Q3 2025 Wix.com Ltd Earnings Call

Speaker #1: Good day, and thank you for sending by. Welcome to Wix's third-quarter 2025 earnings conference call. At this time, all participants on the list and only mode.

Speaker #1: 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 *11 on your telephone.

Speaker #1: You will then hear an automated message advising that your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Emily Liu, Head of Investor Relations.

Speaker #1: Please go

Speaker #1: ahead. Thanks, and good

Speaker #2: morning, everyone. Welcome to Wix's third-quarter 2025 earnings call. Joining me today to discuss our results are Avishai Abrahami, CEO and co-founder; Nir Zohar, President and co-founder; and Lior Shemesh, our CFO.

Speaker #2: During this call, we may make forward-looking statements. 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.

Speaker #2: We do not undertake any obligation to update these forward-looking statements. In addition, we will comment on non-GAAP financial results and key operating metrics. 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.

Speaker #2: Investors.wix.com. With that, I'll turn the call over to Avishai.

Speaker #3: Thanks, Emily. With vibe coding and our decades of proven expertise in democratizing emerging technologies for everyone to enjoy, we will be able to deliver products that unlock entirely new value for small businesses and people.

Speaker #3: Let me start by setting the stage. When I think about vibe coding, I try to simplify things by breaking the world apart into two categories: one is the developer sphere, this is Claude Code, Cursor, Windsurf, and all these tools which are great for engineers.

Speaker #3: These tools integrate directly on the source code of a project, enabling complex technical programming which requires significant user expertise. The second sphere is where everyone else lives.

Speaker #3: The majority of humanity who don't code, or even think they can code, can suddenly, with vibe coding, create pieces of software that improve their personal lives or help to build their businesses.

Speaker #3: All by simply using natural language. For example, a school teacher can create a custom app to track attendance and post grades. A neighborhood restaurant can build an application to handle their staff schedule.

Speaker #3: Another to manage vendors. Another to sort inventory, and so on and so forth. These people can now build any type of application they need or want with zero coding knowledge.

Speaker #3: Bottom line, vibe coding is unlocking access for regular people to build software intuitively without any technical barriers. This story sounds exactly like Wix's story back in 2006.

Speaker #3: We didn't invent websites back then. They were already widely available, but only to big companies with engineering budgets. There was an absolute barrier for the average person.

Speaker #3: We knew there was a way to enable an online presence for everyone. This was and still is the mission of Wix. We intend to do for software what we did for websites.

Speaker #3: Enabling everybody to build applications without any need for a developer. What's different today is that the software application market is many, many times bigger than the website creation market.

Speaker #3: Think about it. That same neighborhood restaurant needs only one website, which they likely built on Wix. But they may need many applications to successfully run their business.

Speaker #3: Up until now, creating the application a business owner may want has been too expensive or completely inaccessible. And without this new tech, it probably would never have been built.

Speaker #3: We are already seeing this huge opportunity materialize as the AI-powered app building space has grown exponentially over the past year. And we are taking a bigger and bigger piece of this pie.

Speaker #3: Base44's share of audience traffic increased from almost nothing to more than 10% in October. Among low-code tools, Base44 is quickly proving to be a leader and the best solution on the market today with enormous whitespace.

Speaker #3: Still ahead, Base44 is also getting better, fast. We recently launched our new builder, transitioning Base44 from a predominantly user-reliant tool to an expert developer partner for everyone.

Speaker #3: The new builder represents a fundamental architectural advancement, moving to an agentic coding environment with multi-agent layers. Base44 can now validate, debug, refactor for performance and fix its own work, making app creation faster, smarter, and more powerful than before.

Speaker #3: Please do not mistake my obvious enthusiasm for Base44 and the AI-powered app building opportunity as a lack of excitement about Wix. It is no secret that we intended to release a new flagship product as early as this summer, and as CEO, I am clearly unhappy that I still cannot share it with you today.

Speaker #3: However, seeing it in our labs gives me more and more confidence that the wait will be worthwhile. I expect it early 2026, and truly believe that it will deliver great value to our users.

Speaker #3: I want to impart one last thought about the massive importance of building products that allow humans and AI to work in tandem. People building big tech projects, creating websites, or developing applications—whether engineers or not—need to be able to control the outcome of their creation.

