Wix.com Ltd.
Q4 2013 Earnings Call Transcript

Published: 15 Feb 2014

[Operator:]

Greetings and welcome to the Wix.com Limited Fourth Quarter and Full Year Financial Results Conference Call. A copy of management's prepared remarks has been posted to the company's Investor Relations website. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Ms. Maya Hagoel, Director of Investor Relations for Wix.com. Thank you miss, you may now begin. Maya Hagoel Good Morning. I’d like to welcome everyone to today’s call to discuss Wix’s fourth quarter and full year financial results. Joining us from management are Avishai Abrahami, Co-Founder, CEO and Chairman; Nir Zohar, President and COO; and Lior Shemesh, CFO. After management’s prepared remarks, we’ll open the call up to questions. Before we begin, I would like to remind everyone that during the course of this conference call management may make forward looking statements which are subject to various risks and uncertainties that could cause the actual results to differ materially from our current expectations. A detailed discussion of such risks and uncertainties is contained in our final prospectus related to our initial public offering filed with the Securities and Exchange Commission on November 7, 2013. Forward-looking statements made during this conference call speak only as of today’s date and the company undertakes no obligation to update them to reflect subsequent events or circumstances. I would like to remind you that during the course of this conference call we will discuss some non-GAAP measures in talking about the company’s performance. Reconciliations to the most comparable GAAP financial measures are provided in the tables in our press release. Unless noted otherwise, all comparisons are versus the prior year period. This conference call is also being broadcast on the Internet and is available through the Investor Relations section of Wix’s website. Additionally, we have posted to our investor relations site a supplemental data sheet containing additional financial information for comparison purposes to prior periods along with a slide presentation reviewing fourth quarter and full year results. So with these formalities out of the way, I’d now like to turn the call over to our Co-Founder, CEO and Chairman Avishai Abrahami. Avishai Abrahami Thanks Maya, and thanks to everyone for joining us today to discuss our 2013 fourth quarter and full year results. 2013 was a tremendous year for Wix as our investments in leading-edge technology and products continued to generate growth in collections, revenues, subscriptions and users. We also continued our investment in marketing to build a greater awareness of Wix and accelerated our R&D hiring plans to position Wix for sustainable long-term growth. We capped off 2013 with a fourth quarter performance that was our strongest quarter to date. Collections in the fourth quarter grew 82% to $30.6 million from the same period last year, and increased 17% over the third quarter of 2013. Revenues in the fourth quarter grew 88% to $24.9 million from the same period last year, and increased 16% from the third quarter of 2013. The number of premium subscriptions increased 68% from the previous year to 790,000 and rose approximately 12% from the third quarter of 2013. Overall registered users increased 49% to 42 million, up from 28 million at the end of 2012, and grew 9% from the third quarter of 2013 as we continue to build a strong pipeline of future subscriptions. This outstanding growth demonstrates the strength of our technology and products as more and more users choose Wix to build and maintain their online presence. I would also like to highlight two positive changes as we enter 2014. First, following our successful IPO, we were able to accelerate the hiring of engineers and developers faster than we had projected. Hiring high caliber R&D talent is a major challenge faced by all software companies, and we are now a quarter ahead of our plans. Second, because of increased brand exposure following our IPO and improvements to our product, we see significant opportunity to increase our marketing efforts and acquire users and subscriptions at the same efficiency as we have in recent quarters. Both of these changes will allow us to increase our longer-term growth, and Nir and Lior will discuss the impact to our P&L later in the call as we provide guidance for 2014. As this is our first call as a public company, I’d like to start by talking about who we are and the unique value proposition we’re providing our users as we enable them to create a professional online presence. I will also discuss our strategic priorities for 2014. After that, Nir, our President and COO, will talk about our freemium business model and execution of our growth strategies. Lastly Lior, our CFO, will review our financial results and outlook for 2014. Wix is the market leader in web development and management and the platform of choice for over 42 million users in 190 countries around the