Wix.Com Ltd (WIX) 2015 Q3 法說會逐字稿

Good morning. My name is Sean. And I will be your conference operator today. At this time, I would like to welcome everyone to the Wix.com 2015 third quarter financial results conference call. (Operator Instructions). I'll now turn the conference over to Mr. Joe Pollaro, Head of US Operations and Investor Relations. Please go ahead, sir.

Good morning. Welcome to Wix's third quarter 2015 earnings call. I'll quickly read the disclaimer. And then we'll get started.

During this call, we may make some forward-looking statements about the future performance of the Company, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our most recent Form 20-F that could cause our actual results to differ materially from those in these forward-looking statements. We do not undertake any obligation to update these forward-looking statements.

In addition, we're going to comment on non-GAAP financial results, and you can find the reconciliations for these in our press release and the presentation slides that we've posted on our Website.

As I said, earlier this morning, we did post some supporting materials on our IR site. And now, we're going to have the team go through a few very brief comments on the quarter, and then we'll move right into Q&A.

So, with that, I'll hand it over to our Co-Founder and CEO Avishai Abrahami.

Thanks, Joe, and thanks for everyone for joining our call today. I want to say a few words about our performance this quarter and highlight some products we have just launched, and then I'll hand it over to Nir.

We had an outstanding quarter. We grew our user base by 4.8 million, and we've added 140,000 premium subscriptions, our largest quarterly increase ever. We had very strong growth in collections and revenues. Excluding the impact of currency, we grew collections 47% year over year, beating our guidance this quarter. We also exceeded our revenue guidance, growing 50% over last year.

We expanded our gross margin to 84%. On top of all of this, we grew our profitability to nearly $5 million, also exceeding our prior outlook. So, I'm very happy with our financial performance this quarter, which shows that our business continues to be very strong.

Wix is a technology company and a software company. We have no salespeople at Wix, and more than half of our 1,000 employees are in R&D. We take a platform approach to address the needs of SMBs getting online globally. We have demonstrated this approach with the launch of products such as our App Market, Wix ShoutOut, vertical applications like Wix Hotels, Wix Stores, and Wix Music, and our CRM system.

All of these products create a powerful ecosystem for any SMB owner to completely move their business online. We will continue to innovate and lead the market in this way, and the new Wix Editor and the launch of the new Wix Music are great examples of this.

As promised, we launched a complete redesign of our editing environment. This release is significant as it represents the biggest change we have made to our core product in the last three years, and we really believe it sets a new standard for code-free platforms.

We have made the UI much more visual and much easier for our users. The new Editor comes with new features like parallax scrolling, video backgrounds, and strip layouts. These are sophisticated features in Website development but are super easy to use on Wix.

We began testing the new Editor to groups of new users this summer, and it has been live to all users globally for about four weeks. The early results are outstanding. The initial results show an increase in conversion of new users to paid subscriptions from 15% to 20%. This data proves that the investment we have made in R&D is paying off.

We also recently announced the launch of a new version of Wix Music, which is a very exciting vertical for us. What we have done with Wix Music is bring all of the functions a musician needs into a single, online platform. So, now, the independent musician, who does not have a label deal, can build a great Website, sell music commission-free, sell band merchandise, distribute music from outlets like iTunes and Spotify, and promote shows and sell tickets, all from Wix.

With Wix Music, we are lowering the technical barriers for musicians coming online, and we are changing the economics for them. This product perfectly illustrates our vision of creating technology enabling a business to move online.

What is also exciting is that we are launching Wix Music with an innovative marketing campaign in partnership with YouTube. It is called Opening Act, and what we are doing is running Wix musicians' videos ahead of the music videos of the biggest stars in the world. This will get our musician users over 100 million views during this campaign, exposure they would never get otherwise. This has never been done before on YouTube. And it has been great to partner with them on this.

I'm really excited about both of these products, and we have more announcements before the end of the year.

I'll now turn it over to Nir.

Thank you, Avishai. Before we begin, I just want to share my excitement about the new Editor. I personally believe this product is better than anything out there. It really goes up to 11.

So, onto the quarter, we had record growth this quarter in premium subscriptions, adding 140,000 on a net basis. This is 32% more than we added last year in Q3, which is a proof of our ability to convert our user base into paid subscriptions at an increasing rate.

We have updated our cohort chart on slide 8 in the presentation we posted. To reiterate something we've mentioned in the past, one of the great benefits of our model and the behavior of these cohorts is financial visibility.

