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Wix.com (NASDAQ:WIX) stock rose about 3% premarket on Wednesday after Barclays Capital upgraded the shares to Overweight from Equal Weight.
The firm also raised the price target on the stock to $130 from $105.
The analysts now view Wix as the favored Overweight name within their web tools coverage as they think the company has the most attractive risk/reward from here, and they highlight the relative defensiveness of web tools versus other areas of their small and mid, or SIMD, caps coverage.
Consensus does not give credit for 25% margin in 2025 (Barclays' about 8% ahead on free cash flow, or FCF). Revenue growth has rebounded to low teens, gross margin across both segments has turned a corner, and a more aggressive focus on cost efficiency has brought FCF margin into mid-teens territory, with further leverage anticipated from here, the analysts noted.
The analysts think Wix can reach its margin goals with mid-single digit research and development, or R&D, and high-single digit, sales and marketing, or S&M, growth, with further upside if Self-Creator revenue recover further from current run-rate.
The analysts also think that consensus does not appreciate that the margin goals could be reached even with reasonable opex growth from here. The rhythm of product innovation/new launches seems to be accelerating, and the analysts find progress on the Partner/DIFM (do-it-for-me) side a few years in encouraging.
The analysts noted that this focus on product could prove to be a differentiator to steer share gains and upside to their above Street expectations.
Investor sentiment remains mixed after having bounced off the 2022 lows. Recurring investor pushback is on management credibility; a steady cadence of beating guidance and raising throughout 2023 should alleviate those worries and bodes well for meeting/beating long-term goals, according to the analysts.
At just 2.7x revenue and 11.3x FCF on FY'25, valuation is attractive, and a planned $500M buyback helps a favorable risk/reward from here, the analysts noted.
The analysts' theory reflects — partners are driver of outsized growth: At about 30% of revenue and 30%+ growth, they see Partners as the engine for Wix for the next few years, helped by the new Studio offering for web pros/agencies.
In addition, strong product may prove to be a differentiator: Web tools had been perceived as commoditized, but this could be changing as AI tools serving differing needs may prove to be differentiators, and value-add which could in turn warrant price increases in 2024.
It also reflects, the analysts' concerns on reaching 25% margin in 2025 have lessened due to strong progression in 2023. They think Wix (WIX) could see mid-20s margin in the second-half of 24, and further upside in 2025 if they maintain cost discipline. This is not reflected in consensus.
The analysts added that shares have not moved much this year despite a steady cadence of beat/raise/guide-ahead and better FCF margin. Valuation is very attractive here, as per the analysts.
Wix.com (WIX) has a Strong Buy rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' (2 authors in this case) average rating is Buy and so is the average Wall Street analysts' rating.