world. Our user base continues to grow by over 1 million users per month as more and more businesses, organizations, professionals and individuals choose to create, build, manage a fully integrated and dynamic content, online presence. We founded Wix to simplify the web creation process for everyone. Our cloud-based solutions enable anyone, from complete beginners to professional designers, to create and maintain a beautiful and professional online presence at an affordable price. We’ve since evolved our product portfolio beyond website creation into an all-inclusive platform that lets anyone run their entire business online and on mobile, all from the Wix Cloud. Our software is used by individuals, organizations, small businesses and large enterprises, in almost any business vertical and of any size -- from musicians, designers and the local pizza parlor or nail salon, all the way to Fortune 500 companies. We help them all run their business online while maintaining the unique branding and vision they desire. At its core Wix is drag-and-drop software for editing HTML5 and creating websites in a professional and fully customized way. Wix takes care of the back-end such as CMS, CDN and SEO solutions, so our users can focus on taking their own unique vision and build it into the internet without having to hassle with all the complex technology behind it. Because we are a software technology company, developers represent 50% of our total headcount. This is unique in comparison to other players in our market whose employee base is largely made up of sales people. This approach has allowed us innovate faster, develop better products and deploy them faster than anyone in the market. In October, we released our new mobile solution which is also based on HTML 5. Wix Mobile automatically converts all of the website designs and content into a mobile optimized version, designed to suit numerous screen sizes and devices. User can customize and fine tune the mobile site while leaving the full size desktop version of their website unchanged. Since the October launch, Wix users have created over 780,000 mobile sites for a total of over 1.6 million sites created with the Wix platform to date. Based on publicly available information, and as far as we know, Wix is by far the fastest growing mobile site builder in the world. To let our customers fully manage their business work flow on Wix, we have created the Wix App Market. Through the Wix App Market, users can seamlessly integrate apps, such as social feeds, scheduling capabilities, CRM, marketing applications and more into their site with just one click. Our apps are carefully selected and developed to meet our users’ needs, regardless of the type of business. Apps are developed in-house and by our partners, which includes small individual developers all the way up to large companies like Google. Users can currently choose from over 170 free and paid apps today and we have dozens more in the pipeline to further enhance our users’ online presence. We have continued to drive increased adoption of apps by our users. Since the App Market launch in October 2012, we have had nearly 8 million app installations and over 90,000 app purchases. This offering provides significant strategic value as we provide Wix users a constantly growing set of advanced capabilities and functionalities to create and manage their business online in their own unique way. As we enter 2014, we could not be more excited about our momentum and the opportunities ahead of us. Let me quickly discuss the areas where we will plan to focus. First, we will continue to invest dollars in marketing our products and our brand on a global basis to grow our user base and premium subscriptions. This investment will include online marketing as well as new offline channels such as TV and radio. While we have users in nearly every country worldwide today, we see new opportunity to take a larger share of the online population. We will increase marketing to expand our reach into new geographies such as Latin America, parts of Europe and Russia. Second, we are hiring of new developers following the IPO, we plan to further accelerate our core product offering by improving design capabilities, developing new templates and adding new languages. We are also working on a couple of really amazing things for mobile that you will see in the near future. Finally, we plan to continue building the Wix App Market, including the addition of many more new applications, mostly through partners. But even more this year, we will continue to develop the technology behind the App Market to create an even better integration of business processes and workflow management. We’re very proud of our growth over the last 12 months and we will continue to push forward in 2014, growing our user base, expanding our global presence and improving the Wix platform with more cutting-edge technology and advanced features and innovative products. And now I’d like to turn the call over to Nir. Nir?

