As Buy Calls Mount, Wix Poised to Leave Dog Days Behind

  • SunTrust becomes 10th brokerage to install buy rating on stock
  • Wix president sees new coding product a ‘game-changer’ Ltd., the Israeli platform that simplifies website creation, may be poised to leave its dog days behind as analyst buy ratings mount for the stock that’s showing signs of emerging from a mid-summer slump.

SunTrust Robinson Humphrey on Wednesday became the 10th brokerage to install a buy rating on the shares, initiating coverage with a $73 price target. Wix has gained more than 5 percent since Aug. 10 after tumbling 26 percent in the two weeks prior to that. The 15-day moving average for volume is close to a May high, with the spread to the average target price near the widest on record.

Tel Aviv-based, which disappointed investors on July 27 with guidance that trailed estimates in a second-quarter earnings report, failed to “beat and raise,” instead reporting results in line with expectations and maintaining its forecasts, said Dafna Yagur, head of research in Israel for Makor Capital Ltd. in Tel Aviv who has kept her hold rating and $78 price target.

Of 16 analysts covering Wix, 6 recommend holding the shares while none say sell.

The result of three Israelis frustrated with the difficulty of building an internet presence for their start-up, Wix makes creating websites and managing a small business online easy. It has grown to about 1,800 employees from those initial three in 2006 with a so-called “freemium” model by which customers pay to upgrade an otherwise free product. Wix has 110 million registered users, of which 2.9 million are paying subscribers.

Or Keren, chief executive officer of Yelin Lapidot Mutual Funds that sold about two-thirds of its holdings earlier this year as the stock rallied, held on to a tranche “because we still believe in the company and its strategy,” he said in an Aug. 14 interview. The “stickiness” of Wix’s model retains its client base and works in its favor, Keren said.

Setting Store

Its President Nir Zohar is setting store by the company’s latest product, Wix Code, test-launched in July. Wix Code allows developers to modify code on a website with just a few clicks, using an algorithm that does away with tedious back store and archive changes, saving the designers weeks in the creation of a professional web presence.

Zohar says the product is the “biggest game-changing expansion of Wix’s core offering since its founding.” It will open new markets and be “very, very big” for the company’s future, he said in an interview. The product ”not only expands our ecosystem, but opens the gate into a whole new play,” he added. Wix hasn’t yet decided on the business model it will pursue for Wix Code, he said.

Wix Code is a “a bold technology move,” Sterling Auty of JP Morgan Chase & Co. said in a July report, noting that its “financial impact will take time to flesh out.” It will likely take “several quarters to determine potential success,” he wrote at the time.

Wix reported 51 percent growth in second-quarter revenue to $103.5 million. Its net loss widened to $14.3 million from $11.4 million as expenses grew.

"In the short term new products may increase marketing expenses and afterwards contribute to overall profitability," Chief Financial Officer Lior Shemesh said in a phone interview. At the same time, “new products increase satisfaction, stickiness and conversion from free to paying customers,” he said.

Investor Keren says Wix has had a “rocky road” in the past before the market understood the company’s strategy. Wix “is here to stay,” he added. ”It will be a big internet company.”

— With assistance by Filipe Pacheco

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