When we start a new year, over 70% of our collections come from our existing user cohorts, and when we start a new quarter, it is more than 80% of collections. This visibility enables us to efficiently manage our marketing investment, and it generates significant leverage on this investment.

We have also recently focused on reducing passive churn, which is something I want to highlight. Passive churn comes out of processing errors, like expired credit cards or outdated payment information, like users who forgot to update their account number after a card change.

Our efforts here have paid off as we have successfully reduced our passive churn rate by nearly 10%. I view this as a huge success and just one example out of many of how we use operational excellence to maximize the value of our cohorts.

Also during the quarter, we continued to successfully execute our new promotion program that we started in Q2. Offering promotional pricing is nothing new for us, but as we discussed on our call last quarter, we have made a change of how we offer promotional pricing to our users across the globe.

Importantly, we have been able to add users with lower introductory pricing while strengthening the lifetime value of our cohorts with more users and greater collections in total.

Additionally, the users that convert with a promotion behave very similar to non-promotional users with no meaningful impact on attrition. We are very pleased with the results of this program, which contributed to our subscription growth this quarter. Look for us to continue with our pricing programs as we enhance the lifetime value of our user cohorts.

Finally, a few data points on the quarter: 42% of our new subscriptions this quarter came from new users in Q3 with the balance coming from older cohorts. Our conversion on the current quarter's users improved in Q3, illustrating our ability to increase this number with a combination of product and marketing.

77% of the new subscriptions this quarter were annual, which is essentially the same number as Q2. Overall, 81% of our 1.6 million premium subscriptions are annual today. This is a dramatic shift from six quarters ago, when 66% of our premium subscriptions were annual.

While this shift has impacted ARPU, the net benefits are very positive, resulting in higher collections, lower attrition, and improved cash flows that can be deployed more quickly towards marketing to attract new users and R&D for new product development to drive conversion.

With that, I will hand it over to Lior.

Thanks, Nir, and good morning, everyone. Our collections were up 47% year over year on a constant currency basis to $65.7 million, which exceeded our guidance, and 38% year over year to $61.6 million on a reported basis.

Through Q3 of this year, we have reported collections of $175 million, while in constant dollars on a year-over-year basis, our collections would have been $12 million more or $187 million. This is 53% higher than the prior year, which is tremendous growth.

We generate 50% of our revenue outside the US, which we view as a key strength and differentiator among our competitors. But, obviously, currency has been a headwind to our financials this year.

When we provided our Q3 guidance, we stated that currency would impact our collections by about $3 million on a year-over-year basis based on FX rates at that time. However, the Brazilian real and the Russian ruble have seen significant declines against the dollar of about 30% and 20%, respectively, since Q2.

While currency has impacted our results, our business in both of these locations remains very, very strong. To illustrate that, you can see in slide number 11 in our presentation that our collections in Brazilian real has doubled this year. But, this growth is obscured by the decline in the Brazilian real versus the dollar.

So, due to the FX rate declines and our rapid growth outside the US, the FX impact on Q3 collections was over $4 million on a year-over-year basis, or $1 million greater than if the rates had remained the same throughout the quarter. Excluding this impact, we actually exceeded the outlook for the quarter on a constant currency basis.

Revenue on the quarter was $53.6 million on a reported basis, which also exceeded our guidance, and $56.3 million on a constant currency basis. Our average revenue per subscription is also up year over year, excluding the impact of currency and the mix shift to more annual plans that has taken place over the last year. The increase in ARPU has being driven by increased sales of apps in our App Market, vertical apps, and other revenue sources, such as domains and images.

We continue to generate cash as we expanded our adjusted EBITDA in the quarter to $4.7 million, up 34% over last quarter and well ahead of our prior expectations of $3 million to $4 million.

Free cash flow was $4.4 million (sic - see Press Release - $5.4 million), and our cash balance is now over $100 million, which is more cash than we had after our IPO.

Our growth in profitability can be largely attributed to the increased leverage we are realizing in our model. Both last quarter and this quarter, for every dollar of increased collections, we are generating incremental margin, and we expect that to continue.

Most notably, our marketing expense as a percentage of collections fell from 48% in Q2 to 46% in Q3 as our older cohorts continue to generate collections, as Nir highlighted earlier.