[Nir Zohar:]

Thanks Avishai, and let me add my welcome to all of you on today’s call. I will briefly walk you through our business model, discuss our market opportunity and then close with discussing how we will execute our strategies to capture this opportunity. Our business is based on a freemium model, allowing users to create and maintain a digital presence for as long as they want for free. Whenever they’re ready, users can upgrade to one of our annual or monthly premium subscription packages and benefit from additional features, such as the use of their own domain, the removal of Wix branding, access to e-commerce solutions and premium support and more. While many users upgrade to premium subscriptions in the weeks and months following their initial registration, others stay with our free product for some time while building their business or brand and later upgrade to a premium subscription as their needs evolve. This means we benefit from a large and growing pipeline of free users that eventually convert to paid subscriptions over time. The tail of this pipeline is very long. In fact, we’re still seeing users that initially registered with us as far back as 2008 convert to premium subscriptions today. Further, even though new cohorts are larger today than in the past, we see that cohort behavior is consistent. The number of users that convert to a paid subscription in each cohort has also been consistent over time. This predictable behavior provides us with a great deal of visibility into our performance, which is a significant benefit of our model. Now I would like to spend a few minutes discussing our market opportunity and how we plan to execute on our growth strategies moving forward. As Avishai noted, we appeal to a broad range of users including individuals, professionals, organizations and businesses. This presents us with a significant market opportunity that is still in its early stages of development. In looking just at the SMB market for example, 75% of SMBs globally don’t have an online presence today. As SMBs increasingly recognize the importance of establishing and maintaining a compelling online presence, both on desktop and on mobile devices, as well as the ability to manage their workflow online, this creates a large opportunity for Wix. No, let me discuss how we will capture this opportunity. First, marketing -- we continue to employ zero sale people, and we benefit from a very strong viral marketing effect. Subscriptions purchased by users that found Wix through free sources of traffic, such as word-of-mouth referrals, remain at just under 60% of total. While free sources are meaningful, we also utilize paid channels to acquire users and drive awareness of Wix. We expect to increase our spend on these marketing channels next year in addition to increasing our spend on branding initiatives globally. Second, we are taking steps to build our user base in new geographies by offering our platform in additional languages. Users around the globe are building websites with Wix, and the platform is fully supported in six languages today. Five additional languages are currently in testing, with our latest addition being Turkish. Our localization strategy of translation and implementing payment capabilities has proven effective for us in Brazil and parts of Europe, and we'll continue this strategy as we enter new geographies over time. Third is R&D. One of the largest challenges for any software company is being able to recruit great developers. Our strong and growing number of engineers, representing 50% of our total headcount, lets us continue to scale and strengthen our technological advantage and further differentiate Wix in this market. Lior will later elaborate on our initiatives here. Our primary day-to-day focus continues to be developing compelling, easy to use and affordable products, so that our users can take their dreams online, move their business into the cloud and at the same time create the look and feel that best fits their needs. In doing this, we expect to drive strong user and subscription growth and increase the awareness of our brand worldwide. With that, I’d like to turn the call over to Lior to review the financials in more detail. Lior? Lior Shemesh Thank you, Nir. Hello everyone and thank you for joining us on our first earnings call as a public company. Today I will cover three topics

[Operator:]

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instruction] Our first question today is coming from Sterling Auty of JP Morgan. Please proceed with your question.

[Sterling Auty:]

Hi, great. Avishai can you hear me okay? Avishai Abrahami Yes, we do.

[Sterling Auty:]

Alright glad to have you back. Avishai Abrahami I was [indiscernible] than we anticipated…

[Sterling Auty:]

Sorry about that. Okay, the premium subscriber is teaming much better than we anticipated in the quarter. Could you give us a sense of how much the premium subscribers were first time registered users versus how much came from the tail in the quarter?

[Avishai Abrahami:]

Yes, we can tell you the [indiscernible] so about 60% of those come from previous quarters totaling about 30% that kind of came from the quarter from Q4 itself.

[Sterling Auty:]

Okay. And can you give us a sense in terms of the multichannel approach that you’ve got driving those premium subscribers wherever you’re seeing the biggest upside relative to your own expectations? I know a number of them are relatively new whether it’s satellite video et cetera so where were you seeing the biggest upside surprise picking up from your perspective in terms of the customer acquisition channel?

[Avishai Abrahami:]

This is Avishai and I think that the, if you look at the fourth quarter [indiscernible] debt [indiscernible] direction and so there is no [indiscernible]. And another soft side is that we do this in a [indiscernible] where relatively high mostly on the promotion that we did in the first and we didn’t know how to get the good results and digit [indiscernible] and but as I said the major process is overall improvement and conversion on all channel.

[Sterling Auty:]

Okay. And then can you give us a sense as to the -- you give us some statistics on the paid at purchases, but any just qualitative commentary in terms of what you’re seeing on the uptake of paid applications and which ones in particular are gaining most traction with the user base?

[Nir Zohar:]

So first of all Sterling this is Nir in term of paid apps so we actually doubled number of paid apps in the fourth quarter compared to the [indiscernible] obviously there is not much it’s nothing huge contribution in terms of the ARPU because it’s still relatively small numbers but I think that it was very encouraging looking at the current quarter and the current year so it was really a good result for us.

