Q3 2024 Wix.com Ltd Earnings Call - Q&A
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Speaker Change: Good day and thank you for standing by. Welcome to the WICS Q3 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Emily Liu, Head of Investor Relations. Please go ahead.
Emily Liu: Thanks and good morning everyone. Welcome to Wix's third quarter 2024 earnings call.
Emily Liu: Joining me today to discuss our results are Avishai Abrahami, CEO and co-founder, Nir Zohar, our President and COO, and Lior Shemesh, our CFO.
Emily Liu: During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions.
Emily Liu: 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.
Emily Liu: We do not undertake any obligation to update these forward-looking statements.
Emily Liu: In addition, we will comment on non-GAAP financial results and key operating metrics.
Speaker Change: You can find all reconciliations between our GAAP and non-GAAP results in the Earnings Materials and in our Interactive Analyst Center on the Investor Relations section of our website, investors.wix.com. With that, I'll turn the call over to Avishai.
Avishai Abrahami: Thanks, Emily, and good morning, everyone. We are happy to report another consecutive quarter of accelerating growth. Through focused execution of our key strategic initiatives and improved business fundamentals, we were able to deliver impressive year-over-year bookings growth of 16% in the third quarter.
Avishai Abrahami: The success we've achieved this year is underpinned by our best-in-class innovation.
Avishai Abrahami: particularly our AI-powered solutions and Wix Studio. Almost one year ago, we launched our AI website, Buildr, which is now available in 20 languages and has been a game changer in our user onboarding strategy.
Avishai Abrahami: Today, more than 50% of new users are choosing to create their online presence through our AI-powered onboarding process.
Avishai Abrahami: The tool is resonating particularly well with small businesses and entrepreneurs as paid subscriptions originated from this AI-powered onboarding are 50% more likely to have a business vertical attached.
Avishai Abrahami: and significantly more likely to start selling on Wix. By streamlining the website building process while offering a powerful and tailored commerce enablement solution, our AI technology is providing incredible value for merchants whose priority is getting online efficiently and selling successfully.
Avishai Abrahami: All of this is translating into top-line benefit. Tests in our most recent self-created cohort showed a 13% uplift in conversion rate.
from our AI onboarding tool.
Avishai Abrahami: We anticipate the platform to continue to resonate resulting in faster and easier website creation.
Avishai Abrahami: Earlier this year, we spoke about our plan to embed AI assistance across our platform.
Avishai Abrahami: and we're continuing to push that initiative forward. We now have a total of 29 assistants spanning a wide range of use cases to support users and to serve as guides throughout their online journeys.
These AI solutions are streamlining more processes.
Avishai Abrahami: building stronger relationships between users and their customers and empowering users to make better informed decisions.
Avishai Abrahami: Although these assistants are still in their early days, we're excited to already see a positive, though modest, impact. This includes better conversion and improved care efficiency.
Avishai Abrahami: I'm proud of the incredible AI technology we've already built and inspired by what's still on the horizon.
Avishai Abrahami: We have a number of AI products coming in the next few months that are unlike anything on the market today.
These products will transform the way merchants manage their businesses.
Avishai Abrahami: redefine how users interact with their customers and enhance the content creation experience. Importantly, these will also be the first AI products we plan to monetize directly.
Avishai Abrahami: We are on the edge of unforeseen innovation and I'm looking forward to the positive impact it will have on our users.
Avishai Abrahami: Moving on to Studio, we are continuing to see exceptional results, which Nir will discuss in more detail shortly. We continue to launch new features to support agencies and designers at every phase of creation, development and management.
Avishai Abrahami: In Q3, we rolled out 74 updates within the platform, including new feature introductions and enhancement of existing tools for studio users. Yesterday we introduced a visual sitemap and wireframe generator within the Studio Toolkit.
Avishai Abrahami: This AI-powered tool enables designers and agencies to quickly draft wireframes and website content for clients, accelerating the conceptualization and iteration process.