I'll now move onto our outlook for Q4 and our updated outlook for the full year. For Q4, we expect the following: collections in the range of $66 million and $67 million. If we assume constant exchange rates from Q4 2014, our collections outlook would be about $3 million higher on a year-over-year basis. Excluding this currency impact, our collections guidance would be $69 million to $70 million.

We expect revenue in the range of $55 million to $56 million. And we expect continued growth in adjusted EBITDA in the range of $5 million to $6 million.

We are updating our full-year outlook due to currency. The incremental impacts from currencies we saw in Q3 will carry into Q4. As a result, we are lowering the top end of our reported collections outlook by $3 million. Our revised collections outlook is $241 million to $242 million on a reported basis.

However, on a constant currency basis, we are actually raising midpoint of our range. Our updated range on a constant currency basis is $256 million to $257 million, or $15 million higher using rates from 2014. This range represents growth of approximately 50% over last year.

In summary, we are raising the midpoint of our collections guidance on a constant currency basis by $1.5 million. For revenue, our revised range is $202 million to $203 million, reflecting an increase to the bottom and -- to the bottom range and our previous range of $1 million.

We are also raising our outlook for the full-year profitability as we continue to see increasing leverage in the model through the remainder of the year. We now expect adjusted EBITDA of $12 million to $13 million, an increase from our prior range of $10 million to $12 million.

So, now, let's move onto your questions.

(Operator Instructions). Sterling Auty, JPMorgan.

Yes, thanks. Hi, guys. Wanted to start with the success you're seeing in some of the promotional pricing. Want to make sure I better understand how it impacts the revenue for this year and how you're coming up to the better long-term value calculation under the promotional programs.

Well, I think that -- Sterling, this is Avishai. And if you're asking about the promotions, and I think that the major significance for that is it's the launch to move more people into the elite package in the short term.

On the long term, of course, it gives them some additional discounts. And -- but, people tend to buy more expensive packages. We do expect some leverage from that next year because the discount is a one discount in most cases.

So, I think that, in the short term, it decrease the amount of revenues because you get a discount of 20%. In the long term, we're probably going to see that it increases that because the discount next year is going to be not existent. The 20% will be, but the discount and the promotion is not there. So, it decrease revenues by 20%, increase collection. And -- .

-- Yes, and, Sterling, this is Lior. In addition to that and to what Avishai just mentioned, I think it's also important to notice, and I want to reference you to the note that we had -- that about ARPU, to the table that we provided.

Actually, ARPU, if you look at it this quarter, has been increased by 10% year over year. And this is despite the fact that we do those kinds of promotions. So, it means that, even if on the short term we see an impact on the ARPU, for the long term, it's actually increasing the LTV. And this is something that it's important to remember. But, again, despite that fact, ARPU actually has been increasing by 10% year over year.

You're saying that each individual user because I can understand that you're -- looking at the premium subscriptions you're getting, the 140,000 is a very nice result, better than what I would've expected. So, obviously, you're getting this volume of premium subscriptions. But, I just want to -- I'm not sure I understand how, if you get a discount in year one, how that changes -- how that suddenly gives you a higher LTV per customer.

Hey, Sterling, this is Nir. So, basically, the way we got around to doing this is, based on the very thorough research into our data around generally campaigns and promotions. And we see -- we basically found out that, if we do some of those promotions very early on in the user lifecycle, we end up getting a higher amount of premium subscriptions within the cohort. So, generally, we just get more subs in the quarter because it's higher conversion at the beginning.

And the second part to it is the people, as Avishai mentioned, they start at a discount, but they tend to go towards the higher-priced packages. They will renew on the second year at a higher price point, which will then add more value into the cohort from year two and onwards. Does that make sense?

Yes, that makes perfect sense. And then maybe last, one more of a housekeeping, you talked about the improvement in the passive churn. Is there any sense what portion of your churn is passive?

About -- I would say about half of it.

All right. Great. Thank you, guys.

Deepak Mathivanan, Deutsche Bank.

Thanks. Two questions from me. First, one of the biggest changes with the way the new site Editor is -- the way you guys package certain vertical apps into the site Editor for some verticals, I know it's still early, but can you discuss about the adoption rates and what you're seeing from people choosing these higher-ARPU products? And do you expect any ARPU uplift from that? And then I have a follow up on marketing.

Well, it's still pretty early to actually give a result that I feel confident standing behind them. But, as Lior actually mentioned, you'll see that this quarter has a 10% ARPU increase compared to previous years, right, to the previous year. So, we just see that a lot of it is because we bundle some of the applications now with the more expensive packages. But, some of it is also coming from the fact that people are just buying applications directly.

