Wix.com Ltd. — Form 20-F Summary
Reporting-period note: The supplied filing is the annual report for the fiscal year ended December 31, 2019, filed April 2, 2020. It is not a 2018 Q4 filing and does not provide a clear standalone Q4 2018 or Q4 2019 results comparison.
Business context
Wix operates a global cloud-based website creation and business-solutions platform using a freemium model. Revenue comes primarily from Creative Subscriptions—premium website subscriptions and domain registrations—and Business Solutions, including applications, payment processing and other add-on services. At year-end 2019, Wix reported approximately 165.3 million registered users and 4.50 million premium subscriptions.
Financial and operating performance
| Metric (USD millions, except per-share data) | 2018 | 2019 |
|---|---|---|
| Revenue | $603.7 | $761.1 |
| Gross profit / gross margin | $476.8 / 79.0% | $564.2 / 74.1% |
| Operating loss / operating margin | $(30.6) / (5.0%) | $(80.3) / (10.6%) |
| Net loss / diluted loss per share | $(37.1) / $(0.77) | $(86.4) / $(1.71) |
| Cash provided by operating activities | $115.7 | $149.6 |
| Free cash flow (non-GAAP) | $101.6 | $127.5 |
| Collections (non-GAAP) | $658.4 | $832.5 |
- Revenue grew 26.1%. Creative Subscriptions revenue rose 23% to $644.5 million; Business Solutions revenue increased 49% to $116.6 million and grew from 13.0% to 15.3% of revenue.
- Operating costs grew faster than revenue overall, and gross margin fell 4.9 percentage points. Business Solutions cost of revenue rose 80.1%, contributing to the pressure on gross margin.
- Premium subscriptions increased from 3.98 million to 4.50 million. Annualized recurring revenue for Creative Subscriptions rose 20.5% to $707.2 million. Collections are a company-defined non-GAAP measure, not recognized revenue.
- Cash, cash equivalents and short-term deposits totaled $562.2 million at year-end; marketable securities totaled $341.6 million. Working capital was $319.7 million, including $289.1 million of current deferred revenue.
- Total assets were $1.10 billion and shareholders’ equity was $207.7 million. The balance sheet included $358.7 million carrying value of convertible notes and $83.2 million of operating lease liabilities. Note principal was $442.75 million.
Material changes and unusual items
- Net loss widened by $49.3 million year over year, while operating loss increased by $49.6 million. Selling and marketing rose 23.5% to $307.7 million; R&D rose 26.1% to $250.8 million.
- Share-based compensation increased to $109.3 million from $72.3 million, materially affecting reported expenses. The filing reports a $405 million accumulated deficit at year-end.
- Financial expenses included $20.9 million of non-cash convertible-note discount and issuance-cost amortization; this was substantially offset by $19.8 million interest income. The notes bear a 0% coupon but have a 6.2% effective interest rate for accounting purposes.
- Wix adopted ASC 842 leases in 2019, recognizing $51.4 million of right-of-use assets and $52.4 million of lease liabilities at adoption. The 2018 balance sheet was not restated. The adoption did not materially affect the income statement.
- ASC 606 adoption in 2018 changed the timing of recognition for domain names and third-party applications; the company recorded an $18.3 million cumulative increase to opening retained earnings. 2017 comparatives were not adjusted.
- Operating cash flow increased, supported in part by a $71.4 million increase in deferred revenue and non-cash expenses. Investing activities used $244.0 million, chiefly reflecting investment in deposits and marketable securities and capital spending.
Outlook, risks and contingencies
- The filing gives no specific 2020 revenue or earnings guidance. Management expected continued investment in product development, marketing, infrastructure and headcount. Estimated 2020 capital expenditures were $26–$28 million, including $8–$9 million for the new headquarters.
- Management said available cash and operating cash flow should fund operations for at least 12 months. It also described COVID-19’s business impact as unknown at filing time, citing possible operational disruption and lower customer spending; customer-care centers had been temporarily closed in some locations.
- Key risks include user conversion, renewals and marketing returns; competition; cyberattacks, outages and data-protection regulation; payment-processing exposure; currency movements; and execution of international and Partner growth plans. A 10% NIS appreciation was estimated to increase 2019 net loss by approximately $23 million; a concurrent 10% devaluation of specified foreign currencies was estimated to increase it by approximately $21 million.
- The company had $442.75 million of 0% convertible notes due 2023, subject to conversion and repurchase provisions. It had entered capped-call transactions costing $45.3 million intended to reduce dilution or offset certain conversion payments, subject to their terms and counterparty performance.
- Wix disclosed a $100 million share-repurchase authorization through June 30, 2020, subject to extension and other conditions; no shares were repurchased in 2019. It has not paid dividends and does not anticipate doing so in the foreseeable future.
- As of December 31, 2019, management reported no legal matters requiring an accrued loss liability. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Confirm the intended period: this filing covers all of 2019, not 2018 Q4.
- Assess whether Business Solutions growth can continue while its rising costs and the declining gross margin are managed.
- Track operating-loss trends, cash generation, share-based compensation and the extent to which cash flow depends on deferred-revenue growth.
- Review the convertible notes’ conversion, maturity and cash-settlement terms, plus lease commitments, including the planned headquarters lease.
- Monitor COVID-19 effects, currency exposure, payment and data-security risks, and actual repurchases under the authorized plan.