Wix.com Ltd. — FY 2018 Form 20-F summary
Reporting period: Fiscal year ended December 31, 2018, with comparisons to FY 2017. This is an annual report, not a standalone 2017 Q4 filing; the supplied filing does not provide a clear standalone Q4 income statement.
Business context and key metrics
Wix operates a global cloud-based website development and business-management platform, monetized primarily through premium subscriptions. It reported 142.4 million registered users and 3.98 million premium subscriptions at year-end 2018. Financial amounts below are in U.S. dollars.
| Metric | FY 2018 | FY 2017 | Change / context |
|---|---|---|---|
| Revenue | $603.7 million | $425.6 million | +41.8% |
| Collections (non-GAAP) | $658.4 million | $484.0 million | +36.0% |
| Gross profit / margin | $476.8 million / 79.0% | $356.2 million / 83.7% | Margin down 4.7 percentage points |
| Operating loss | $30.6 million | $50.0 million | Loss narrowed |
| Net loss / loss per share | $37.1 million / $0.77 | $56.3 million / $1.24 | Loss narrowed |
| Operating cash flow | $115.7 million | $83.1 million | +39.3% |
| Free cash flow (non-GAAP) | $101.6 million | $70.7 million | Operating cash flow less capital expenditures |
| Premium subscriptions at year-end | 3.98 million | 3.22 million | +24% |
R&D expense was $198.9 million, selling and marketing $249.2 million, and general and administrative expense $59.3 million. Advertising expense was $165.3 million, or about 27% of revenue. Share-based compensation was $72.3 million, up from $47.7 million.
Liquidity, debt and cash flows
- At December 31, 2018, cash and cash equivalents were $331.1 million, short-term deposits $349.6 million, and marketable securities $70.2 million; restricted deposits were a further $1.1 million.
- Working capital was $389.9 million. Current deferred revenue was $227.2 million, with another $12.5 million long-term. Management said available cash and operating cash flow should fund operations for at least 12 months.
- Investing cash outflow was $287.6 million, largely reflecting investment in deposits and securities; financing cash inflow was $417.7 million, principally from the convertible-note issuance.
- Wix issued $442.75 million principal amount of 0.00% convertible senior notes due 2023. Their year-end carrying value was $337.8 million after discounts and issuance costs; accounting amortization produced a 6.20% effective interest rate. Wix paid about $45.3 million for capped-call transactions intended to reduce potential dilution and certain conversion payments. A separate long-term loan was $1.2 million.
- Capital expenditures were $14.1 million in 2018; management forecast approximately $21–22 million for 2019. Operating lease commitments totaled $55.8 million.
Material changes and unusual items
- Revenue growth was primarily driven by the 24% increase in premium subscriptions and expanded product offerings. Collections rose to $658.4 million.
- Gross margin fell from 83.7% to 79.0%. Wix attributed a substantial part of the cost-of-revenue increase to a January 2018 Google agreement change that required gross rather than net revenue presentation, adding about $30 million to reported cost of revenue and dampening gross margin.
- Wix adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption increased opening retained earnings by $18.3 million and changed the timing of recognition for domain-name and third-party application revenue. The filing’s comparison indicates FY 2018 revenue would have been $597.1 million and net loss $40.1 million under the former accounting standard, versus reported revenue of $603.7 million and net loss of $37.1 million. Cash flows were not affected by adoption.
- FY 2018 cash flow benefited from $54.7 million growth in deferred revenue and $72.3 million of non-cash share-based compensation. Revenue is recognized over subscription terms, so reported revenue may lag changes in new sales and renewals.
- Wix launched or expanded products including Ascend by Wix, Wix Payments, Wix Logo Maker and Wix on Mobile. It continued investing in marketing, product development, infrastructure and headcount.
Outlook, risks and contingencies
Management gave no specific FY 2019 revenue or earnings guidance in the supplied filing. It expected continued significant R&D and marketing investment, infrastructure upgrades and workforce growth, alongside 2019 capital expenditures of approximately $21–22 million. It also said selling and marketing expense would rise in absolute terms and be approximately stable as a percentage of collections; R&D expense was expected to decline as a percentage of revenue.
- Growth and profitability: Wix had never recorded annual net income and reported an accumulated deficit of $319 million at year-end. Continued losses, acquisition costs, user-acquisition returns, subscription renewal rates and the ability to grow revenue per subscription are key uncertainties.
- Margin and accounting comparability: The Google principal-versus-agent change and ASC 606 materially affect reported cost and revenue presentation; compare periods with these changes in mind.
- Currency exposure: About 29% of costs and operating expenses were denominated in NIS. Wix estimated a 10% NIS appreciation or a 10% depreciation in certain foreign currencies would each have increased 2018 net loss by approximately $18 million.
- Security, privacy and payments: Risks include cyberattacks, service interruptions, data-protection obligations (including GDPR), payment fraud and chargebacks, and evolving payment regulations. The company reported past DDoS-related intermittent downtime but no material operational or financial impact from those attacks to date.
- Regulatory matters: Wix’s 2013 voluntary disclosures to U.S. sanctions authorities remained pending, with potential penalties uncertain. An Israeli Ministry of Finance inquiry concerning the Trading with the Enemy Ordinance also had no stated resolution. DeviantArt’s separate OFAC matter was closed without penalty in March 2018. The Lebanese government blocked access to Wix’s platform in December 2018.
- Other exposures: The filing identifies competition, dependence on search and social platforms, international expansion, acquisition integration, Israeli geopolitical and military-service risks, and potential dilution or cash obligations from convertible notes. The board authorized a share-repurchase plan of up to $100 million, subject to Israeli court approval and extension requirements; no shares were repurchased in 2018.
The auditor issued an unqualified opinion on the consolidated financial statements and internal controls over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2018.
Most important facts for investors to verify
- Confirm the intended period: this filing covers FY 2018, not 2017 Q4, and does not provide clear standalone Q4 financial results.
- Reconcile reported FY 2018 results to the former ASC 605 basis and assess the effect of ASC 606 and the Google accounting change on year-over-year growth and gross margin.
- Review subscription renewals, revenue per subscription, collections growth and customer-acquisition returns; registered-user counts include users with varying levels of engagement.
- Assess cash available after planned investment and the $442.75 million convertible-note principal, including conversion, dilution and maturity terms.
- Track resolution of the pending U.S. sanctions disclosures and Israeli regulatory inquiry, and monitor foreign-exchange, privacy, cybersecurity and payment-processing exposures.