We do see massive -- much stronger adoption of the new products in the new Editor. It's more visible. It's easy to access. And we're probably going to have more data and be able to answer that better in the quarter.

Okay. Got it. That's helpful, Avishai. And then on marketing investment, you already have a very high mix of annual packages now. These customers have relatively low churn rates compared to your monthly packages. How should we think about your investment on marketing for fiscal year 2016? You're on track to spend roughly about $120 million this year and kind of added like 0.5 million subs. Are you planning certain targets -- to target certain specific subs for the next year with marketing, or how should we think about how you would balance that?

So, first of all, with regard to -- for -- with regard to next year, we're obviously going to provide the specific guidance during the February call. But, you -- I think that you should expect that marketing budget is going to increase. And because we view as growth as the number one factor for us. So, marketing budget is going to increase. Obviously, we're going to see also higher leverage in our model.

Got it. Thanks, Lior.

With regard to -- okay.

Jason Helfstein, Oppenheimer & Co.

Hi. So, two questions. So, just first, back on currency, you obviously gave the impact of the dollar amount of currency. But, can you talk about -- did -- is there a way to look at the subscribers who pay you in dollars but live outside the US? Did you see any shift in either the average price they were paying or new subscribers coming on paying in dollars?

And then secondly, kind of we looked at the -- any update on kind of the marketing project, the marketing program with Facebook? Thanks.

So, okay. Let me start with the first question. So, you asked about if we see impact on users paying in dollars outside of the United States. And the answer is that we don't see anything significant. But, you have to keep in mind that most of the places that we do charge in dollars are places that have been less affected by changes in currencies.

So, for example, places that -- Australia, right, would be a place and other countries. But, the biggest changes happened in actually Brazil and then in Russia. And they don't -- there, everything is local currency. So, that's in answer to your first question.

Can you repeat your second question?

Yes, just an update on the Facebook marketing tool uptake, any statistics you can share with the success of that product.

Well, we see that it's part of the ShoutOut project. And we're running a couple of things that we do in Facebook in there. And I'd just say that we see that this is a very successful product. We love what ShoutOut is doing. And it's growing very quickly. And it's actually going pretty well.

Okay. Could I ask one follow up just quick? Do you have any data that supports that, if you offer higher promotions that the quality of subscribers still remains the same? So, one of the concerns in the market is when we see companies do higher promotion. The concern is you're adding lower-quality subscribers, which will have a higher churn rate later. So, what gives you the confidence that that won't be the case?

Well, this is Nir. First of all, we've done many promotions like this in the past. And when I mentioned before that we based our current plan based on data, we actually went back and checked, what were retention rates? What were renewal rates for those cohorts in order to do the math and assess whether it makes sense or not.

Naturally, we're still, as always, optimizing, testing, checking different discounts, different periods of how long to run the test. And we'll keep on doing those kind of optimizations basically as long as we find some things that work better.

Thank you.

Samad Samana, FBR Capital Markets.

Hi, good morning. Thanks for taking my questions. So, when you're talking about promotional activity being different this year versus last year, can you give us an idea of how much that's impacted the collections this year versus last year, adjusting for the discounts?

So, we do not provide the collection that were impacted by the promotion. We don't provide those kinds of data. But, obviously, the overall impact on collection was obviously positive. And I think that the most important thing is that also increasing our LTV.

I think you can get some really [estimates] if you look at what Sterling was just saying, to the number of new subs compared to -- .

-- Gotcha. And then as I look at my model, this looks like it was the strongest level of conversions for a new cohort that the Company's ever had. And I'm curious what's driving that, whether it's the improved marketing efforts or whether that's promotional activity and if you can kind of just define the magnitude between those two different efforts.

Well, it's actually a combination I would say of the ongoing general efforts that we make on the product, the many small things in the verticals. But, there are two I would say bigger things that affected that in Q3. One of them is indeed those -- that promotion, the ongoing sign-up promotions that we mentioned before. That's also in part why we decided that it makes sense to do those.

And the second part is the new Editor, which as we mentioned is having a much better success in helping people achieve the Websites that they were aiming for and therefore, obviously, also convert to premium.

And then on the App Store, is there a particular app that's driving that? Is it partner apps? Is it the Wix Hotels and Wix Restaurants, some of the Company-specific ones? Could you help us, or could you let us know which ones are helping you perform the best there?

