takes me time and I think that you can use Adi obviously.

It's never an issue, but do you really lose the classic editor, it's very simple to do <unk>.

As much auto so of course, they'll use it that low professional is bigger projects deeper projects and that's part of it again for me. The most amazing thing is that I did not expect it to be anywhere near where new weighted keys now in terms of numbers or growth rate it's amazing.

Any more questions.

Yeah and on the paint what what's what's the difference between the 1% take rate and payments on what's listed on your site what are the factors there.

So you have to remember that first of all you know this is a young product in Europe are evolving at a lot of part of our existing users who are transacting on our system on.

Not necessarily on our own gateway in which case, we have different kind of commercial terms with the other gateway. So naturally it is not as favorable as two hours, we're not forcing them to move where enticing them to move by offering a better product and higher value. This is also why you see the take rates taking off from the half a percentage was 19 two the one.

Three percentage would be in 2021, and we're very confident that it will continue to go up.

Great helpful. Thank you guys.

Okay.

Thank you. Our next question comes from the line of Nick Jones with Citi. Your line is now open.

Great. Thanks for the question I guess, a follow up on some of the incremental investment.

Specifically on the growing the account management team for.

For the high volume Commerce users.

How do you feel the wix platform is positioned against some of the I guess.

Competitors for kind of agencies on higher volume E Commerce.

Companies are.

Yeah.

Wishes suite of solutions today adequate for someone to scale to a sizeable.

E Commerce company or is that a risk as they get bigger they turned to maybe custom applications.

Improve speed or things like that thanks.

Well I think that day.

And I think that we do.

I have to a place where we actually very competitive in those categories.

And I think that day, if you use which ecommerce which is really a fantastic product and then editor X, which nothing compares to it and the ability to design <unk>.

Petroleum site work as a team right we have the ability with all the company on the planet to give you a way to actually work as a team when you build projects like that so you can use them.

Editing for that you have the history Division and then you'll have very low write the Wix code solution. So you can actually custom build whatever you need and you don't have to rebuild new servers and infrastructure. So I would say that if you.

And if you look at our ability to compete this year on bigger project is fantastic I think we have the best offering on the planet.

Great. Thanks.

Sure.

Thank you.

Last question comes from the line of Chris <unk> with Deutsche Bank. Your line is now open.

Thanks for taking my question.

Maybe two if I can.

You talked about having these commercial relationships with some of the other gateways could you just help us think about the opportunity for Wix chartered transaction fees. Some similar to what some of your peers are doing on transactions that are taking place on.

Yes.

Other payment rails and not through wix payments.

And then just kind of thinking through.

Your 2021 payment disclosures that use or guidance that you've given here how should we think about.

Yeah, as we look at gross payment volume from existing users versus new users how should we think about the drivers there and just curious.

Yeah, why why is the revenue guidance so tight at this point in time for a product that's growing so quickly.

Yeah, I'll take the first part and I think Lee who will cover the second one.

So in terms of the opportunity to charge transaction fees for the payment Gateway first of all of course, we have that opportunity at this stage, we haven't implemented it or don't intend to do it in the near future we believe that our.

<unk> two moving to merchants and our the customers is through the depth of our product offering and make it so excellent that it's just much superior.

We may do that in the future currently we don't.

Don't think that Thats, the best way to go about it.

With regards to 'twenty 'twenty one.

Payment guidance.

So obviously, we see a strong growth coming from both existing and new users.

But for example, a lot of new users in 2020 driving the growth.

It's in a way to think about it as a compounding effect, where you see the growth of our users.

Addition, we are getting more because also the mix is changing and we're getting more kind of a brief receivables.

So we see more than dozen and its actually growing.

And at the same time, we also increased the pick rate. So all the indicators actually lead us to believe that the guidance for 'twenty 'twenty. One is actually something that is quite realistic we're very excited about it.

And I can I can tell you that it can be even more than that.

It really depends on you know how the year will be and how much people are going to address that.

The new product.

For example, the point the point of sale is going to move many people from offline to online. So it's also going to contribute a global expansion of wix payments. So there's a lot of opportunities over there, but certainly also long term.

Opportunities that.

We intent.

To pursue.

Got it thanks for that color.

Thank you.

I will now turn the call back over to Maggie O'donnell for closing remarks.

Thank you everybody for joining us today I hope you have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

[music].