Avishai Abrahami: We see this as a powerful way to jumpstart their workflow, as well as acquire and collaborate with new clients more efficiently. It has been an incredibly rewarding journey building our presence and trust with professionals over the past few years.
Avishai Abrahami: It required meaningful investments in infrastructure, focused engagement with the community and unmatched innovation to not just meet
Avishai Abrahami: but exceed and anticipate the needs of professional users. All of this has culminated in what you see today with the early success of our studio platform and strong sustained partners revenue growth over the last couple of years.
Avishai Abrahami: While our product roadmap includes new tools and features for professionals, I am confident that we have the right strategy and core product offering in place to sustain partners' momentum in 2025 and beyond.
Avishai Abrahami: We're incredibly proud of the success of Studio and the Partners' business trajectory today. Now with significant foundational investments in Partners behind us, we're approaching investments in our self-created business with renewed vigor.
Avishai Abrahami: As a core pillar of Wix's success and vision, self-creators have always been a strategic focus for us, but is now firmly in the front seat of our overall growth strategy.
Avishai Abrahami: We are working on a number of incredible initiatives and differentiated products that will completely transform the way self-creators build on the internet. Much like we did for partners, we are reimagining the way self-creators find success online. I am incredibly excited about what is to come.
Avishai Abrahami: These transformative new products, along with continued AI tailwinds and strong business fundamentals, will drive more meaningful growth acceleration for self-creators in the coming years. Thank you, as always, to all of our teammates for your dedication to making Wix a reality.
Avishai Abrahami: a best-in-class platform. And thank you to our users for trusting us to help you achieve your goals. Okay, Nir, over to you.
Nir Zohar: Thank you, Avishai. I'd like to start with a quick update on our user cohorts.
Nir Zohar: Q3 was another great quarter of accelerating growth, and I'd like to break down the business drivers that helped us reach these results. Starting with our newest cohort, we added nearly 5 million users in Q3.
Nir Zohar: Excitingly, this marks the first time since 2020 that our new cohort has grown in size compared to the cohort of the previous quarter, as well as that of the year-ago quarter.
Nir Zohar: Notably, we saw this improved quarter-over-quarter and year-over-year trend among both organic and acquired users reflecting moderately improved demand levels and continued strength of the Wix brand. Importantly, we did not deviate from our focused marketing strategy this quarter.
Nir Zohar: While we capitalized on slightly better top-of-funnel demand, we still maintained our focus on high-intent users and our TROI guardrails.
Nir Zohar: Additionally, the Q124 user cohort continues to outperform all non-COVID cohorts despite having a smaller user base.
Nir Zohar: This is a testament to the strength of our platform and the value of our offering.
Nir Zohar: We're seeing continued conversion of users into paid subscriptions at a healthy clip as they build more and more on Wix.
ARPS also increased as users continue to purchase higher-priced packages.
Nir Zohar: especially Studio, attach more business solutions and generate compounding GPV. We also continue to benefit from the price increase implemented earlier this year. Our other existing cohorts are also showing strength as we're seeing better than expected renewal activity in terms of bookings dollars.
Nir Zohar: Again, this underscores the unmatched value of our platform. This strong cohort behavior illustrates the shift that occurred in our user base over the past couple of years.
Nir Zohar: As a result of focused marketing and innovation targeting high intent users, the overall quality of our base is much better compared to that of just two years ago.
Nir Zohar: With this higher quality, though slower growing base, we have seen an improvement in business fundamentals.
Nir Zohar: conversion ARPS and dollar retention have all steadily trended higher over this time frame
Nir Zohar: and we expect this to continue as we onboard more high-intent cohorts. In both our new and existing cohorts, we're continuing to reap the rewards of our ongoing strategic initiatives, primarily studio, AI, and our commerce offering.
Nir Zohar: This quarter marked one year since the release of Studio, which has become the core product for partners to create and manage their projects on Wix.
Nir Zohar: We're seeing excellent results as this platform increasingly resonates with both new and existing partners. Booking's growth attributable to studio subscriptions accelerated meaningfully quarter over quarter, highlighting new purchase strengths and robust renewal activity.
