Wix.Com Ltd (WIX) 2017 Q1 法說會逐字稿

Good morning.

My name is Scott, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Wix.com 2017 First Quarter Financial Results Conference Call.

(Operator Instructions) Thank you.

Ryan Gee, Manager of Investor Relations, you may begin your conference.

Good morning.

Welcome to Wix's First Quarter 2017 Earnings Conference Call.

During this call, we may make forward-looking statements based on current expectations and assumptions.

Please consider these risk factors included in our press release and most recent Form 20-F that could cause our actual results to differ materially from these 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 of our reconciliations between GAAP and these non-GAAP results in our press release and presentation slides on our IR website.

Shortly, I'll hand it over to Avishai, who's going to say a couple of quick words about the quarter, and then we will go straight into the Q&A.

Earlier this morning, we posted our results on our IR site to provide you some additional details.

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

Thank you, Ryan, and good morning, everyone.

I will quickly say a few words, and then we'll be happy to take your questions.

We had another outstanding quarter, and it is a fantastic start to the year.

A few highlights about the first quarter.

We added nearly 6 million registered users, the most ever.

We added 208,000 premium subscriptions, also the most ever.

And our collection per new subscription are up above 11% year-over-year.

The combination of accelerating user growth, better conversion and a higher collection per subscription is driving our outstanding results.

In the first quarter, collection grew by 51% year-over-year to $114.5 million, well above the top end of our guidance.

We generated $17.5 million in free cash flow, excluding acquisition cost, well above our guidance for the quarter.

The ability to create this type of cash flow while increasing investment in marketing and R&D is truly amazing and illustrates the strength of our business model.

As a result of this strong start, we are raising our full year guidance yet again.

Our product teams continue to deliver and drive market-leading innovation.

And our marketing team execution continues to be world-class.

Finally, we were happy to officially welcome both flok and DeviantArt to Wix in the first quarter.

And we have already started working together to create even more innovative products.

I am very encouraged by our momentum as we kick off 2017 and believe that we have a great year ahead of us.

Again, thank you for your time today.

We will now turn on to your questions.

(Operator Instructions) Your first question comes from the line of Samad Samana with Stephens Inc.

A couple on my end.

When we think about ACPS being up 11% year-over-year, can you give us an idea of how much of that is from adoption of vertical apps versus App Store purchases, maybe break it down a little further, what specifically is driving that?

Samad, this is Lior, certainly.

Although we do not provide specific numbers or breakdown of what goes through that, but in general, we're talking about mainly 3 factors.

The first one, we certainly see more adoption of our vertical solutions.

That was started from the beginning of next year -- of last year.

We're talking about booking, eComm and so on.

The other one is obviously better adoption of our App Market.

The third one, we see more and more people are actually choosing more and more expensive packages because we're actually adding value.

What we've seen is that, as we mentioned many times in the past, we'll keep on testing our prices.

We'll keep on testing our packages' prices.

The fact that we are adding more and more and more solutions, more and more functionality to our customers, we'll keep on testing that.

And based on that we're actually also from time to time updating our pricing.

So that was mostly because of those reasons we see the really, really nice increase in our ARPU.

We did notice yesterday that you're maybe testing a price increase for at least the VIP SKU of your products.

And it was quite significant, somewhere between 15% and 30%.

And we know Wix has pricing all the time.

Maybe could you tell us what you think -- when the last time you raised prices was and maybe what the appetite you think is for price increases, given all the improvements you've made to the products over the last couple of years?

Samad, this is Nir.

So I think actually that specific test that you spoke about already has been changed.

But as we said, we always are trying different things around the premiumization of our pricing [pace].

Generally, I think that the appetite matches, as Lior just mentioned, the improvements that we give in our functionality and features.

And our aim is to see what's the optimal place where we can charge while obviously, more than anything, we want to make sure that we don't compromise on growth, so never introduce any kind of a change that will decrease conversion in any way.

And just one last housekeeping question, if I may.

Lior, the company mentioned a new product going into beta in June and being released later this year.

Are you baking anything into the updated guidance from this product?

Or would that be incremental after its release?

So none.

When we provide guidance, it's based on what we know as of the date that we provided the guidance because we don't know -- we are super, super excited about this product, but we cannot predict at this time the results of it.

And this is why it's not a part of our guidance.

Your next question comes from the line of the Deepak Mathivanan with Barclays.