Speaker #3: This is why we continue to put a huge emphasis, both at Wix and at Base44, on curating the right combination of visual editing capabilities for humans and powerful AI vibe coding.

Speaker #3: This combination will allow for high-quality outcomes with less iteration, while giving humans the right level of control and calibration. The future of creation will be interactive, intelligent, and accelerating, and we're just at the cusp of this transformation.

Speaker #3: With that, I'll turn it over to

Speaker #3: Nir. Thanks,

Speaker #4: Avishai. We're pleased to see the new user cohort behavior in our core business from the first half of the year continue through Q3 and into October.

Speaker #4: These robust cohorts have been a key driver of our top-line growth, fueling the momentum we've seen throughout the year. They also provide a solid foundation for continued growth as we move into Q4 and 2026.

Speaker #4: Organic traffic continued to improve as more users actively searched for Wix online, underscoring Wix's continuously improving brand awareness and top-positioned platform for web creation.

Speaker #4: Solid traffic from paid channels also drove higher traffic as we captured robust demand while operating within our TROI guardrails. New users purchased more advanced website subscriptions, adopted more business applications, and purchased longer duration subscriptions at an accelerating clip, demonstrating the growing trust our users place in Wix.

Speaker #4: With new cohort bookings following a similar shape to the second quarter cohort, cohort growth continued to trend strongly through the third quarter. We also welcomed our first full quarter of new Base44 cohorts under the Wix banner in Q3.

Speaker #4: Wix performed better than anticipated. As the vibe coding market has exploded this year, Base44 has meaningfully outgrown most peers. We now estimate our share of audience traffic to AI-powered application builders to be more than 10%.

Speaker #4: Up from low single digits in June. This growth in a matter of just months is a result of a fantastic product with organic reach, supercharged by our expertise and investments, as well as application of Wix's proven strategic playbook to Base44.

Speaker #4: In addition to establishing a dedicated customer care team and expanding Base44's R&D capabilities, we focused on building up a comprehensive full-scale brand and marketing function.

Speaker #4: Remember, Base44 did not have any marketing motion when we acquired it in June. On day one after the deal closed, we started to apply a marketing plan that has been fine-tuned and tested over the past two decades.

Speaker #4: A key competitive differentiator for Wix, to Base44. This included refining the company identity messaging and visual system to better reflect our market ambition. We also launched campaigns in key channels and core geographies, compelling branding and effective marketing is crucial to growing Base44's reach beyond just early adopters and capturing the huge whitespace Avishai spoke about.

Speaker #4: Returns on our initial marketing investments meaningfully exceeded expectations as demand ramped through the quarter. As a result, we were able to confidently scale marketing efforts above our initial August plan.

Speaker #4: Today, Base44 serves over 2 million users around the world. This is more than seven times the number of users we had at the end of June.

Speaker #4: Impressively, this translates into more than 1,000 new paying subscribers joining daily. We now anticipate Base44 to achieve at least $50 million of ARR by year-end, an increase from our previous expectations.

Speaker #4: We also continue to see positive trends in our main geographic markets as we improved monetization of a growing population of users and conversion improved sequentially.

Speaker #4: Better monetization was also a result of healthier commerce activity in the third quarter. Transaction revenue accelerated, increasing by 20% year over year, driven by 13% growth in GPV and an elevated take rate.

Speaker #4: Merchants are continuing to opt for Wix Payments. The opportunity remains large as we continue to strive towards capturing and addressing the full spectrum of merchant needs per our long-term commerce strategy.

Speaker #4: To wrap it up, our solid Q3 results, illustrate the durability of our core business, which remains healthy against a dynamic operating environment. It also speaks to our ability to enter new markets efficiently and effectively, highlighting Wix's innovation, first mindset, and a proven first mover advantage.

Speaker #4: I remain confident in our ability to drive long-term growth by delivering essential tools that help users—both new and old—adapt, operate, and succeed in any environment.