Nir Zohar: Importantly, studio is becoming an increasingly more meaningful driver of bookings.
Nir Zohar: In Q3, 75% of bookings from new partners were driven from studio accounts. This is an increase compared to previous quarters, as more and larger agencies build on studio.
Nir Zohar: These excellent results of our cornerstone professional offering, as well as successful execution of our broader partner strategy, resulted in partners' revenue growth accelerating to 30% year-over-year. Additionally, as Avishai explained, both new and existing cohorts are benefiting from our comprehensive AI capabilities.
Nir Zohar: The numerous products launched over the last two years have shown significant impacts on our cohorts, especially self-creators.
Nir Zohar: Our AI-powered onboarding process, which includes the AI website builder, has enabled users to build the websites of their dreams more efficiently than ever before, resulting in better conversion as Avishai discussed.
Nir Zohar: We anticipate the AI website builder, along with our suite of AI-powered tools, will be a meaningful driver of self-creator growth in the coming years. Finally, we continue to see healthy growth of our commerce platform.
Nir Zohar: In the third quarter, GPV growth accelerated to 14% year over year and increased quarter over quarter.
Nir Zohar: This unseasonably strong GPV was driven by continued execution of our commerce initiatives, including driving adoption of new verticals and commerce products, onboarding larger merchants, and enabling the success of existing Wix merchants.
Nir Zohar: GPV outperformance coupled with strong take rate drove transaction revenue growth to accelerate to 23% year-over-year.
Nir Zohar: Payoff from these key strategic initiatives and strong cohort fundamentals will continue to be the building blocks of growth in years to come.
Nir Zohar: With that, I will now hand it over to Lior to walk through our financials and outlook. Lior?
Lior Shemesh: Thanks, Nir. Our continued focus in delivering best-in-class products, particularly innovations within our AI suite and studio platform, as well as solid business fundamentals,
resulted in accelerated growth this quarter.
Speaker Change: With Rule of 40 now well within reach this year, I'm even more excited about the growth opportunities and continued momentum expected in 2025 and beyond. I will share more about our updated full-year outlook and general thinking around our go-forward financial algorithm shortly.
First, turning to results.
In the third quarter, bookings grew to $450 million.
or 16% growth year-over-year.
Speaker Change: This marks our third consecutive quarter of Booking's growth acceleration, driven by increased studio adoption, early tailwinds from our AI offering, and stronger-than-expected commerce growth.
Speaker Change: Additionally, we witnessed better-than-expected renewal bookings from our high-intent users, higher-trending ARPS, and solid conversion.
Speaker Change: Q3 revenue growth also accelerated, finishing at $445 million, up 13% year-over-year.
Speaker Change: Total revenue was driven by accelerating growth across both self-creators and partners' businesses.
Speaker Change: Partners' growth accelerated to 30% year-over-year this quarter, finishing at $155 million.
Speaker Change: Growth was primarily driven by ramping studio contribution as new agencies adopted the platform and partners already owned studio renewed and increasingly built more projects.
Speaker Change: As a result, bookings attributable to studio subscriptions accelerated sequentially this quarter, with 75% of bookings from new partners deriving from studio accounts.
We also saw early benefit from studio templates.
Speaker Change: We expect Studio Strength to continue to translate into partners' momentum and greater lifetime value. Our self-creators' business saw a second consecutive quarter of revenue acceleration. Momentum in the business is growing as expected, driven by the AI tailwinds Avishai mentioned earlier.
Speaker Change: Strong cohort behavior with better than anticipated absorption of the earlier implemented price increase and slowly encouraging demand trends also contributed to this quarter's growth. We expect self-creators' revenue to continue to pick up momentum through the next couple of years.
Speaker Change: Growth will be driven by the transformative product initiatives we're working on now, more meaningful benefits from AI as key offerings mature and adoption ramps, and our reinvigorated strategic focus on this business now that our foundational partners' investments are complete.
Speaker Change: Importantly, we anticipate self-creators' growth to accelerate while the robust profitability profile of this business continues to improve.
