Wix.Com Ltd (WIX) 2016 Q3 法說會逐字稿

Good morning. My name is [Denise], and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Wix 2016 Third Quarter Financial Results Conference Call. (Operator instructions.) Thank you. Ryan Gee from Wix Investor Relations, you may begin your conference.

Good morning. Welcome to Wix's third quarter 2016 earnings call. during this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent Form 20-F that could cause our actual results to differ materially from those forward-looking statements. We do not undertake any obligation to update these forward-looking statements.

In addition, we will comment on non-GAAP financial results, and you can find all reconciliations between GAAP and these non-GAAP results in our press release and presentation slides on the IR page of our website.

As we did last quarter, I'll shortly hand it over to our CEO, Avishai Abrahami, who's going to say a couple quick words about the quarter, and then we'll go straight into Q&A. Earlier this morning, we posed on our IR site a shareholder update in addition to the materials we normally post to provide some color on our results.

So, with that, I'll turn it over to our co-founder and CEO, Avishai Abrahami.

Good morning, everyone. So, just very quickly, we had an outstanding quarter. By many measure, it was our best quarter ever. Collection grew 42% again to a record of $87.3 million. We added 174,000 net new subscription, and we generated over $11 million in adjusted EBITDA, also a record.

This result added to the momentum we had last quarter, and we are raising our annual guidance by significant amount, and expect to grow 40% for the full year. We come into this year, we were thinking we would grow about 30%. So, the fact that we are now expecting to grow 40% showed what a successful year this has been for Wix.

Finally, the results on the [NEI] have been fantastic overall since we launch. ADI conversion is up. [These are] trading sites faster, and more users have purchased our vertical application than ever before. We are off to a great start with ADI, and with improvements we're already making, it will only get better.

So, with that, let's move to your question. Ryan, please take it.

Operator, can we take our first question, please?

(Operator instructions.) Samad Samana, Stephens Inc.

We found it interesting that the Company chose to do less promotional activity for annual packages in the quarter, especially when we consider that prices ticked up slightly on the website, it looks like. Is the Company finding that the value of the new features added over the last year is attracting enough customers without needing to be aggressively promotional? And do you think we're at a point where you can do another across-the-board price increase for the SKUs?

I think basically it was less promotional activity, but similar to what we've done in the previous years. So, at the end of the day, our promotional activity is just optimizing on the marketing and the traffic according to the changes in [the new] seasons, and it's always [the aim], at the end of the day, to reach the same TROI targets. So, that's basically the whole rationale behind it, and nothing else.

Now, you had another piece of question. What was the other one?

I was asking if we're at a point where the Company can do price increases for its SKUs across the board because of all the features you've added over the last year.

Well, I think that generally, again, in terms of how we think about pricing, we test, but we are not trying to -- are aiming to gain the best growth possible, so we want to keep our offering affordable and something that anyone can use. And naturally, when you go into specific verticals and specific added functionality that is more heavy-duty, that's where you see the higher prices. That kind of makes sense, because we give them extra value.

We've seen Wix is really crushing it when it comes to adding new subscriptions, and your more, call it, traditional competitors continue to struggle in terms of net adds. Do you see just a more fundamental market shift that's driving your success while others are struggling in your space?

So, I think that, more than anything else, what's driving the successes is our products, and I think that innovation around our product, that's what's pushing our ability to grow faster and faster. And I think that we see that with the ongoing improvement in our product, ongoing improvement in our conversion globally, in the United States and outside of it.

And I think that these are also the places where we focused our efforts in terms of continued [new] innovation. You've seen that with ADI. You've seen that with our release so far of our verticals.

There's one other thing that I think is worth mentioning, that we definitely in the past two years, we've put a lot more emphasis around the brand-building and our brand exposure, and we are definitely also seeing the value and the benefit of that.

Lior, when we think about growth for 2017, how should we think about collections per subscription? It's been growing in the double-digits in 2016. Should we expect that to plateau or continue to increase?