Speaker #4: I'll hand it over to

Speaker #4: Lior. Thanks,

Speaker #2: Nir. We accelerated growth entering the second half of the year, with third quarter results exceeding expectations, this performance was driven by strong fundamentals in our core business and an exceptional first full quarter of Base44 under the Wix banner as you just heard about from Nir.

Speaker #2: The team is executing well as we build the critical foundation for sustained momentum in 2026 and beyond. There were a few highlights in the third quarter, but I'd like to start with our financial results.

Speaker #2: Total bookings grew to $515 million in Q3, up 14% year over year. This strong performance was driven by robust new user cohorts joining the platform, existing users finding success and adapting more business applications, as well as better than expected results from Base44.

Speaker #2: Total revenue grew to $505 million, also up 14% year over year and above the high end of our guidance range. Partners' revenue grew 24% year over year to $192 million, driven by continued traction among professional designers and solid studio adoption.

Speaker #2: Domains, marketing applications, and Google Workspace saw particular strength within the partners' business in the most recent quarter. Transaction revenue was $65 million, up a strong 20% year over year, driven by slightly improved GPV growth coupled with a sustained elevated take rate as merchants continue to attach Wix Payments.

Speaker #2: GPV grew 13% year over year to 3.7 billion dollars. Partners remained the primary driver of GPV growth, contributing approximately 55% of total GPV. Turning to the cost side, we recognized our first full quarter of cost associated with Base44.

Speaker #2: Before getting into the details, I'd like to start by explaining the business dynamics of Base44, which differs from core Wix. As Nir discussed, we are seeing top-line growth for Base44 trend above our initial expectations.

Speaker #2: The very large majority of these users are on monthly subscription plans, as stark contrast to the more than 80% of Wix's mix attributed to annual or longer-duration plans.

Speaker #2: This translates into a linear bookings dollar trajectory for Base44 compared to Wix's front-loaded bookings behavior. As a result, most of Base44's bookings are expected to come in future quarters as these monthly cohorts build and renew.

Speaker #2: However, the cost associated with these Base44 users is impacting our financials today. This misalignment between bookings and operating expenses is resulting in a short-term headwind to our free cash flow.

Speaker #2: We also anticipate a short-term headwind on operating profit as we incur startup costs and initial growth investments for Base44. While revenue ramps but remains in significant to our top line today, the two areas we see the most impact are cost of revenue and sales and marketing.

Speaker #2: On the cost of revenue side, we are incurring AI processing and compute costs to support ramping Base44 demand. These costs tend to be front-end heavy as new users consume more AI tokens during their initial build phase.

Speaker #2: These expenses offset continued AI-driven productivity efficiencies across the customer care organization and improve business solutions growth margin. As a result, total non-GAAP growth margin in Q3 was 69%, down slightly from 70% in Q2 as expected.

Speaker #2: On the sales and marketing side, third quarter non-GAAP sales and marketing expenses increased 23% sequentially, as we built and deployed a marketing strategy for Base44.

Speaker #2: This is a result of accelerated branding and acquisition marketing investments above our initial August plan to capture stronger-than-expected demand, particularly in the back half of the quarter.

Speaker #2: I'm very encouraged by Base44's TROI, especially so early on. A signal of sustained user strength that isn't fully reflected in the P&L due to the monthly mix dynamic.

Speaker #2: We also saw a slight increase in non-GAAP R&D expenses, which were up 7% compared to the second quarter, as a result of higher overhead, AI, and other expenses.

Speaker #2: As planned, as a result, non-GAAP operating income was 90 million dollars or 18% of revenue in the third quarter, this excludes 35 million dollars of acquisition-related expenses, primarily earn-out payments for the Base44 team.

Speaker #2: We expect earn-out payments to continue to trend upwards as Base44 ARR approaches the high end of its lofty, previously set performance target. Q3 free cash flow was $159 million, or 32% of revenue. This is an increase from the free cash flow margin of 30% last quarter, as we generated strong bookings and realized a working capital benefit associated with the higher cost I just discussed.

Speaker #2: I expect operating and free cash flow margins to improve over time, as we optimize multiple areas of our business model. Today, we're already beginning to see AI costs decrease as LLMs improve and competition continues to ramp.

Speaker #2: I expect this to continue, if not accelerate. Additionally, I expect sales and marketing expense leverage as branding investments normalize once we move past initial branding investment costs.