Speaker Change: Growth across self-creators and partners was underpinned by the strong commerce performance you heard about from Nir.
Speaker Change: While growth continued to ramp across our business, margins also improved.
Speaker Change: Total non-GAAP gross margin in Q3 was 69%, up slightly compared to the previous quarter. This was a result of better non-GAAP business solutions gross margin driven by improving payments, gross margin and strength in our higher margin business applications.
Speaker Change: We now anticipate non-GAAP gross margin of approximately 69% for the full year, up from 68% to 69% previously.
Speaker Change: Non-GAAP operating costs increased slightly quarter over quarter, primarily due to a planned step-up in sales and marketing expenses.
Speaker Change: Higher spend was largely around branding activities related to studio and to a lesser extent greater acquisition spend in response to the slowly encouraging demand trends we saw as we progressed through the quarter.
[inaudible]
Speaker Change: Outside of these particular sales and marketing buckets, our operating expense base was stable compared to the previous quarter.
Speaker Change: Non-GAAP operating margin remains strong at 20% of revenue. Q3 free cash flow totaled 128 million dollars or 29% of revenue due to continued strong top-line growth and an efficient operating cost base.
Speaker Change: These results allowed us to surpass the Rule of 40 this quarter, the first time since early 2021. Now let's turn to expectations as we exit 2024.
Speaker Change: and my thoughts gearing up for 2025 and beyond. For the full year, we are increasing outlook in our bookings, revenue and free cash flow to reflect impressive year-to-date performance.
Speaker Change: Importantly, we expect accelerating momentum across both self-creators and partners, as well as contribution from growth initiatives and strong business fundamentals to continue through the rest of the year.
or 14 to 15 percent year-over-year growth.
Speaker Change: This is an increase from the 13% to 14% growth we had previously anticipated.
This new outlook now reflects 2H bookings growth.
Speaker Change: accelerating to 17% year-over-year at the high end of expectations up from the 16% previously anticipated. This also indicates an impressive exit rate of 18% for the year.
Speaker Change: For full year revenue, we are revising Outlook upwards to $1,757 million to $1,764 million, or 13% year-over-year growth.
Speaker Change: On the cost side, we expect non-GAAP total gross margin of approximately 69% for the full year.
Speaker Change: and non-GAAP operating expenses to be 49% of revenue, a slight improvement from our previous guidance of 50%.
Speaker Change: or approximately 28% of revenue. This is an increase from the $460-$470 million or 26-27% of revenue previously expected.
Speaker Change: Finally, we anticipate ending 2024 with approximately 63 million of fully diluted shares.
Speaker Change: Stronger cash flow generation, in conjunction with this share count expectation, translates to a higher free cash flow per share trajectory for the full year than previously anticipated. The high end of our increased expectations puts us on track to exceed the rule of 40 for the full year.
Speaker Change: This is a target that has guided us for the past few years as we balance growth and profitability at Wix.
Speaker Change: Achieving this milestone one year earlier than anticipated showcases the tremendous efforts of our team
Speaker Change: and successful execution of our lofty growth initiatives without sacrificing margin. However, we are not laying off the gas. We remain committed to continuing to make progress over and above this milestone.
Speaker Change: I believe there is still much room for further growth, acceleration, and ample margin expansion in 2025 and beyond.
Speaker Change: The sustained bookings acceleration we've seen this year, along with ramping tailwinds from Studio AI and our expanding commerce platform, are expected to directly translate into revenue growth in 2025.
Speaker Change: We also anticipate to continue to benefit from improving business fundamentals and the higher quality user base we've built over the past few years.
Speaker Change: Additionally, soon-to-come AI tools as well as the transformative product initiatives we're currently working on for self-creators
Speaker Change: are expected to create incremental layers of growth in the outer years.
Importantly, we have the right employee base and cost structure.
currently in place to support a variety of growth scenarios.
Speaker Change: As a result, we expect to continue to maintain a stable operating cost trajectory even as we sustain growth momentum in the coming years.
Speaker Change: allowing incremental top-line dollars to flow directly to the bottom line and margins to continue to expand healthily.