Well, I think that every app in its own segment, so, I think we addressed that the e-commerce, for example, is affecting about -- roughly about 11% to 12% of our users. So, we can see dramatically major improvements coming from users that are coming to try and build e-commerce on Wix. And by improving that, we can see that hotels will do this for the hotels.

Musician, I believe we just disclosed that we're about 3 million musicians on Wix. And we can see immediately that the results in conversion there are significant. So, every time I address a segment, we can see a major uplift. And so, you see at least those two. And as we do disclose the numbers for are pretty big.

And I think that the overall effect of having more and more segments being addressed by us is going to create a major change on the overall conversion and, of course, on the user satisfaction because they get a better product. They can do a lot more on Wix. And we just crossed the 200 million users being managed by our users on Hive. That's huge. And this is exactly the result because they're going deeper and using Wix more as a way to manage their business than just a Website.

That's helpful. Congrats on a great quarter.

Thank you.

Thank you.

Thank you.

Nat Schindler, BofA Merrill Lynch.

Hi, guys. Congrats on another great quarter. Wanted to just go a little more detail into what you just said, Avishai. E-commerce usage is 11% to 12% of users. Is that inclusive of third-party apps, or is that just your e-commerce suite?

Actually, it's mostly our e-commerce suite I believe. So, and it's -- it is just our e-commerce suite. We have today about 210,000 e-commerce users on Wix, premium users on Wix, which is -- actually premium Websites on Wix, and which I think is outstanding, considering you think about Shopify is about 150,000, something like that I believe -- 200,000, sorry. So, that's just e-commerce part. And we can see that conversion, for example, is dramatically increased.

So, what is -- what drives one of your users usually to switch from your much less expensive premium package to a third -- to an addition of a third-party app, like Shopify that costs quite a bit more on a monthly basis, on top of your package?

Well, I think it's all about functionality. So, the 210,000 e-commerce Websites that we have are mostly about -- that needed to have a shopping cart, right? If you buy the musician product or the hotel product, it means that you need the functionality. And then you switch to a more expensive package.

And -- but, you also get a lot more, right? If you have the e-commerce -- if you have the hotels, you get a full booking system for hotel, a way to present your rooms, a way to distribute your inventory. This is really kind of like a fantastic offering and then, again, a way to connect to ShoutOut, communicate with your customers. So, I think all this functionality creates value that is very easy for our users to understand and upgrade to more expensive packages.

Great. Thank you.

(Operator Instructions). Kerry Rice, Needham & Co.

Thanks a lot. My first question is, when we think about revenue guidance for Q4, did you include any FX impact into that guidance? And if not, should we assume kind of a similar impact as we saw from -- that you guided for collections?

And then the second question is, can you give us an update on your native mobile app launch? Thank you.

Okay. So, I will start with the first question. We, obviously -- we do not provide the guidance for revenue in terms of constant dollar. And we do that for collection. But, to answer your question, just the Brazilian real and the Russian ruble impact on collection was about $3 million. So, you should assume that those $3 million for the six months has also impacted the revenue for the six months with approximately $1 million.

So, it means that, if we had -- without this currency impact, you should've expect that the revenue for Q4 obviously should have been higher than that.

And in regards to the native mobile app builder, so, we're actually in the midst of soft launching it. We currently have about I think about 500 native apps of users using it. And we're adding somewhere around 100 to 50 a day. It's a soft launch.

And we see really good results with it. It's a complete native experience. You go in. And you actually have the -- all of the store available in a native experience. I think that, unless you're a huge Website, like Amazon, almost nobody has a native experience that they can actually support or a complete experience, e-commerce experience.

And so, it's going very well. I expect that we're going to increase the rate dramatically this quarter. I just want to add something. We actually have a surprise coming on this one. And we're going to share that with you guys I think in the -- during the quarter. We added something that is very -- at least I find to be fascinating and to see the effects of it.

Any update on pricing on that yet?

No, we're still -- before actually having enough results to -- for our testing on pricing. We're going to charge for it. It's going to be at a part of the more expensive e-commerce package, or also, probably, it's a standalone offer. So, you can choose. But, we don't have enough data on the effects of testing the pricing as we prefer to test pricing before we actually publish them.

Thank you.

Aaron Kessler, Raymond James.