Speaker #2: TROI targets should tick lower as Base44 scales too. We also expect Base44's user and subscription mix to optimize over time. In the long term, I expect Base44 to have similar operating and free cash flow margins to Wix.

Speaker #2: We continue to strategically manage our balance sheet. In September, we issued $1.15 billion in 0% convertible senior notes due 2030. These notes follow the maturation and payback of our previous tranche of 2025 convertible notes.

Speaker #2: We expect to deploy this cash for business purposes potential M&A opportunities and continued share repurchases. We repurchased approximately 1.3 million Wix ordinary shares for approximately 175 million dollars underscoring our continued commitment to returning value to shareholders.

Speaker #2: This leaves approximately 225 million dollars remaining on our current authorized program. Let's now talk about how we expect to finish out the year as health in our core offering along with ramping Base44 contribution is setting the foundation for a strong fourth quarter.

Speaker #2: We are raising our full-year bookings outlook to $2060 to $2078 million, or 13% to 14% year-over-year growth, up from the 11% to 13% year-over-year growth previously expected.

Speaker #2: This increased expectation is driven by meaningful outperformance of Base44, which we expect to continue as we accelerate marketing investments to capture the stronger-than-anticipated demand we're seeing today as a result.

Speaker #2: We expect Base44 to achieve at least $50 million of ARR by year-end, an increase from our previous plan. Our guidance also assumes a stable macro, continued strength in our top of funnel, and current FX rates for revenue.

Speaker #2: We are updating our previous full-year outlook to $1,990 to $2,000 million, up 13% to 14% year-over-year. This is a shift towards the high end of our plan, up from the 12% to 14% growth previously expected.

Speaker #2: The dynamics differ between bookings and revenue as Base44 outperformance is offset by a continued shift in our core business mix. Towards longer duration subscription packages, on the cost side, we now expect non-GAAP gross margin to be 68 to 69% of revenue and non-GAAP operating expenses to be approximately 50% of revenue for the full year.

Speaker #2: These updated expectations reflect the front-end heavy AI and sales and marketing costs against linear revenue and bookings behavior. Due to higher anticipated bookings and working capital benefits partially offsetting these increased cost expectations, we expect free cash flow of approximately $600 million in 2025, or 30% of revenue for the full year.

Speaker #2: I'm looking forward to a strong finish to 2025 as we enter 2026 on solid footing. Operator, we are now ready for questions. Thank you.

Speaker #2: Ladies and gentlemen, do I have a question at this time? You will need to press star 11 on your telephone and wait for your name to be announced.

Speaker #2: The withdrawal question simply press star 11 again. Please stand by while we compile your roster. And our first question coming from the line of Gail Arunian with City Ulanis

Speaker #2: Melvin. Hey guys, good morning.

Speaker #3: Good afternoon. So, a couple on Base44. Can we just dive into the dynamics of the monthly subs versus the sort of more traditional annual subs that you get for Core Wix?

Speaker #3: And what are you seeing there in terms of churn and those subscription dynamics? And as people sign up monthly, can you get them to sign up annually more often over time?

Speaker #3: Is that the expectation? How does that change your kind of visibility into investment as some of the margins come down here? And then I have a follow-up on the cost side.

Speaker #4: I think that as to regards to the percentage of course at this stage lean a lot more toward the monthly subscription than annual subscription.

Speaker #4: And we've also seen it in Wix in the beginning. It takes time for people to trust the platform. And then they will actually feel more comfortable to pay an annual subscription.

Speaker #4: And I think we are heading in that vibe. Coding is still so new that we are heading toward that direction. But if on Wix the vast majority are early subscriptions, annual subscriptions, then on Base most of our users are still on a monthly subscription.

Speaker #4: When it comes to churn, it's very early to say any changes are happening very quickly. So it's very hard to say. Obviously, churn is higher than the standard Wix, which almost doesn't exist, right?

Speaker #4: There's almost no churn. But if you look on the code basis, Base is better than we expected. And we know there's so much more we can do.

Speaker #4: So we are very optimistic and we think that churn will probably not going to be our problem going forward, right? If everything continued to advance in the same way it is now.