So, obviously what we've seen since the beginning of the year, that the (inaudible) actually increased quite significantly, coming up from [$132] on an annual basis to [$150]. Obviously, we hope that it will continue also for 2017 but again, how to predict that. So, basically, whenever I need to predict it in my model, I take into consideration that it stays stable, but this year was incredible in terms of the vertical adoption for our customers. We see the increase, and we are very happy with it.

Nat Schindler, BofA Merrill Lynch.

Wanted to ask you a little bit and see if you could help characterize the gap between the paid and the users. And who are in those 90 million? I imagine there are a large number of discouraged people who found the process too difficult and never progressed past starting their page. Is there a way that you know who these people are and where they sit on the page, and whether or not there are potential paying subscribers, i.e. commercial businesses? And also, how are you marketing to them?

Okay, so that was a bunch of questions, but I think the primary one was who are the rest of the 90 million, right? And the answer to that is, of course, it's a big mix. Let's examine a couple things we know. We know, for example, that there's a huge amount of students, and Wix has now been talking high schools and university across the world, a lot of it in the States. And we can see that those [guys] are using Wix (inaudible) and Wix [Light], but they don't really need the website for anything commercial, so they have no reason to upgrade. And a lot of them will come back after a while and then do something more with Wix, but their primary use is learning. And so, this is one group.

Another group is just a lot of people that want to learn the product and understand the potential. And then, this is another group that we are very familiar with. Well, probably I would be a good example, because I would go on the Internet many times and look at the product, and just remember that they exist. And then, when I need them, I know to go back and to actually use them. So, we see a lot of that, because they see an ad, or they [go tell a friend] about Wix, and they will go and actually play with the editor, and their own (inaudible), so we can see that they are actually examining and scouting what we can do and what we can't. And then, a year or two later, they might come back and build their website and go to premium.

And the last group, of course, are people just (inaudible) [in it] for [personal use]. They want to do something small or something very personal. And again, those guys will not upgrade. So, this is the majority of what we have. And I think the combination of this group is quite bigger than the guys that try to build the website and couldn't. So, I think that those are probably the four primary groups that we have.

If you had to speculate, Avishai, how many of those 90 million, without even going into new marketing, how many of those 90 million do you think could become paying subscribers over time?

I would assume that about nine million if we continue to increase our offering. I think between nine to 11 million. That would be my assumption. I think there's another issue which is we have to solve enough I might increase this number, and that's billing where it's really hard to do billing for Wix today. So, there are countries in the world where, if you don't have an international credit card, it's really hard to buy. And that's another thing we have to solve.

But, without doing more of those kind of things, I think the number is ranging between nine to 11 million. That's, again, with (inaudible).

Jason Helfstein, Oppenheimer.

If I take a look at the cohort slide, your usual slide, you actually see a little bit of a pickup in the 2015 cohort, even a little bit in the 2014. I'm just wondering what the expectation is with ADI that actually could help old cohorts.

Then, the second question is we saw less marketing leverage in this quarter than the first half, and that was clearly you making a decision to reinvest the collections as opposed to letting it fall to EBITDA. What are you seeing that's giving you the confidence to do that? or is it just about spending to get your full year marketing leverage target?

First of all, that pickup comes from the global improvement of our product. So, ADI is part of it, but it's definitely not all of it. There's a lot of improvements that are happening through the verticals with the editor itself, and basically across the board. Can ADI keep contributing to that over time? Absolutely yes. I think that that's kind of the game we're playing in which we keep on improving the product, and it helps us generate stronger cohorts to begin with, but also have a positive impact on the existing cohorts of users who already are using our system.

So, Jason, with regard to the second part about the marketing expenses, if you guys remember, when we started the year, we target marketing as 43% to 45% out of collections, and we are on track to get it. Obviously during each quarter, we plan sometimes different things, for example for branding activities, and this is what also we've done during the sales quarter. But, overall, we are on track to get our target of 43% to 45% out of collection, and again, this is quite a big leverage from where we've been during the previous years. And obviously, I expect that it will continue into 2017.