Great. Thanks, guys. Couple questions. First, just following up on the passive churn, you noted 10% improvement. One, is that mostly internal efforts or anything you're working with third parties there? And any impact kind of from the chip and PIN rollout in the US that we see? And I guess Netflix obviously cited that as a small impact to them.

And second, anything specific on the Wix Editor conversion improvement that you would point out, or is it just the overall new platform leading to better conversions? Thank you.

Okay. So, I'll take -- it's Nir. I'll take the first question in terms of the improvement in the churn. So, it's mostly an internal effort. Obviously, when you look for all sorts of solutions, some of them you do do with the credit card companies and different billing gateways around the world.

I can say that, for us, this is -- it's an ongoing effort we always have in terms of improving the lifetime value of the cohorts. So, in part, we do that at the top of the funnel and in conversion. And in part, we do it in terms of retention and improving those kind of things.

In terms of generally doing payments on a global scale like we do, it's a real effort. It's very complicated. And over time, it has become very -- kind of a core competency of Wix, which allows us to do these kinds of improvements over time. I think that it really illustrates that operational excellence in the Company and how we push that forward in order to improve our results.

I just want to add to what Nir said. It's not just about increasing the value of the cohorts and the lifetime value. It's also about user satisfactions. Nobody want to get in the Website with their business canceled because they forgot to update their credit card. And so -- but, augmenting this, right, we pretty much solve a big pain for our users.

And another -- just to the last part of your question about churn was in terms of Netflix. So, we've actually went (inaudible) and researched it. We actually spoke with Netflix a few times to understand their system versus our system. And so far, we haven't seen any significant impact.

And just a second question on the Wix Editor conversion, any specific things you would call out that's helping on the Wix Editor, the new format?

You mean why is it converting better, or what's the size of the conversion?

Yes, exactly, [anything] in the new way better that's better conversion, or it's just ease of use? Is that the main thing?

Well, I believe it's a combination. It's not just ease of use. So, first of all, it's easier to use. The UI's more consistent. There's a lot of new ways of presenting things.

I think the other thing is that we push out a lot of the content. So, it's so easy to see how many options you have and all the different kinds of elements, images, layouts, possibilities that you have. So, we push a lot of those forward. And by enabling that, we allow users to take more of their creativity and personalize the Website today to do whatever they dream about presenting themselves.

And that's probably -- and we've seen that this is something that throughout the life of the Company has been major. The more that we allow users to express their dreams online, the better that conversion is.

And we also added a lot of new functionality that allow you to create Websites that are super modern, so from parallax to video backgrounds, Websites that react differently when you stretch and move them around. And so -- and part of those things, all of those are combined I believe to create this massive uplift on conversion.

Great. Thank you.

It's really a much better project. As Nir says, it goes up to 11.

Tim Klasell, Northland Capital Markets.

Yes, as long as we're talking about the new Editor, given the timing of that going into broad distribution at the beginning of this quarter, there was probably not a whole lot of impact in Q3, and we'll start to see it in Q4. Is that correct?

You talk obviously in terms of top line, right?

No, no, just conversion rate from it to premium subscriptions.

So, obviously, the impact is only on new users. So, it means that it has an impact on new users and not users coming from other cohorts. So, any new user in Q3 or Q4, obviously, will see the impact, and we have a better conversion. And we already started to see that during the third quarter.

Okay. Okay. Good. And do you think that was a surge, or as people were anticipating that -- I know you didn't broadly advertise it, but did the users anticipate that? Do you think that improvement may taper off over time, or do you think that is sustainable?

Well, I do believe -- first of all, I do believe that users were predicting that we were going to do that because we spoke a lot about it on the forums and support and spoke about the functionality, that we're going to introduce new ways of doing things. So, there was some expectation. But, I think most of this expectation comes from existing users and not from new users. So, I do believe that, when we measured conversion changes, we only looked at the conversion change on new users.

So, to some, there was an expectation. But, most of -- the way that we measure new improvement on conversion was from new users that I don't think were able to actually predict it.

Okay. Good. And then just a quick question on the guidance. You mentioned a $3 million greater impact because of currency shifts, primarily in Brazil and Russia. And there was a $1 million impact in Q3, which would imply a $2 million in Q4. Was that just a reflection of a gradual change or a change over the quarter of Q3 now being applied over a full quarter of Q4, or was there something else that maybe has changed recently?