Speaker #3: Okay. You talked about Avishai in the past. The platforms of Vibe Coders are good for prototyping, but eventually, when you have a finished product, it sort of has to live somewhere else, right?

Speaker #3: Because a lot of the backend stuff isn't developed. Is that part of the factor for churn? And then on the cost side, just on the gross margins and the AI compute, is there anything that you can do within your control outside of LLM costs coming down to keep costs down?

Speaker #3: For example, using your own internal data to help build versus relying on third-party LLMs as much?

Speaker #4: Well, I'm not going to go into all the details here, but yes, there's a lot we can do on cost. Okay. It's not a priority at this stage, right?

Speaker #4: It's something that we're also investigating. I think the priority now is to build a better product and capture more market share. But I think that long-term and long is not multiple years.

Speaker #4: We can dramatically improve the cost of AI for Base44. There's so much we can do from training our own models to do part of it, from partnerships with the different vendors, from the simple reality that the cost is always declining.

Speaker #4: And so I think there's going to be a tremendous amount of opportunities for us to reduce the cost of the AI for Base44. And, sorry?

Speaker #4: And so the first part, so I missed that. So we do see you're right when you say a lot of it is just used for prototyping, right?

Speaker #4: And that's great. Or for people to actually build an application that is just for demo for a few people, and then the prototype is the application, right?

Speaker #4: It doesn't need scale. It's okay if it's kind of like a tiny bag, but we are getting to a place that today with Base44, you can really build more full applications.

Speaker #4: There's still quite a way to go on what we can do there and how to make it even better. But we are getting to a place.

Speaker #4: And of course, we have some users that already built really large applications that have been deployed and we can see that. So if a year ago you couldn't do vibe coding for anything real, and a few months ago you could do vibe coding for multi-prototypes, for applications, I think today we are starting to see more applications that are real and are being used in the commercial level.

Speaker #4: For website, it's still different. I think for website, there's still a gap that needs to be closed with vibe coding to build real websites that are Google friendly, that are LLM friendly, that are of all the privacy rules that are required by law.

Speaker #4: And a bunch of other things. So there's still quite a distance to go, but we hope to close that early next

Speaker #2: Yigal, this is Leor. Just a couple of small points about the cost. I think that what is interesting here is that new users coming to Base are obviously consuming more AI tokens, right?

Speaker #2: More bandwidth as they build their apps. But what we see is a big difference between, obviously, the cost of newcomers to the ones that actually continue, because they might modify, do some changes, but it's really not the same.

Speaker #2: But it means that, for example, if you take a this year compared to next year, next year you're going to have much more of the recurring revenue; it means that the profits obviously will be totally different.

Speaker #2: So it's not just about the fact that as Avishai mentioned, that we already started to see the cost of AI goes down, but it's also about the model itself that is so different between newcomers to the one that actually already built their apps and just maintaining it.

Speaker #3: Okay, guys, very helpful. Thank you.

Speaker #1: Thank you. Our next question comes from the line of Menashe Shemesh.

Speaker #1: lineup. Great.

Speaker #4: Thanks for taking the question. Avishai, I just wanted to ask a big picture question for you. Wix is pretty well positioned to kind of re-engineer the web for the AI era, by making a lot of small business websites kind of agent-ready, right?

Speaker #4: So they can be discovered by Gemini, ChatGPT, and others. More effective ways are the current web architecture, which includes a lot of total consumption for them.

Speaker #4: Can you talk about the vision you have for Wix for this era and how you're planning to capitalize on this big secular theme for the next three to four years?

Speaker #4: What do you doing perhaps the new product or from others in the future to make the websites of both your current and future customers kind of agent-friendly so they can get the traffic, transactions, everything from agents?

Speaker #2: So yes, you're right. I think that you're touching a very important point. We're going to see in the next couple of years. And when we already started to see that, but it's probably going to accelerate.

Speaker #2: Transition and change in many ways that you consume content to websites or discover websites with the content. And not just discover the content without even the website, right?

Speaker #2: So there's a lot of things that are changing now. The first thing that we're doing in Wix in order to support and enable all our customers to enjoy that new mode is that every Wix website is now indexable by LLMs.