Speaker Change: There is a lot to be excited about and I look forward to sharing more details in a few months.
Operator, we are now ready for questions.
Speaker Change: Certainly. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again. Please stand by while we compile our Q&A roster.
Speaker Change: And our first question will be coming from Trevor Young of Barclays. Your line is open.
Great, thanks. First question just on free cash flow margin.
Speaker Change: Can you remind us where we are in terms of margin mix between self-creator and partner? Is self-creator kind of holding steady in the mid-30s percent, implying partner is in high-teens territory?
Speaker Change: And then second question, keying in on your comments on investing a bit more in self-creator for better growth in the coming years.
Speaker Change: Lior, if I heard you correctly, you expect to continue margin expansion in SelfCreator while also investing for that growth. Can you just expand upon that a little bit, and what areas of investment should we expect?
Speaker Change: partners and self-creators but what I can tell you obviously you know at this point of time
Speaker Change: Self-care is super profitable in terms of free cash flow and partners are just getting better and better. I believe that long term you should expect partners in terms of profitability actually to be higher than self-care. But you know the fact is that we are almost at 30% free cash flow for the entire business.
Speaker Change: I believe indicates to you that self-care is more than 30% already.
Speaker Change: With regard to the investment that we are planning for the self-catered,
Speaker Change: Look, at the end of the day, self-care is a combination. I believe that there will be a better demand next year, but also more new products, and you know Avishai spoke about it.
Speaker Change: I believe that the combination between demand and innovation for next year certainly will drive higher growth for self-care tools. We feel very, very excited about it.
Avishai Abrahami, Nir Zohar
Speaker Change: which regard to the margin expansion, so definitely margin expansion. You should expect to have more expansion of our margin next year.
Great, thank you. And one moment for our next question.
Speaker Change: Our next question will be coming from Ekal Arunian. Your line is open.
Avishai Abrahami, Nir Zohar
Speaker Change: Good morning. Good afternoon, guys. Maybe just to start with Studio, can you frame at this point how much contribution you're getting from Studio in terms of overall bookings and revenue? And with the share gain you're seeing in a lot of the news,
Speaker Change: recently around WordPress and what's going on there. Have you seen any impacts from that? Is that an opportunity for you guys? Let me just start with that and then a follow-up.
Speaker Change: So I will start with the with the revenue and the contribution of part of the revenue and I believe that Avishai will continue to the next one We mentioned 75% of new partners booking is a studio meaning that studio already have become a significant portion of our revenue and bookings
Avishai Abrahami: And you know, we feel very excited about it. Obviously we see the acceleration of it
Avishai Abrahami: since we see more and more agencies joining Studio and using Studio, but we also see existing agencies building more and more websites on Wix, the second, the third, and the fourth, so we feel very good about it.
It's for me, World Peace and Automatic. I think that...
Avishai Abrahami: We've seen the trend of, of course, agencies moving to different platforms, so we are benefitting from that. We do see...
a positive TOF trend this quarter, but I think that
Avishai Abrahami: Overall, the trend of WordPress losing market share is something that we've seen historically for quite some time.
Avishai Abrahami: And we hope for them that they actually manage to solve the conflict.
Start focusing again on delivering value.
Avishai Abrahami, Nir Zohar
Okay, that's helpful. Thanks.
Speaker Change: On the Exit Rate and 18% bookings growth and the acceleration we're seeing...
Speaker Change: Just to look at the numbers, the 4Q comp from last year is a little bit easier. I know we're not going to get guidance right now for next year, but just as we think about the trajectory of that, of what you're seeing here as we flow through into next year, you know, any commentary to help us think through, you know, how that continues and what that means for the revenue growth acceleration. Thanks.
Speaker Change: So, definitely the 18% exit rate will translate into revenue for next year.
Speaker Change: We are very excited about it, because when you look at the third quarter compared to the second quarter, the entire acceleration...
of the growth.
Speaker Change: is due to product, due to increase in conversion, due to increase in demand.