Two questions for me.

So first, marketing leverage came in pretty strong in 1Q, but cost per user continues to increase.

Can you provide more color on that?

If that's aimed at acquiring high-quality users, can you provide more color on how you are implementing that?

And then second, on long-term packages, how big is the 2-year and 3-year packages now?

I mean, are the customers that you're acquiring for these packages typically are better -- have a better business profile?

Do you expect to see lower churn from these customers?

So with regard to the marketing question, usually the first quarter, we see a big investment from our side on marketing.

It's also from the Super Bowl campaign.

We are talking specifically about brand.

In general, marketing is done by TROI.

The TROI remained the same.

While we managed to increase number of users quite dramatically, if I may say, I mean, if you look at the overall marketing dollar, there was a great, big increase from last year.

But it was done while maintaining the same TROI of 7 to 9 months as we've always done.

So that was really, really great for us.

And by the way, this is growth-on-growth because it enabled us to take part of the money and increase it back on growth.

With regard to the -- and obviously, the second thing is about what I mentioned at the beginning of the year.

The first quarter, we targeted the marketing as a percentage of collection to be at 46% and for the entire year is 40%.

So we are in line with that.

We end up this quarter with 46% as we guided.

And we still think that the full year is going to be about 40% of our collection, in line with our TROI model.

With regard to the 2 and 3 years, obviously we saw some impact out of it.

It was not huge.

We are talking about a few millions of dollars.

But in any case, it was not significant.

Your next question comes from the line of Jason Helfstein with Oppenheimer & Co.

Two product-related, I guess, and then a housekeeping.

Can you give us an update on ADI, specifically related to expansions in different verticals, any verticals you either added, and then kind of what you expect over the next, call it, few quarters with respect to verticals and languages?

Any color you can give us on what your expectations are for conversion rates for DeviantArt and how you're thinking about that playing to the model over time?

And then just lastly, housekeeping, what was the currency impact in the quarter for collection and revenue?

So maybe I should start with ADI.

So we are very happy with the results we currently have with ADI.

And we can see very clearly that it's actually helping users with less technical skills to complete their website and have fantastic results.

We are still focusing on improving the algorithms and improving the additional values that it provides users.

So it's going -- we have no immediate plans to add new verticals.

When it comes to additional languages, that will be the next thing.

So after we add more verticals, that would be the next thing.

And so it's going to be -- I expect that that's something that will go -- happen later on in future quarters.

Regarding DeviantArt, so I think that we just started working with the team, and we were very happy to learn that it's a team that, I would say, is almost religious in their belief and support for DeviantArt.

And those people are really -- they love what they do.

And we're just starting to form the plans and to form the product plans.

And I believe, as Lior mentioned, the first part will be integration of some elements and revamping DeviantArt interface to make it more modern, something that is what we're working on now.

So it will take a while until we actually include that into being part of the Wix product.

And so I think that this is pretty much answering your first question.

And for the third one, I believe Lior will take it, right?

Yes, if you insist.

With regard to the currency, so Jason, it was immaterial.

I mean, I think that we're reaching to a point where currency effect is no longer material.

I don't know, unless we find out that there are some other macro changes, it was less than 500k.

So we did not include it as part of our numbers because it's simply not material.

Your next question comes from the line of Sterling Auty with JP Morgan.

Wanted to start with, can you give us a sense -- I didn't go through the presentation, so it's better I apologize.

But can you give us a sense, how much of the premium subscriptions came from new registered users this quarter versus previous cohorts?

Sterling, it's Nir.

So we're talking about a split of 40%, 41% -- 41% new and 59% out of other cohorts.

And if you look at the trend over time, and maybe some additional comments, is it Wix ADI?

Is it verticals?

What do you think is driving the conversion out of the previous cohorts?

So this is Avishai.

I believe that it's a combination.

So ADI, of course, helps.

And I think that the vertical strategy also is helping a lot.

So I think that we're at the point where we're seeing the most amazing thing about conversion, right, which is it's a compounding value, meaning that you have to -- every effect has been multiplied by the next step and it's not summed, so it's actually bigger, right?

The effect is -- because the compounding effect, it's dramatic.

And so we see all those elements coming into play now.

And I think that that's something that brings that ability to have an incredible quarter.

Your next question comes from the line of Mark Mahaney with RBC.

Two questions.