Speaker #2: So we make the data available to any LLM and there's a few formats for that. And so we ensure that ChatGPT can actually read your content and discover your website.

Speaker #2: That's the first part. The second part is that we continuously add new standards for how to do e-commerce, the one that OpenAPI released a few months ago.

Speaker #2: MCP and a bunch of others in order to enable all the functionality to be available within LLMs or be discovered by LLMs and then run on your website.

Speaker #2: In addition to that, there are a few more things that we think will change in the user interface in the next couple of years.

Speaker #2: Not going to go into details, but I think that that's another super interesting opportunity for our customers. And we intend, of course, to provide fantastic solutions for that.

Speaker #2: So if you look at it long-term, I mean, the fact that, and not just Wix, right? There are other platforms out there, but if you are an owner of a business and you try to build a website in the old way, you're going to find that you're not supporting all those new standards that are coming every few months, right?

Speaker #2: There's a new standard that you need to support to be part of the new world of AI. Then I think the platform will have to work for you pretty hard in order to make sure that all those standards that will ensure your business visibility in this new world are part of what we...

Speaker #2: supply.

Speaker #4: Got

Speaker #4: Got it. And then maybe one quick one for Nir. Can you talk about the cohort retention trends of Base44 and how it compares versus Wix on monthly customer plans, perhaps on month one retention or month two retention, given that you have had Base44 now for a few.

Speaker #4: months? Hey, sure,

Speaker #5: Deepak. So naturally, it's still very early. Just as you said, it's just a few months. When we look at it, we're seeing kind of similar behaviors to what we know from the monthlies on Wix.

Speaker #5: And I would actually dare to say that it's better than what you used to see at Wix in the early days. So I think we're—Avishai referred to this in the beginning when he was talking about the monthlies behavior.

Speaker #5: Our belief is that we're going to work on a few different things in tandem that are going to eventually improve the dynamics. One, as we garner more brand visibility and brand recognition, it will be easier for people to transition to the annual plans and then obviously will give us more visibility and better TROI.

Speaker #5: Faster TROI. So to speak. And secondly, there's a lot of more improvements we can do in creating more motivation for people to retain and strengthen their connection with the platform.

Speaker #5: And our belief is that we should see better results as time progresses. Again, it's very, very

Speaker #5: early. No,

Speaker #4: makes sense. Thank you so much.

Speaker #1: Thank you. Our next question is coming from the line of Andrew Boone with Citizens Bank. Yolanda?

Speaker #6: Thanks so much for taking the questions. I'd like to touch on Wix Vibe and just the learnings of Vibe coding as it relates to website creation today.

Speaker #6: How do we get self-creator to that double-digit kind of target that we've talked about in the past? And then going back to Base44, can you guys just help us understand the pathway to getting margins up to core Wix levels?

Speaker #6: What does that have to look like and kind of what are the assumptions that need to take place around retention? Thanks so much.

Speaker #5: Hey, Andrew. I'll take the first one about Wix Vibe. So, Wix Vibe is a beta of something we're trying out, and it's part of our general strategy in terms of product.

Speaker #5: And understanding Avishai spoke about this today and in the past about the higher complexity there is between vibe coding and building websites. All that Google-friendly as you put it, Google-friendly LLM-friendly matching accessibility needs, security, etc., etc., etc.

Speaker #5: And obviously, we think there needs to be a better solution there. And we're working towards this.

Speaker #3: Hey, Andrew. With regard to the second question, I think that we need to relate to the two different components in terms of the investments that we are making.

Speaker #3: The first one we spoke about before is about the AI, and I think that I would like to take the opportunity and spend a couple of minutes in order to explain it better.

Speaker #3: By the way, for both cases, also for the sales and marketing and also for the cost of goods sold, we have a really proven track record in how we can actually over time we can drive growth and be in a place where we believe that we can drive even more profitability.

Speaker #3: And I will try to explain so with regard to the AI cost, I kind of spoke about it before. We see a very strong user demand.

Speaker #3: Very important to mention that both of the investments, also sales and marketing, and also the AI cost, which is a part of the cost of goods sold, they are both driven because of a very, very strong demand.

