Wix.com

Wix shares rallied 18% on Aug. 4 after a second-quarter top- and bottom-line beat versus FactSet consensus, and guidance for Base44 gross margin reaching 60% in the second half versus 0% at the start of 2026.

Why it matters: Wix shares were down 45% year-to-date heading into the quarter amid fears of artificial intelligence disruption, an intraquarter guidance cut due to a soft partners business, and concerns about inference costs at Base44. Results have relieved some investor concerns. Wix launched Base 1 during the quarter, its proprietary LLM for Base44, which has dramatically reduced inference costs and led to the boost in gross margin guidance. Group gross margin is expected to improve by 2 percentage points in the second half versus the first. Incremental Base44 gross profits will be reinvested in sales and marketing for the business. However, second-half group operating margin is still expected to improve due to the 20% workforce reduction and lower inference and sales and marketing costs in the core Wix business.

The bottom line: We are maintaining our $82 fair value estimate for no-moat Wix. Shares look fairly valued given very high uncertainty. We forecast a fairly sharp increase in margins as Base44 matures and the core Wix business continues to grow. The market is likely more conservative given uncertainty around Base44 and AI disruption.

Bears say: The Partner Program's business is now a question mark, as Base44 may be cannibalizing it as customers shift to using more vibe coding tools. Guidance cuts and workforce reductions in June were driven by surprisingly weak Partner Program business.

Coming up: 2026 guidance is for low-teens bookings growth (previously midteens), low- to midteens revenue growth (previously midteens), and a free cash flow margin (excluding acquisition costs) in the high teens. Third-quarter revenue growth is expected to be low-double digits.

Our fair value estimate is $82 per share, implying a 2026 P/E ratio of 13 times. We expect low-teens revenue growth in our explicit forecast and non-GAAP operating margin to remain below 20% for the next few years before rising steadily with the benefits of operating leverage.

Our revenue forecast comprises low-single-digit premium subscriptions growth, in line with recent trends, and high-single-digit average revenue per subscriber growth with increasing usage of commerce products, particularly Wix Payments. We expect high-teens revenue growth in the partners segment for the next few years as Wix Studio ramps up and captures more commerce-focused customers. We expect rapid growth from Base44, but from a small base.

We expect non-GAAP operating margin to be down in the near term as Wix invests heavily in Base44. In the midterm, we expect operating leverage to boost margins as the partners segment and payments reach scale and front-loaded investment in Base44 starts to normalize. We expect non-GAAP operating margin to reach about 25% at the end of our explicit forecast.

We don't think Wix has a moat. The partners segment mainly represents agencies that build websites on behalf of small and midsize businesses. This segment has some switching costs, but we're not confident they are strong enough in the world of AI to generate excess returns on a 10 year horizon.

We also didn't think switching costs were strong enough in Wix's self creators segment to earn a moat even before AI. This segment serves the more commoditized DIY website building market, which is the primary focus of major competitors Squarespace and GoDaddy. Wix's self creators segment is currently much larger, but we expect the gap to close in the medium term, given higher expected growth in the partners segment. By the end of our explicit forecast, we expect revenue to be split closer to 50/50 between the two segments.

We forecast the company's return on invested capital, including goodwill, to rise above its weighted average cost of capital in the next few years as scale is achieved in the partners segment and the payments business. However, we are less confident about the long term given potential AI disruption. The payments business is part of both segments but is used more often in the partners segment.

Wix competes in the CMS website-building market, specifically the fast-growing SaaS CMS segment. According to BuiltWith figures for the CMS website building market from May 2024, Wix is the number two player with a 10% share, well behind leader WordPress at 43%, which reflects WordPress' dominance in the non SaaS CMS market. However, Wix is by far the leader in the SaaS CMS market, roughly double the size of its next-largest competitor, Squarespace. Wix asserts it accounted for 30% of new SaaS CMS websites created in 2022.

Over half of websites built on the open-source CMS alternative WordPress are done by third-party specialists such as developers and agencies. Wix is now targeting this market with Wix Studio, the flagship product of its partners segment, and is gaining share quickly. We see this as a key differentiator from Squarespace, which competes almost exclusively at the commoditized DIY end of the CMS market. Websites built on WordPress have historically offered the highest level of customization but required relatively high technical skill to achieve pixel-perfect results across desktops, tablets, and mobile devices. There has been a trade-off between WordPress customization and the ease of use of Wix Editor, the DIY platform. Wix Studio bridges that divide.

Wix Studio's clients sit between these two poles: they demand more complexity and functionality than DIY Wix Editor users, while being more budget-constrained than larger clients that want a fully customized WordPress site. Typically, a Wix Studio client has some ecommerce needs but isn't large enough to justify Shopify's pricier offerings. Shopify dominates larger ecommerce users, mostly those selling physical goods, while Wix's fastest-growing niches are bookings and events. Wix sees some users graduate to Shopify once they need services like fulfillment, and it asserts that is essentially the only reason a client would choose Shopify over it. In fact, some users migrate to Wix from Shopify, since Wix sites are easier to build and maintain and cost less. In service niches, Wix competes more closely with Mindbody for wellness scheduling and with Toast for restaurant bookings.

We think websites built by partners are stickier than DIY websites, since they are more complex, take longer to build, and integrate more of Wix's business applications, such as payments, while still incurring only a modest annual cost once running. Wix Studio's most popular plan costs less than $400 a year, a negligible amount even for the larger SMBs that typically use it. Websites generally can't be easily ported to another CMS, so recouping the initial build cost plus the rebuild time is a meaningful deterrent to switching. In the Wix Studio market, we think websites typically take three to four weeks to deliver and cost around $2,000 to $5,000. An online presence is now considered mission-critical for many SMBs, yet something they don't want to spend much time managing, so once a site runs smoothly, there's little incentive to switch. Wix asserts its Wix Studio infrastructure leads on performance, reliability at 99.98% uptime, security, and SEO tools.

In 2022, Wix's partners segment had net revenue retention of 116%, compared with 104% companywide, implying retention of roughly 100% in the self creators segment. We see 116% as a strong signal of switching costs for a business serving the SMB market, where retention tends to run lower given higher business failure rates. For comparison, narrow moat Sage, which serves SMB accounting software, has historically reported net revenue retention of 99% to 102%.

We think websites using more of Wix's offerings, such as SEO, email marketing, and enterprise tools, face higher switching costs, since rebuilding that functionality would take far longer to custom code on WordPress and porting to another template-based SaaS CMS like Squarespace usually isn't feasible. The added Wix subscription cost is generally passed on to the end client, so there's no disincentive for partners to build on Wix Studio, and Wix even offers a revenue share deal to encourage it. For agencies, a client call about a downed website is a nightmare scenario; working with Wix removes that risk because performance, reliability, and security are all bundled into the subscription. Wix Studio also provides partners with workflow management tools to run their businesses. As partners manage more websites within Wix Studio, they grow stickier still, since migrating an entire client portfolio becomes an increasingly daunting task.

Wix is the leader in the SaaS CMS website building market, accounting for a third of new websites created in this market.

The company is nearing the inflection point where scale is achieved across its business and margins improve materially.

The partners business is stickier, with higher average revenue per subscriber, given the tendency for customers to use multiple Wix products.

Customer retention in Wix’s target SMB market is challenging, given high business failure rates.

Switching costs tend to be weaker in the self-creators segment, which generates the bulk of Wix’s revenue.

Operating leverage may be less than expected due to ongoing advertising investment to maintain the brand.