Speaker Change: So those are, you know, things that, you know, obviously we believe that will continue into next year and will drive further growth. As you know, as for revenue, you know, obviously there is an impact in the following year usually after we see the increase in bookings.
Avishai Abrahami, Nir Zohar
Thank you guys. Great quarter. Thank you.
Speaker Change: And our next question will be coming from Andrew Boone of JMP Securities. Your line is open.
Andrew Boone: Thanks so much for taking my questions. Marketing step up a little bit sequentially in terms of this last quarter. Can you guys talk about the marketing efficiencies that you guys think you can sustain in terms of 4Q and then into 25? And then you talked about adoption of new verticals and commerce products earlier as we think about transaction revenue. Can you unpack the success that you're seeing with commerce products over the last quarter? Thanks so much.
Nir Zohar: Hey, it's Nir. I'm going to start with the marketing step-up.
Nir Zohar: So, you have to remember, the marketing step-up is actually directly connected to an increase in demand and a stronger top of funnel behavior that we've seen, which allows us, by the way, to expand and extend the acquisition marketing while maintaining the same TROI guardrails that we always have.
Nir Zohar: So, from that standpoint, it really depends on the top of the funnel behavior. I can't say that, at least for now, we're seeing, I would say, similar trends in Q4 to what we've seen in Q3. And I think beyond that, it's too early to call, obviously, what's going to happen in 2025.
Nir Zohar: So I think that's from the standpoint of marketing and it all goes down the same kind of strategic path in terms of how we do marketing that we enacted two years ago and it's been extremely successful.
Can you repeat the second question for a second?
Speaker Change: In the prepared comments you guys talked about the adoption of new verticals and commerce products as we think about transaction revenue. I'd love for you just to unpack what you guys are seeing with commerce products more broadly.
Speaker Change: So, you know, we don't do the, we don't break and separate. I would want to point out that one of the strengths that we have here at Wix
is the fact that our commerce is a horizontal offering.
So it's not only around stores.
It's also a combination of...
Speaker Change: which allows us obviously more balance and deeper penetration. I can say by the way that a big contribution to this is the partners segment as it is growing you know naturally even faster in terms of contribution to commerce than the the self creators and this is something we're very happy about.
Thank you.
One moment for our next question.
Speaker Change: Our next question will be coming from Ken Wong of Oppenheimer & Company. Your line's open.
Speaker Change: Great, thank you for taking my question. I just wanted to just touch on the bookings acceleration. What changed between Q2 and Q3 that gave you the confidence to raise that exit rate to 18%? Would you characterize it as more, you know, more of a partner dynamic, self-creator? Because it does feel like something flipped from 90 days ago.
It's a combination of many, many things.
Speaker Change: You know, I will try to explain because obviously there is an acceleration between the second and the third quarter. And we do see this acceleration continue into the fourth quarter. And this is what gives us, you know, we feel very comfortable about raising the guidance. We did mention that.
Speaker Change: You know, studio subscription bookings growth is accelerating compared to the second quarter.
the growth on a quarter of a quarter basis.
Speaker Change: So we feel very very happy about it because it means that the adoption of studio is just getting better.
Speaker Change: You know, we spoke about it a little bit, but they are very, very happy with the studio. They are very, very happy with the performance, and it has a positive impact on retention of those partners.
We do see the benefit of AI.
Speaker Change: especially around self-creators. I talk about partners, but we do see this progress also on self-creators. We see the impact of AI. We see the impact of conversion. Remember that conversion always has an impact on the existing code. So obviously when you come and go into the next quarters, we see that the increase of growth is actually getting better also on the existing code or the impact of the existing code getting better and better.
Speaker Change: We do see improvement in top of funnel, Nir mentioned that, and we see that continue into the fourth quarter. So all of those signs...
Speaker Change: And including the acceleration of the commerce growth, Guy, you know, makes us feel very comfortable about raising the guidance for the full year, but we do see the acceleration also in the fourth quarter.