[Sterling Auty:]

And last question and I’ll turn it over. As you look where at you’ve kind of graphically in terms of building out your payment gateways internationally where do you think you have got the biggest penetration opportunity over the next -- basically 2014? Is it Latin America, is it parts of Europe, is it Russia, where do you think the biggest new growth opportunities and where you built out your payment gate?

[Nir Zohar:]

So this is Nir again, I think it’s a great opportunity in Latin America or whether it’s Central South America we actually we’ve doubled the collections there in Q4 and we’re definitely going to see a lot of differentials in Russia in further potential in Europe and in Turkey where we just started.

[Sterling Auty:]

Great, thank you guys.

[Nir Zohar:]

Thank you.

[Avishai Abrahami:]

Thank you.

[Operator:]

Thank you. Our next question is coming from Nat Schindler of Bank of America. Please proceed with your question. Nat Schindler - Bank of America Yes. Hi guys. Thank you very much for taking my call and congratulations on a great first quarter. Wanted to go a little bit more deeply into one of the questions I think Sterling touched on. You’ve seen increasing penetration of your free base premium subscribers as a percentage of free that has been ticking up for the last 18 months or so every quarter and this quarter made a substantial move up. Are there any new strategies you’re taking to get people to convert to paying subscribers faster or is this just general trends in the industry?

[Avishai Abrahami:]

I think that this is adjusting and mostly driven from product improvements and that we -- and so we could relatively change anything that is material to that and announcing the flow or in the -- so I think this is main number one key driver for revenues and product improvements and I think that in the last quarter the and last quarter what happened is that the gap between as to compared to has just grown much farther and the reflection you have gotten is immediately improving to conventions and the retention so that’s why I think the key driver. In fact that if you think about we actually penetrated to other places where conversion the other fees for conversion where we’ve been -- should have been lower and we don’t see that. So we have seen product improvement.

[Nat Schindler:]

Great, and also on the product improvements can you give us a little bit more detail on your app store results? I know it’s still early in the roll out. But specifically can you talk a little bit about the attachment rates of amps on your premium subscribers and/or new and OB as well as ARPU that you’re generating from the system?

[Avishai Abrahami:]

So in term of the ARPU we have experienced in the fourth quarter increase in the ARPU, some which came from the app market as I mentioned before because we kind of double the revenue from the app but net it’s still not significant revenue that is coming from the app markets while we do expect it to increase overtime obviously.

[Nat Schindler:]

And any particular apps other than Google Docs and Google Apps which I know have been one of your major products but any new apps that are gaining significant attraction?

[Avishai Abrahami:]

Well, there is a bunch of them -- the one that’s the most surprising and think I would prefer not to mention by name but we can see that the lot of the surfer stuff is doing fantastically well and so a lot of things that mostly aggregate social things and they allow people to propagate information back into the social universe and we could see them as growing really well.

[Nat Schindler:]

Great. Thank you.

[Operator:]

Thank you. Our next question is coming from Mark Mahaney of RBC Capital Markets. Please proceed with your question.

[Mark Mahaney:]

Thank you. You mentioned some statistics on the mobile launch and the number of websites. Can you talk about the overall level of adoption by your users and your premium subscribers off the mobile solution? And then any thoughts on what that does through the financial model, I think our assumption would be that that would increase the attractiveness of the offerings and therefore that would probably lead a -- you know slightly marginally higher conversion of users in the subscriptions but is that case is there anything to backup that assumption? Thank you very much.

[Avishai Abrahami:]

Mark, let me say first of all -- and you are asking about of couple of things. I want to start with the last one. And you asked about [indiscernible] converting improvements because of the mobile and the answer to that is yes absolutely yes because actually we measure that when we uploaded the product by testing, related testing and could see a difference. And this is just another example. You know that every time we pull we get set of results. The other question you asked is about adoption of the mobile. So, you see really large numbers I don’t want to be slow that to-date the rate. Okay. The 30,000 new mobile sites built everyday which is we think about it is a fantastic results and we see that happening mostly in premium users but costly and talented free users so for us it’s really encouragement that when you use your mobile do the right thing and it’s a right approach and intend to consider relatively on that during this year.

[Mark Mahaney:]

Thank you, Avishai.

[Operator:]

Thank you. Our next question is coming from Kerry Rice of Needham & Company. Please proceed with your question.