No, so, as you mentioned, this is mainly due to the Brazilian real, which has dropped only the third quarter by 30%, and the Russian ruble by 20%. So, the impact in Q3 was approximately $1.5 million. And this is something that rolled over to Q4. So, in total, for the six months, it's about $3 million. So, that was the full impact. And it's only resulted from what's happening to the currency during the third quarter.

Okay. Okay. Good enough. Thank you very much.

Mark Mahaney, RBC Capital Markets.

Thanks. Could you provide a little more color on the source of the new subs, that 140,000 -- I don't know -- verticals, market demographics, anything that gives us a sense of where these subs or how these subs may have been different than the kind of new subs that you've added in the past?

And secondly, could you go over this math on the ARPU of 10% year over year. The way we calculate it, it looks like revenue per subscriber's down 3%. Is that gap just purely due to FX, or are you calculating it a little differently than we are? How do you get that 10% year over year? And put some context around that last couple of quarters. Has it been also up by that level, or has it really accelerated on a -- I guess on an ex-FX basis? Thank you.

Hey, Mark. This is Nir. I'll take the first question and then hand it over to Lior. But, in terms of the -- generally, in terms of the source of the new subscriptions, it's -- obviously, it's a higher conversion rate for the reasons that we elaborated about before. But, if you look at the split and the source, it's the -- it hasn't changed in any significant manner during the year.

With regard to the ARPU, so, you're right about your calculation. But, what I -- but, actually, you can look at it at page number 7 in the material that we provided. You can see over there a table which kind of reconcile between the calculated ARPU to the ARPU excluding the impact of the currency and also excluding the impact of the shifting between monthly to yearly because, eventually, what we are trying to show is the real thing that's happening to the ARPU in terms of the business.

So, if you exclude those two items, you can actually see that ARPU has been increased by 10% year over year. Last quarter, it was 6% year over year. And I think that this is what's reflect best what happened in terms of our business, where we see that more people are buying more expensive packages.

And Avishai mentioned before about the e-commerce and more application in the Wix ShoutOut and the different verticals. So, I think that this is all good healthy things that happened. And actually, because of that, we managed to increase the ARPU.

Excellent. Thank you, Lior, and thank you, Nir.

Mitch Bartlett, Craig-Hallum Capital Group.

Sure. Two questions please. The answer to Tim's question about the conversion rate going up 15% to 20% on only new users, there's no reason to expect that that wouldn't be the case for the registered user base coming into premium subscriptions as well. That's the first question.

Second question is I guess we're all trying to figure out kind of revenue growth rates for 2016 based on the improvement in conversion and the improvement in your passive churn, the reduction in your passive churn. Is it likely that you -- I think you've already said you're going to lean more to growth than to profits. It's likely -- is it likely that you're going to reinvest those kind of improvements back into growth in 2016 above and beyond what most people are looking for?

So, let me sure -- be sure that I understand your question as the first part about premium conversion. You're asking if we're going to see the same 15% to 20% increase on conversion on old users, or you're asking if we're going to see that going forward?

On old users as well, yes, on old registered users that are converting -- .

-- Well, to --

-- Go ahead. I'm sorry.

To see -- to be able -- users that already came to Wix and built a Website will probably be less exposed to that unless they come in to rebuild their Website. That doesn't -- it's not something that happened -- it's often, of course, that new users come in, and they try to build a Website from the beginning. Most of our users, if they spend more time using Wix, they probably know more about how they're using Wix. So, I would assume that the effect on old users will actually be smaller. All right?

Also, in terms of percentage and also in terms of time that it will take them actually to be able to utilize functionality, you don't need any functionality unless you want to change the Website to do something new. So, I believe that's the answer to -- to answer your first question.

With regard to the second part of your question, I want to start with saying that Wix has a very healthy and typical SaaS model. So, as any other SaaS model, it's very predictable. It means that, when we start the year, more than 70% of our collection coming from older users, and as Avishai mentioned before, most of the impact for the new Editor is going to be on the new users.

So, it means that we are going to see the benefit of collection rolling into 2016. But, it's not going to be a huge one because most of it is going to be on later one. That said, obviously, every incremental dollar that we are going to do out of it, and I think that we said that before. The profitability is sustainable. It's also going to increase in the future.

But, every incremental dollar, the first target for us is growth. So, it means that every incremental dollar that we can, we invest in growth. But, we also should see on that profitability is going to be higher.

Great. Thank you.

And that concludes the Q&A portion of the call. Thank you for participating. You may now disconnect.