Speaker Change: Okay, fantastic. Appreciate the detailed answer there. And then just second, quickly on directly monetizing AI, is this an area that will focus primarily on agency partners? Is this an area where you think you can extract monetization from self-creators? And any color on where you might be able to capture incremental dollars with AI?
Speaker Change: Well, so we are launching a few products that we are going to monetize next year.
Speaker Change: in relation to AI. The value, I think, is generated both to agencies and self-creators.
Speaker Change: So we think that that is a value that agencies would love to offer to their customers and, of course, we would love to offer to self-creators. So I believe it will affect both.
Speaker Change: Okay, perfect. Thank you guys. One moment for our next question.
Speaker Change: And our next question will be coming from Elizabeth Porter of Morgan Stanley. Your line is open.
Elizabeth Porter: Great, thank you so much. I wanted to follow up on the self-creators and your ability to tone in on this segment to improve growth, particularly with AI, over the next couple of years.
Elizabeth Porter: I was wondering if you could double-click on any sort of early views we could expect on the types of innovations in AI we could see.
Speaker Change: It's also encouraging to see some of the improvement in self-creators growth already.
Speaker Change: So, just as you execute to some of your goals on this business, where do you think self-creators could ultimately go after being in the five-ish percent range for the last couple years?
Speaker Change: that the last part is hard to predict because it's influenced by so many different things including of course the economy but the growth rate but I do think that there is a lot of innovation
Speaker Change: that we're coming with for self-creators. The innovation influenced, I think, both sides of the equation. Our ability to acquire new self-creators and the ability to help them finish a website that they are very happy with.
Speaker Change: In addition, we also look at some of our technology as a way to attract
Speaker Change: New people to Wix to do, new self-career to Wix to do things that before they couldn't. So, that's how we increase, of course, a ability to grow the number of self-careers. But on the other hand, we also have a few products that we are about to release AI products that are actually only...
Speaker Change: and be monetized, meaning that we believe we can see better revenues also.
Speaker Change: Great, and then just as a follow-up, you know it sounds like the top of funnel is is doing better with also benefits from organic search.
Thank you.
Speaker Change: changes in the macro, improvements. So this is something that I think is very good news for everybody. But we also, as we mentioned, did a lot to improve conversion on Wix.
Speaker Change: And so I think that is the other contributor, and then we mentioned 13% improvement of conversion for free to...
Speaker Change: paying users on the new cohort. So we do see that they are the influence they have there.
Avishai Abrahami, Nir Zohar Avishai Abrahami, Nir Zohar
Thank you.
And one moment for our next question.
Speaker Change: Our next question will be coming from Bernie McTernan from Needham & Company. Your line is open, Bernie.
Bernie Mcternan: Great. Thanks for taking the questions. So guidance for revenue growth this year is about 12%. We'd love to just get some color in terms of how much of this growth is driven by the price increase. And then as you spoke to new products coming to the market with discrete revenue tied to it, how should we think about the potential benefit of that next year? Thank you.
Hey Bernie
So price increase
Speaker Change: You know, it has a positive impact on revenue. We do not break down.
Speaker Change: I think that revenue growth, by the way, also booking, it's a combination of not just the price increase but also the innovation of new products.
Speaker Change: and mostly coming from studio. Remember that most of the increase that we've seen in studio, it was all incremental to our model. And this is why it has a significant impact. Actually, you know, partners have more impact on the revenue growth and booking growth than the price increase, and this is something that we should expect to happen also next year.
Speaker Change: With regard to the new product that we mentioned about, that we are going to launch next year, it's really hard to tell what will be the impact, but you can assume that if we didn't think that it should be significant, we wouldn't do it. We believe that the combination of innovation and
Speaker Change: and also the improvement in demand for next year will drive further growth in the next three years, especially with regard to the self-care that we do intend to invest.
Understood. Thank you.
And one moment for our next question.
The End of the World
Speaker Change: And our next question will be coming from Robert Colberth of Evercore ISI. Your line is open.
Speaker Change: Thank you for taking our questions. On partners, you called out larger agencies as a driver. We wanted to ask if there's been any inflection in your engagement with large agencies, either in terms of the number of partners or your ability to sort of increase project penetration rate with those large agency partners. Any key unlocks there? And I have a follow-up as well. Thank you.
