Wix.com (WIX 112.99, -12.76, -10.15%) is trading sharply lower today despite reporting upside Q4 results. The problem is with the guidance. Wix.com is an Israel-based company that offers a web development software platform enabling small business owners to bring their businesses online. Its core product is the Wix Editor, a drag-and-drop website editing platform.
Turning to the Q4 results, non-GAAP EPS jumped to $0.42 from just $0.16 last year, which was much better than market expectations. Revenue rose 38.4% yr/yr to $164.2 mln, above prior guidance of $161-162 mln. However, the revenue guidance was disappointing: Q1 revenue at $172-173 mln and 2019 revenue at $755-761 mln. Both were below market expectations.
So, what is going on? The thing to understand with WIX is that it uses a freemium model. It offers some free products to registered users with the hope they will upgrade to paid subscribers at some point. It sounds like WIX is trying to evolve its business a bit in Q1.
On the call, WIX explained that its brand is much stronger than what it used to be and WIX has been adding lots of new products. WIX has also been experimenting with some base price increases over the last few weeks.
A big thing WIX did was to remove its cheapest package which was a connect domain. WIX realized that it made less long term and less sense for WIX to focus continuously on serving the full range of customers. The idea is that people that used to buy the Connect Domain now have a choice to either go with an entry package.
In sum, it seems that WIX is in a bit of a state flux in terms of its pricing decisions. The overall goal seems to be to reduce its free offerings and raise prices where they can. Hopefully, the lackluster guidance is just management being overly cautious, but nobody really knows how customers will react to the price changes. The stock reaction today indicates that investors are a bit nervous and are taking a cautious outlook in the near term.