Sterling Auty, JPMorgan.

Looking at the number of premium subscriptions that you added in the quarter, it held up very well relative to what we would consider normal seasonality in the [naming] business. Based on that, what should we be thinking about the fourth quarter? And what should we be thinking about the seasonality in your business in terms of premium subscriptions, moving forward?

So, the fourth quarter usually we know that we have a lot of holidays, so basically the fourth quarter is the weaker one among all the other quarters because of vacations and holidays. And this is also what we expect to happen in the fourth quarter, so (inaudible) with regard to the number of premiums. And this is something that is already embedded in our model and the numbers that we provide, so we don't think that, going forward, there will be much of a change when we see the fourth quarter compared to the other quarters. Usually the second and the third quarter, obviously it's kind of the same. The first quarter is really strong, is very strong for us, and we don't think that this behavior will dramatically change during the next year.

And then one follow-up question on Wix ADI. Do you have a sense, if you built the site prior to Wix ADI, how easy is it to convert over and start using ADI to maintain the website? And is there any sense of what kind of uptake you've seen from existing users on Wix ADI?

So, it's not easy to take a regular and existing website and move it into ADI. It's not super-hard, but it's not that easy. I mean, we're working on making it simpler. It is fairly simple to move an ADI site into the Wix Editor if you want to go deeper than what ADI allow you to do. You can always do it in -- [actually] it takes a click.

And we do see a lot of users doing that. they use ADI to very quickly set up the beginning of their site and actually build the first version of it, and then maintain it in a deeper functionality in the Editor.

Ron Josey, JMP Securities.

(Inaudible) and with all these new products launching, can you help us understand what the traditional time it takes for a new product to really start producing results in terms of its adoption of registered subscribers and collections? And I ask only because you've seen the early success with ADI. You've seen other newer products, like Bookings, launch this year and be a strong driver. I'm wondering if this lag is shrinking relative to what you've seen historically.

So, I think that the answer is that it's very different between different product, right? So, if we have a scheduling, Booking, for example, product, to enable it to become widely used, we need to include it in the templates. We need to include it in the billing. And there is a wider set of things you need to do. ADI [boarded] this in the front so people would, of course, adopt it faster, right? But then, ADI is a lot more sensitive to geographical things like language and the kind of businesses you have in different geographies.

So, I would say it's different tremendously between different products. What we do see that, as a Company, we become better at it, so we understand better what we need to do to release, say, a new product.

And if I could follow up with ADI specifically, that makes a lot of sense. But, with ADI specifically, I think you said the average time it takes to bill a site's been reduced. Any way to quantify that? Are you talking weeks to days, or days to hours? And if you could talk about completion rate, so when registered users would start a website to complete a website, that'd be helpful, too.

So, first of all, yes, we can quantify that. That's over 10 times, and we can get to over 10 times faster, on specific cases on ADI, and so that makes it super-fast. In fact, I [demoed, if you remember, in the Analyst Day] how you build a complete website in less than two minutes, which is in our mind incredible.

So, we do see that, but we don't necessarily view that as a success. We love the fact that the user get a chance to go deeper and modify the site even more, and that they might actually go and personalize it and get their own design and appearance into what they built. So, it's not necessarily something that we look at as a factor of a good or a bad thing. We think it should be fast when you want it, but it is also [allowed] to grow very, very big, and actually customize any detail that you want.

Kerry Rice, Needham.

Apologize if you answered this earlier, but with any early learnings from ADI related to maybe what type of site consumers are building? Any additional color and just early trends there? And then, as you think about in the marketing strategy heading into 2017, the Company has often focused a lot on television and social as marketing channels. Any changes to the channels, and maybe the allocation of marketing dollars, going forward?