Speaker #3: As we know, from an accounting point of view, we first recognize the cost and only later recognize the revenue. So by definition, when you have such a hyper-growth business, you recognize more costs at the very beginning, and then you recognize the revenue over time.

Speaker #3: So by definition, we are going to see a higher profitability in a later stage. But at least at the very beginning, this is the situation.

Speaker #3: Also, in terms of the AI cost, I kind of spoke about it before. New users consuming more AI tokens. So it means that the more that we have more customers and that are maintaining their application and stay with us in terms of the application, so obviously we are going to see that their margin profile is much better than the new one.

Speaker #3: But right now, all of the customers, most of the customers, because it's such a new platform, are new. So we all understand this situation.

Speaker #3: The other thing is about the cost of AI. We've already started to see we are going to see more players in this market, which eventually going to lower the cost.

Speaker #3: So I believe that we are going to see that dramatic change in terms of the overall cost, which obviously is going to have a positive impact very much that you saw we saw at the very beginning when we started the business at Wix.

Speaker #3: The hosting was totally different in terms of its cost, right? And today is much, much, much more profitable than it used to be in the past.

Speaker #3: With regard to the marketing, it is really the same methodology as we use at Wix, meaning that we invest in marketing based on TRY. So, it means that when you have such a hyper-growth business, you invest more right now in order to capture the demand under the TRY methodology, meaning that we are not investing money in marketing and we don't see the short-term returns.

Speaker #3: And this is something that is really important to mention because when you have such a growth, you invest right now more, you recognize the cost immediately and only after you recognize the revenue.

Speaker #3: In order to summarize everything, I think that already next year, we are going to see improved margin as a result of that. But yes, I mean, we are going to see some pressure on margin in the short term.

Speaker #3: Definitely because of all the reasons that I mentioned before. We are going to see that the TRY target are optimized. We are going to see that AI cost decrease.

Speaker #3: We are going to see Base44 mix of customer change, and all of that is going to drive the profitability. It is going to be very similar to what we see in Wix, and we strongly believe this because we've been there.

Speaker #4: Thank

Speaker #4: Thank you. Thank

Speaker #1: you. Our next question coming from the lineup. Josh Beck with Raymond James. Your line is now open.

Speaker #4: Yes. Thank you so much, for taking the question. Maybe following up on Lior's comments there. When we look at kind of the Q4 gross margin guidance implied, I think it's something in the order of 66% or so.

Speaker #4: And assuming that creative core subscriptions are kind of in the mid-80s, it would indicate a pretty big difference for Base, which, as you mentioned, I think it has to do with this hyper-growth dynamics.

Speaker #4: You have effectively these new cohorts being the vast majority. So should we kind of assume that as long as this is in a hyper-growth phase going from 50 million to 100, there should be kind of this drag and not until we get beyond that phase, it goes away?

Speaker #4: Just kind of any other guidepost to kind of help us think about the duration of this drag would be great.

Speaker #3: It's a great question. I think that it's a kind of interesting because this kind of drag is drag that we really like. Because it's coming from a very high growth, and I believe that also profitable growth in the future.

Speaker #3: In, I think that it's too early for me to say because yes, right, the more that we have a very high growth, it means that we have more new customers that build in their application.

Speaker #3: And it's more expensive, as I mentioned before, from recurring customers. But we also see quite a big decrease in the AI cost. But also, in terms of our ability for example, to do changes in our model, in order to take the margins, to take the margins up.

Speaker #3: So it's really hard for me to answer the question. It's really depends what is stronger, meaning the growth effect or the ability to actually reduce the cost.

Speaker #3: But I do believe for sure, looking at the trends right now, that I believe that the margin just will continue to improve as we already started to see that from Q4 to Q3 to

Speaker #3: Q4. Okay.

Speaker #4: Very helpful. And then maybe just a follow-up on the pricing construct. Obviously, we can all see the Base44 pricing and the freemium and some permutation of good, better, best.

Speaker #4: Is that at a point where you're still experimenting, or do you feel like if you were to take one of these plans and kind of run out that customer's life cycle that it already does have quite attractive profitability built in? Or are you still tweaking the pricing?

Speaker #4: How are you thinking about that?

