Wix.com Ltd. — Form 20-F summary
Period clarification: The supplied filing is Wix’s annual report for the fiscal year ended December 31, 2017, not a 2016 fourth-quarter filing. Financial amounts below are in U.S. dollars; millions are rounded.
Business context and reporting period
Wix operates a freemium, cloud-based website development and business-management platform. Most revenue comes from premium subscriptions, with smaller contributions from domains and apps. The company reported under U.S. GAAP and operates as one reportable segment. Its audited financial statements received an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.
Key financial and operating metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $425.6 million | $290.1 million | +46.7% |
| Gross profit / margin | $356.2 million / 83.7% | $244.8 million / 84.4% | Margin down 0.7 percentage points |
| Operating loss / margin | $(50.0) million / (11.7%) | $(44.0) million / (15.2%) | Loss widened; margin improved |
| Net loss | $(56.3) million | $(46.9) million | Loss widened 20.0% |
| Basic and diluted loss per share | $(1.24) | $(1.12) | Loss per share increased |
| Cash from operating activities | $83.1 million | $40.6 million | Increased $42.5 million |
| Free cash flow (non-GAAP) | $70.7 million | $36.2 million | Increased $34.5 million |
| Collections (non-GAAP) | $484.0 million | $342.1 million | +41.5% |
At year-end, Wix had 119.3 million registered users (97.4 million in 2016) and 3.22 million premium subscriptions (2.47 million in 2016). Premium subscriptions grew 31%. Registered-user counts may include multiple or inactive registrations, as the filing cautions.
Operating expenses rose to $406.3 million from $288.8 million. Research and development was $153.6 million, selling and marketing $204.4 million, and general and administrative $48.2 million. Share-based compensation increased to $47.7 million from $28.0 million.
Year-end liquidity included $85.2 million cash and cash equivalents, $115.4 million short-term deposits, and $32.7 million marketable securities. Working capital was negative $37.4 million, largely reflecting $202.5 million of current deferred revenue. Total assets were $330.0 million and shareholders’ equity was $11.3 million. The balance sheet included a $1.2 million long-term loan; management stated there were no long-term borrowings creating material interest-rate exposure.
Material changes versus the prior comparable period
- Revenue grew 46.7%, driven primarily by premium-subscription growth, expanded products and marketing activity; collections increased 41.5%.
- Gross margin eased to 83.7% from 84.4%. Operating loss widened by $6.0 million, while operating-loss margin improved as revenue grew faster than total operating expenses.
- Net loss widened by $9.4 million. Higher operating costs and $5.0 million of net financial expense in 2017, versus $0.2 million of net financial income in 2016, contributed to the change.
- Operating cash flow and free cash flow increased substantially. Investing cash outflow rose to $114.9 million, including acquisition payments, deposits, securities purchases and capital spending.
- Capital expenditures increased to $12.4 million from $4.4 million. Cash and cash equivalents declined to $85.2 million from $93.1 million, while short-term deposits and marketable securities increased.
Outlook, commentary, risks and unusual items
- Management expects continued investment in R&D, marketing, technology infrastructure and headcount in 2018. Planned 2018 capital expenditures are approximately $12–$13 million. The filing provides no specific 2018 revenue or earnings guidance.
- Management believed available cash and cash from operations would fund operations for at least 12 months. It also noted that additional financing could be needed if cash and operating resources prove insufficient for growth or acquisitions.
- Wix adopted ASC 606 on January 1, 2018 using the modified retrospective method. It estimated a $14.7 million net increase to opening retained earnings from earlier recognition of domain-name and third-party-app revenue, net of related deferred costs. On a theoretical 2017 basis, the change would have increased revenue by $7.0 million and reduced net loss by $4.1 million.
- Wix acquired DeviantArt for approximately $36 million cash, including about $3 million of assumed liabilities, and acquired Flok by assuming liabilities. Acquisitions added goodwill and intangible assets; management identified integration and realization of anticipated benefits as risks.
- Material risks include user and subscription retention, marketing efficiency and acquisition costs, competition, cybersecurity and privacy, third-party hosting dependencies, foreign-exchange exposure, rapid growth and sustained operating losses. The EU GDPR was due to become applicable on May 25, 2018 and was expected to require compliance investment. A 10% NIS appreciation was estimated to reduce 2017 net loss by approximately $15.7 million.
- Wix and DeviantArt made voluntary sanctions-related disclosures. OFAC sent DeviantArt a cautionary letter on March 6, 2018; the letter was a final enforcement response but did not determine whether violations occurred. Wix’s own OFAC/BIS reviews and the Israeli Ministry of Finance’s consideration of the applicability of Israeli sanctions law remained uncertain in the filing.
- After year-end, the board approved seeking Israeli court authorization to repurchase up to $80 million of shares through December 31, 2018. Court approval and any actual repurchase remained subject to future action.
Important facts for investors to verify
- Confirm the period: this is the FY2017 annual report, not a 2016 Q4 filing.
- Reconcile the strong cash-flow and free-cash-flow measures with continued GAAP net losses, deferred-revenue growth, capital spending and the filing’s description of investment needs.
- Track subscription additions and renewals, collections, marketing spend and customer-acquisition returns; registered users are not necessarily active users.
- Assess the impact of share-based compensation, rising headcount and dilution from outstanding equity awards.
- Review DeviantArt and Flok integration, acquired intangible-asset valuations and goodwill impairment exposure.
- Monitor ASC 606 reporting effects, sanctions matters, GDPR readiness, currency sensitivity and the status of the proposed share-repurchase authorization.