So, I'll start with ADI. I believe that what we do see is that, by increasing the resolution by which the computer (inaudible) works with you and your website, we get tremendous results from that. And we see that there are so many -- I'm surprised to see how many different kind of [psychologies] there are. I never knew that there are so many different, and so many differences.

And one thing we do see today is that, with [ADR], we [can see that] more and more of the traditional businesses are moving online, right? So five years ago, a psychologist or a doctor wouldn't need a website. We see that today they're all very committed to having those. So, we do see this trend in that movement into the online.

So, in terms of marketing, as you know, it's always been our belief that marketing is not one single campaign or one single venue of investment. It's rather a big mix that is critical to maintain together. And our intention is to keep on doing that in various places online, offline, actually combining the branding activities with the direct acquisition. And it's all aimed at maintaining the same TROI that we have and generating our hyper-growth, going forward.

Lloyd Walmsley, Deutsche Bank.

First, if you can give us a sense of what percent of new users are fully integrating the capabilities of ADI and the conversion rate uptick you're seeing from those early cohorts? Or if you can't give specifics, maybe you can compare to other product launches, like the new site editor?

And then, secondly, how should we expect you guys to balance the marketing spend and top line growth ahead? So, now that conversion rates are improving, does it make sense to really step up marketing and drive acceleration in the growth? Thanks.

What is the (inaudible) of ADI in terms of compared to other product? So, relevant markets where we launched, meaning that the language is supported and the type of business is supported, it's a very large (inaudible) users, [digital probably most of the] (inaudible). And what is the [output] from conversion? That's a number that I'm sure most of our competitors would love to know, so I'm not going to actually refer to it.

What I can say, again, that we are very happy with the results we have, and especially also in the result of the quarter. And the other thing that I can say is that -- there was another question [went with] this one on marketing, right?

With regard to the marketing, so obviously we see that we increase the investments in marketing in dollar year-over-year, quarter-over-quarter. And essentially, by keeping to the same TROI, which is seven to nine months, and we are able to do that because, obviously, mainly because of our products. Our product technology, we're maintaining the same TROI, but we are able to invest more, and simply because of the fact that we see better conversion and the adoption of our new products and so on.

So, going forward, I think that we will continue to do that, and hopefully conversion will continue to improve and maintain the same TROI. This is the only [KPI] while we invest money marketing, this is what we consider. The leverage that we see as a percentage of collections [simply coming] because it's already embedded in the model. We see all those historical (inaudible) continue to generate revenue for us, and we talk about the negative churn and everything that's embedded in our model. And so, the more historical cohorts that we have, we see a higher leverage in our marketing investments. And I guess that this is something that will continue in the following years, again, until we get to our target model.

Tim Klasell, Northland Securities.

First, just a question for you, Lior. It looks like deferred revenues grew at 51%, so much faster than revenues in collections. And then, next quarter guidance, it looks like maybe revenues might grow a little faster than collection. Did you have a big surge at the end of the quarter where it drove up deferred revenues, and we're going to start seeing that next quarter? Or maybe you can talk to me about what the linearity of the quarter looked like.

So, obviously deferred revenue has a lot of impact. Essentially, the deferred revenue is impacted by the nature of the yearly subscription versus the monthly subscription. Obviously yearly increase the collection, and the revenue takes time until it catch up. So, we see an increase in deferred revenue.

And obviously, the growth of collection versus revenue, so if we accelerate growth in collection, it takes time to revenue to catch up, and then you see increase in deferred revenue. And essentially, this is something that also happen in the last two quarters, where we see that we have really nice growth in term of our collection and the business overall.

So, again, the fourth quarter is something totally kind of different, because usually the growth in the fourth quarter is not similar in terms of premiums and everything through the rest of the quarter, as I mentioned before, because of the holidays and so on, while the revenue is able to kind of catch up with collection from previous quarters and years. So, this is why you see the change in the fourth quarter compared to the other quarter. So, the bottom line to that is mainly because of seasonality.