Speaker #3: Hey, Josh, it's me. Again, I think it's very, very early. So naturally, we're just going to be testing different things and different ideas. And see what lands the most balance and smart optimization between the margins and the financial results.

Speaker #3: And our top priority, which is grabbing market share.

Speaker #4: Very helpful. Thank you.

Speaker #1: Thank you. Our next question comes from the lineup, Ken Wong with Oppenheimer. Your line is now open.

Speaker #5: Fantastic. Thanks for taking my question. Maybe first, just as we think about that booking guide, last quarter, you guys had mentioned that the majority of the raise was coming from the core.

Speaker #5: Any color on how we should be thinking about the contributing factors to the 4Q bookings? And then second, just on the profitability, I think we get it.

Speaker #5: A lot of upfront costs. You guys had already started messaging that perhaps less margins going forward. As we try to rattle through the higher OPEX and the gross margins, I mean, is it fair to assume that we might still see some margin expansion?

Speaker #5: And any early thoughts there, Lior?

Speaker #3: Sure. So I would start with the guidance. I think that it's fair to say that most of the increase in guidance coming from the strength that we see with the base business, Base44 business, I think that it's very much kind of a different from what we've seen only last earnings.

Speaker #3: I remember it has been like five months from the minute that we've bought this business. The first earning that we had like a few months ago, we've seen the demand.

Speaker #3: But in the last few months, it's even much, much bigger than what we anticipated at the very beginning. This is why we've decided to invest more and I do believe that based will turn out to be a significant growth driver for weeks.

Speaker #3: With regard to the margin headwind, yes, I believe that it will continue and let me even say differently. I hope that it will continue because it means that we are going to see a much higher demand.

Speaker #3: I think that in this case, it's really the same as what we've seen in the past for weeks. Every time that we've launched a new product, it was actually the case at the very beginning with the ADI.

Speaker #3: Even when we started the partner's business, we saw such a huge demand and obviously, we are investing in marketing to capture it. So yes, I mean, in the short term, we are going to see some more pressure on margin.

Speaker #3: I'm not sure where the margin expansion will start again. It is going to be 2026 or late 2026. It's really depends on the demands that we are going to see for this business.

Speaker #5: Fantastic. Thank

Speaker #5: you. Thank you.

Speaker #1: And our next question coming from the lineup, Trevor Young with Barclays. Your line is now open.

Speaker #4: Great. Thanks for the question. First one, Avishai, on the new self-creator tool that was expected first this summer and then pushed to the fall, is now getting pushed out again to sometime in '26.

Speaker #4: Can you expand on what the delays are there? Is there some sort of reimagination going on with the tool? Just trying to figure out what's going on in terms of the product launch and timing.

Speaker #3: Actually, most of the reason for the delay is about just fine-tuning technology. So it's solving a lot of technical challenges and bugs and making it really stable and working faster.

Speaker #3: And I suppose the most project we're doing software, which anyways tend to be delayed, but this one to be fair to the team, right, is using a lot of new technologies.

Speaker #3: That didn't exist before. And so a lot of AI stuff that never existed. Before. So it was a bit harder to estimate some of the effort that will go into finalizing them.

Speaker #3: I think we are beyond this point. In fact, it's kind of entering already the first stage of a closed beta within here inside of Wix.

Speaker #3: So I feel very confident we're going to see it very early in 2026. And we're actually going to have, I think, a much better

Speaker #3: product. Great.

Speaker #4: Thanks for that. And as a follow-up question on the 3Q cohort commentary trending similar to 1H, if I recall correctly, 1Q cohort collections grew 12, 2Q was 14.

Speaker #4: So should we assume 3Q was kind of low teens growth territory? If so, did something change in August and September to cause a step-down relative to the 20% growth that you had flagged back in the July

Speaker #4: timeframe? Hey, Trevor,

Speaker #3: It's near. Not so much, actually. No, I think we've seen some expected seasonality, and generally, we've seen the courts behave as we expected. We're seeing an ongoing strength going into the rest of Q3 and into Q4.

Speaker #4: Great. Thanks,

Speaker #4: guys. Thank you.

Speaker #1: And that's the end of our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now

Speaker #3: Thank you, everyone. Thank