A good friend of mine, James Murphy, recently published a blog post titled “The Wix IPO – The Case From a Growth Perspective.” James has been an avid user of Wix for the past few years and turned me on to the platform at the beginning of this year. I think the Wix website builder is great software, but have my qualms with the company as an investment. This is my response to his post.
While Wix’s global growth story certainly presents an interesting case for taking a long position, these are my three major concerns:
- Wix isn’t profitable. According to Seeking Alpha, “The company lost $15 million last year, and is on track to lose over $20 million in 2013.” Your next thought might be, “So what? Neither is Amazon.” I think there’s a profound difference because I take serious issue with companies that haven’t demonstrated a path to profitability prior to an IPO. Wix has two main expenses that make the path to profitability treacherous: marketing, which I’ll cover here, and product development, which I’ll cover in the second section.
Sustaining Wix’s growth rate in a highly competitive sector is going to require significant marketing spend. Now, let me be clear. I understand that waiting for profitability seems like an antiquated concern. The WSJ reported that 19 out of 28 tech companies that IPO’d in the last year weren’t profitable. Well, it turns out that profitability has substantially impacted share price appreciation of tech companies over the past two decades. The Journal went on to say, “Unprofitable US-listed tech companies that went public from 1990 to 2011 returned an average of 21.5% in the first three years, while profitable companies returned an average of 52.5% in that period.” (Note: I think that the median return for this list of companies might be very informative.)
- Wix’s product, while quite impressive, doesn’t have many differentiating factors, even from other out-of-the-box solutions. SquareSpace and several other competitors offer similar services on quality platforms. To stay ahead or even keep up with the evolution of competitors’ offerings, Wix will need to spend heavily on product development. But Wix’s largest threat doesn’t come from other proprietary solutions, it comes from open-source platforms such as WordPress and Magento. These platforms are continually evolving, thanks in a large part to contributions from users. Open-source platforms essentially crowd source development at no cost. There’s a reason that 18.9% of the entire Web runs on WordPress.
In the developing world, much of the growth in Internet connectivity is being driven by the rapidly growing mobile segment. While Wix has a good mobile website builder tool, users can’t actually build a site from a mobile or tablet device. I question whether full webpages are going to continue to be the norm in an era dominated by mobile usage.
About the author:
Phil McKeating is the founder and CEO of Twined.co, an eCommerce platform that is working to restore balance in vendor-purchaser relationships. You can follow him on Twitter @pmckeats.