If we take a look across your various products, the e-commerce, the mobile, obviously ADI now, are you seeing some synergies where maybe the mobile and the e-commerce sell very well together, or anything where you're seeing complementary sales across your product line?

So, I think that we do. And one of the things that we actually started to do beginning of the year, approximately beginning of the year, is getting those combined marketing packages that you can buy. So, you can buy this combo, which is (inaudible) offering that we know go well together, and we see that a lot of user, they take that and use that.

So, yes, and things like, as you mentioned, mobile, e-commerce go well together, a lot of (inaudible), and overall we see that the combination (inaudible), right, is the strongest thing, and that's why we believe the vision of the Wix [OS] where several product aligning on one website, enabling one business, [it's] so strong.

But, for example, ShoutOut and Booking will go a lot together. Booking and e-commerce go a lot together. They're booking and hotels, or restaurants and hotels. All of those go together, right? They've got a couple of combinations that are very common.

[Aneed Tan], Cantor Fitzgerald.

Just a quick one on the accelerating growth you saw in North America. Is there anything in particular that contributed to this pick-up? And are there ideas that you can basically take from this market and use them to drive faster growth in other markets, as well?

I think that definitely it's product more than anything else that's driving that, coupled with the fact that our brand exposure is growing and I think a lot of those activities actually happened in North America. Not exclusively, but definitely great things that have been done, whether it's our partnering with the New York Yankees and other activities.

So, we're extremely happy, and I think that one of the things that we actually see is that also there is a huge amount of potential there in the sense of further growth in the US. That being said, I think our growth outside of US and globally is still extremely strong. And we are obviously -- have good products. [The products,] as we duplicate them in other languages and localize them, they carry that same impact that we had in the US outside of the US, as well as many of our branding activities and campaigns, which are global, also have that same effect. So, definitely we see that as keep on carrying outside of the US and sustaining growth there, as well.

And then, you called out the increased efficiency on performance advertising. Besides the fact that you have a superior product, or a better product, are there other factor that are contributing to this?

So, if you're asking whether there is other -- for the (inaudible), is there other things other than products that are taking effect? Did I get that wrong?

Yes, so ADI timing, when it was rolled out, it was end of August, and you called out improvement in efficiency in advertising separately. So, I was wondering if there is anything besides the product improvement that's helping drive efficiency higher.

So, first of all, it's the branding, as I just mentioned, but also we have to take into account ADI, for example, we [list it currently] only for English-speaking countries, obviously US being a big English-speaking country, so it has more of an impact there than it has in countries in which we haven't deployed it yet.

I think that one of the things (inaudible) more progressive market, the US of course is [leading impact], is that the market is changing. I think before, a lot of people couldn't believe that, if they are [working] in some directory or online or something like that, that's enough for the business. I think a lot more today understand that they have to have control over their own brand and identity, and it's important for them to really own their online presence.

So, we see a big migration into that coming from places that would in past, because they [need to be], okay, I have that, that's enough, I'm listed there, it's enough. We see that people really care about that. and we see that effect helping more in the US market today because we believe that's the beginning of something that could probably be a trend.

So, ADI you said right now, it's available in the English-speaking countries. When do you plan to roll it out to other non-English geos?

Well, the one good thing about ADI, that it's completely new product, right? That means that there are so many things we want to do with it. It's version one, it's completely new product. You never actually manage to complete anything you wanted to do in version one when you release version one. And then, when you release it, you have thousands of new things you want to do. So, we are working very hard to understand and to do them one after another, so we don't have (inaudible) on other countries.

There's another thing, right? It's also subjective to what you do in each geography, because it actually (inaudible) to training, to understanding this type of business that you have and how it's [selected] to your area. So, we also have to train it to understand how to do things in different countries, not just in different languages. So, it's a bit more of a setup than normally we have, but the results justify it, so we don't know yet when we're going to start releasing that in other languages, but we're continuously improving that.

Okay, there are no further questions. This concludes our call.

Thank you.