Thank you. Thank you.
Speaker Change: And much like other agencies, we continue to pursue and we...
Speaker Change: more of those just by, you know, marketing to them, building the studio brand, doing education sessions, and working with them on product, and getting more and more exposure. Our belief is that we will continue expanding in that specific section of the market next year. We also do believe that some of our innovation that Avishai alluded to before will be a contributor to our ability to gain even more ground there in 2025 and beyond.
Speaker Change: Great, thanks. And we also wanted to ask on business solutions bookings, it looks like you maybe saw a bit more seasonality in Q3. Any changes to attach rates or any other factors to call out there? Thank you.
Speaker Change: No, so no change. I think the change that you see compared to the second quarter was...
Speaker Change: mostly around the Google Workspace, mostly coming from incentive that we are getting from them, not every quarter. We did mention that in the second quarter. And we do believe that it will be repeated also next year. But when you look at the transaction revenue, it actually accelerated on a quarter-to-quarter basis. So it's mostly noises around the Google Workspace, nothing really special that worth indicating.
Got it. Thank you so much.
And one moment for our next question.
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Speaker Change: Our next question will be coming from Clark Jeffries of Piper Sandler. Your line is open.
Clark Jeffries: Hello, thank you for taking the question. I wanted to fall back on the monetization of AI products. It sounds like some of the monetization that's coming down the pipe is going to be maybe beyond the scope of the web building environment, managing the business and communicating with customers.
Speaker Change: And so, in a lot of the commentary, it seems that today AI website builder is helping on conversion.
Speaker Change: I wanted to ask about specifically, is there an opportunity to directly monetize the AI products within the kind of core website design funnel and specifically within the lower end of that market and maybe the higher end tenant and more complex users of the market and then as a follow up?
Lior Shemesh: Lior, just in terms of pre-cash flow margin progression from here,
Would you say that the sort of
Lior Shemesh: comfort level and being able to make incremental investments comes with sort of the confidence in the free cash flow progression happening in both self-creators and in partners trying to understand, you know,
Lior Shemesh: A couple of years of significant pre-cash flow margin progress and how to think about 2025.
It's for the first question.
Speaker Change: If I understand correctly, first of all, your observation is correct, which is saying that a lot of what we do is monetization beyond the website building and actually in the later part of the life cycle of a website. So that is true. As for, is there a way to monetize AI website building?
during the
You mean during the building process itself?
Was that the meaning of the question?
Speaker Change: Yes, you put it, the sort of share of the letter, a lot of the testing you're doing is helping on conversion.
Speaker Change: And so that to me means you're helping on the conversion of the lower end or the mid part of the market. I'm trying to think about, you know, kind of R2 benefit to the core website business as a result of AI.
Then that's right we did more
Speaker Change: users finish the website, the better the website, the higher conversion, the higher monetization.
Speaker Change: The rest of it, of course, is what happens later on, and then we believe there is a lot of opportunity to take that second part of the life cycle of building a website and to monetize that, and we are now building the product to capture that part.
Speaker Change: Let's first understand why we believe that margin will improve next year and what are the reasons for that.
Speaker Change: We do believe that the core structure right now of the company is enough to generate more growth in the next couple of years.
Speaker Change: It means that the fixed costs more or less remain the same. We are going to see increase in cost, but it will be less than the increase in top line.
Speaker Change: It means that we are going to see more leverage from our core structure also next year.
Speaker Change: So, with regard to the question between partners and self-creators, so the more the gap between the growth...
and the co-structure
Speaker Change: So there you see more increase in, or more leverage. So, you know, by definition, the leverage in part of next year is going to be higher than self-yields.
Speaker Change: But remember that we are going to see leverage in both cases, in part it's going to be actually higher. So this is why we believe that we are going to see further leverage for our margins also next year.
Thank you very much.
Speaker Change: And this concludes today's conference call. I thank you all for participating. You may now disconnect.