Wix.Com Ltd. annual report, Q4 FY2019

Business context and reporting period

Wix.com Ltd. filed this annual report on Form 20-F for the fiscal year ended December 31, 2020, with 2019 as the principal comparison. Although the request identifies 2019 Q4, this filing reports full-year 2020 results, not a standalone 2019 Q4 period. Wix operates a global cloud-based website development platform using a freemium SaaS model.

Financial and operating highlights

Revenue rose 29.9%; Creative Subscriptions grew 21.6% and Business Solutions 76.1%. Gross margin declined as costs of revenue grew faster than sales, particularly Business Solutions costs. Operating expenses increased to $870.4 million from $644.4 million, including selling and marketing of $438.2 million and research and development of $320.3 million. Advertising expense was $282.8 million, up from $187.3 million.

Wix ended 2020 with approximately 196.7 million registered users and 5.494 million premium subscriptions, up 19% and 22%, respectively. Approximately 85% of active premium subscriptions were annual or multi-year. These user and subscription counts are company-defined metrics; one user may have multiple registrations or subscriptions.

Liquidity, cash flow and debt

At year-end, cash and cash equivalents were $168.9 million, short-term deposits $577.1 million, and short- and long-term marketable securities $826.8 million. Wix reported total liquid assets of $1.572 billion and working capital of $484.2 million. Management stated that cash and expected operating cash flows should fund operations for at least 12 months.

Operating cash flow was nearly unchanged year over year; reported free cash flow was $129.2 million. Investing activities used $800.2 million, principally reflecting purchases of deposits and marketable securities, while financing activities provided $552.9 million, mainly from the 2025 convertible notes issuance. 2021 capital expenditure guidance was approximately $55–57 million, including $30–31 million for the new headquarters.

Wix had $1.018 billion aggregate principal amount of 0% convertible notes: $442.75 million due 2023 and $575 million due 2025. Their combined carrying value, net of discounts and issuance costs, was $834.4 million. Capped-call transactions were intended to reduce potential dilution or certain conversion cash payments; they do not eliminate all related risks.

Changes, outlook and material risks

• Profitability: Net loss widened to $165.2 million from $86.4 million, and operating loss increased substantially. Net financial income of $47.1 million included a $66.7 million valuation gain on a privately held investment; this non-operating item helped offset the operating loss.
• Growth investment: Marketing, R&D and customer-care costs rose. Headcount, including contractors, increased approximately 51% to 4,628. Share-based compensation expense was $147.3 million, versus $109.3 million.
• Management outlook: Wix expected to continue investing in product development, marketing, customer care, infrastructure and headcount in 2021. It increased user-acquisition investment during the pandemic and expected it to decline as the pandemic subsided, while remaining above pre-pandemic levels. No specific revenue or earnings guidance is provided in the filing.
• COVID-19: Management reported no material business impact to date and little disruption from remote work, but emphasized uncertainty about users’ businesses and possible shifts away from online commerce as restrictions ease.
• Key risks: User conversion and retention, marketing returns, competition, cybersecurity and data privacy regulation, payment processing and fraud, foreign-exchange exposure, dependence on third-party infrastructure, international expansion, and the ability to achieve profitability. A 10% NIS appreciation was estimated to increase 2020 net loss by about $30 million; a concurrent 10% devaluation of specified other currencies was estimated to increase it by about $28 million.
• Contingencies and unusual commitments: No legal matter required an accrual at year-end. Wix disclosed voluntary discussions with Israel’s Ministry of Finance about the possible application of trade restrictions to its online services; the outcome was uncertain. The new Tel Aviv headquarters entails a substantial additional lease commitment, with approximately $100 million of further leasehold improvements expected through 2023.

The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management also concluded disclosure controls and internal control over financial reporting were effective at December 31, 2020.

Important facts for investors to verify

1. Confirm the intended period: this is a FY2020 annual filing, not a 2019 Q4 filing.
2. Assess whether subscription and Business Solutions growth can continue while gross margin declines and operating losses widen.
3. Examine how much reported financial income and net loss depended on the $66.7 million private-investment valuation gain.
4. Review the terms, conversion conditions, dilution exposure and cash obligations of both convertible-note issues, alongside the capped calls.
5. Verify liquidity and cash-flow quality, including the role of deferred revenue and marketable-security purchases, and the funding implications of headquarters commitments and planned capital spending.
6. Monitor post-pandemic customer demand, marketing returns, currency sensitivity, data-security and regulatory exposure, and the outcome of the disclosed Israeli regulatory discussions.