[Kerry Rice:]

Thank you. One kind of a near-term question and one maybe a larger scope question. But can you talk a little bit about the pricing power you might have, do you have the ability, do you feel the raised price and so do you think the dynamics maybe between annual and monthly subscription because I think most -- you're working hard to push people towards annual packages. And then the second question is boarder on the competitive landscape. Can you talk about maybe a little bit about your differences between maybe some of your private competitors and some of your public competitors and what makes you unique to those? Thank you.

[Nir Zohar:]

Well hi. I’ll take the first question which is regarding the prices, as we have told you through the RPI ratio and according to the RPI ratio. We’re dealing a lot of stress from the way of compelling but its value actually to be annual packages in order to push our users to the environment we handle. We see greater growth there as other clients see more and more users go towards to the annual, in fact the overall user data, annual set in Q4 was 66% basically 64% that we declared in the IPO and that situation being main focus of our company to how we describe the product. In terms of general pricing, I wouldn’t say that the frequently testing various ways around it but as we said before the key focus of the Company is growth. So, in any test that we do even if to get better results and revenue or collections on the set where there is slightly lower conversation rate meaning that there is less we will go back to the original version than staying with the higher growth and find a different way to get the revenue that you’re trying to achieve. So growth will be the key driver.

[Avishai Abrahami:]

Kerry this is Avishai and I am going to try and answer the competitive difference, the key differences that we’re seeing is again most of other products we should have [indiscernible] products and development company and when we look at our competitors and if you look at companies that Endurance [indiscernible] you’ll find that most of them are still companies many just to go to their offices you will find 1,000s of sales people you get to list even fine engineers. And there are no sales to direct we don’t want. That’s the first I think key differentiator and it means that the focus on building better products and we come to our products it’d be much higher functionality, we can really bring your vision designer your site manage your business under which platform. And then [indiscernible] and economics change a little bit of that the you can’t really control business line and you don’t have the offsets you can’t scale up your business there is no data bases behind these of course HTML5 is another key differentiator. And a fully integrated mobile solution where you can really edit the control and there have to be a side is a major advantage if we come in and deploy this last quarter. And so I think those will be the key differentiator but really the exits of that is that we’re a software Company we’re not a sales company and we’re focusing on continue to increasing the quality of our products where most of our competitors are mostly focused on increasing the number of sales people.

[Kerry Rice:]

Okay, thank you very much.

[Operator:]

[Operator Instructions] Our next question is coming from Jason Helfstein of Oppenheimer. Please proceed with your question.

[Jason Helfstein:]

Thanks. I have two questions, the first around just the app market I know you said the number of apps doubled but is there a way to think about what percent of either registered or premium subscribers are using apps and kind of how that’s changed so we can understand just the acceleration around adoption of that even though we understand it will take time to look meaningful for revenue? And then secondly can you talk a bit more about cost of customer acquisitions why you don’t give out a specific metric. Can you talk about how the quarter came in versus your expectation? And then as you’re thinking about the 2014 guidance, are you planning to spend kind of the same per addition or less? Thank you.

[Avishai Abrahami:]

Hi. So Jason so let me see if -- so you’re asking about the app market and as the revenue picked up is the statistics right which is we have about 8 million installations for publications and if you find that the majority of our premiums that we’ll installed and in some kind of an app. And a lot of them are still more than one [indiscernible] installed paid up something so free up but from our perspective is the company the major, the number one topic that we have on the apps market is largest revenue that is beyond that assessment registration and that’s why we focus so much also in great free solutions so that’s why we are making them our Facebook app or things that now you can just make a better product given that you don’t necessarily charge for them. And you can see that also a big percentage of the free charge new installed app and use them most of the free app and now they paid up and this number is over growing so of the [indiscernible] first question I wanted to turn to Nir about answering the second part of your question which is cost of acquisition.

[Nir Zohar:]

So internal cost of acquisition we don’t really see a major difference from previous quarters but the thing that is important to mention that internal COI we will refer to COI we will although we are increased the marketing in Q4 we are as efficient as we were before and I think that is driven probably because it’s also enable I think the same budgets to increase, the traffic to increase number of premiums and basically this is drove the most of the growth this quarter.

[Jason Helfstein:]

Okay, thank you.

[Operator:]

Thank you. This does conclude today’s question-and-answer session. We’d like to thank everyone for their participation on today’s teleconference. You may disconnect your lines at this time and have a wonderful day.