First, on this Wix Video, could you talk a little bit more about just any more detail on what this product is and potential monetization impact of the product?

And then in terms of the users, the user growth that you've had, any color on the source of those users, where they come from, either vertical-wise or geographic-wise, any color on how that -- if there's a difference in what these users are like versus the users you brought in over the last 2 years?

Of course.

So maybe I will start with Wix Video.

So Wix Video is actually a product that we look at it as something that has 3 kinds of parts.

The first one is that we've built something called a video platform.

And this is a product that allows you to store, and then transmit, broadcast video in pretty much everywhere in the world.

It's super-high quality, superfast.

It does (inaudible) coding, the CDN negotiation, all of that.

And this is something that we are actually offering now also as a platform.

So it's not just for Wix users.

And the second part of it, right, is, of course, that we now enable users to build video-centric websites.

So if you have a lot of videos and you want to be able to offer that to your users on your website, right, we have a really fantastic solution for that now.

And we believe that this opens for us new markets.

And of course, it's without YouTube branding.

It's without any kind of branding.

You have full control of your own content and you can monetize it in any way you choose.

The third part of it is that we have also enabled all the other verticals to use video.

And this is something that will happen more and more now and you will see that.

So if you want to present stores with video, that is now pretty much possible.

And it actually has a better integration going forward.

So overall, it's a complete add-on, which is from platform to website (inaudible), and then support for video for all verticals.

I know this for myself when I choose a hotel and I have to look at it and I have to see photos or videos, videos are so much better because you actually get the real perspective of what you see, right?

And it's not that you get a 10-foot pool to look like it's a 100-feet pool, right?

So this is one of the things that, I think, that is just an example of how significant it is.

Mark, it's Nir for your second question about the user growth.

In terms of the sources, there isn't one specific one that is growing faster than the other, it's a general, a broad-range success in all of them.

I think that it's much -- it's a great testament not only for the amazing job that our marketing team is doing but also to increasing our brand recognition and value.

In terms of geographies, again, I think that we see growth all across the board, but it's worth mentioning, pinpointing, putting the spotlight on the U.S., which is actually growing very fast now and obviously something that we're very happy about.

Avishai, back on the video.

I would think that there would be enormous interest in something like this.

I mean, there's this broad trend that's called the videofication of the Internet.

So I guess the question I have is, is this just going to be a standard part of the subscription package?

Or where -- which subscription do you have to subscribe to in order to get video?

And then do you have any early readings at all as to what satisfaction levels are like with clients who've -- customers who have used this product?

Yes.

So I think you asked a couple of questions.

So first of all, I think that video is going to be a critical part of the Internet.

And we see that, right?

We see that today.

We see that a site that has more videos convert better, meaning not for us, but for -- if a user is building a site, has more video and better video, his customers, right, will convert better, which we think is fantastic.

So yes, we see that.

We are also thinking -- we're still thinking about how to package it.

And like always, we're going to test.

And we do believe that some of the video capabilities will definitely have their own vertical offering packaging because in many ways, it is.

And there is a lot of businesses on the Internet that actually need the ability to have their own subscription-only video website.

So it's going to be very interesting to see how it evolves.

But without a doubt, it's super exciting.

It's a huge opportunity.

And I think that we definitely have today the best video platform that is available to small businesses and -- or to almost anybody.

Your next question comes from the line of Ron Josey with JMP Securities.

So we've talked a lot about product and we saw the launch of video.

And the new platform product appears to be close to launch, talking about ADI improvements.

Anything else that we can expect to see here just in terms of number of product verticals or products launched?

And then structurally speaking, just curious, how do you manage or balance new products, like video, versus improvements to existing products, like ADI, that are already live and constantly being updated?

And then one quick follow-up, Lior.

I think you said earlier that more users are choosing more expensive packages, just wondering if they're doing that sooner in the process as website completion rates are improving.

So the first question is about new products.

You're going to see us releasing a couple of new products, and among them verticals, but not only.

So that will happen this year.

And we are very -- always very excited.

And the way that we manage the balance is that -- well, I would love to say that it's only doing by mathematically predicting the amount of growth that we'll have from each one of them, which we can do.

However, we also have to consider human resources, meaning that if we have a team like ADI, we can increase it to a certain amount, and then we have to let it become again a team with a strong chemistry, and then we can add more people to it.

And so this is one of the things that we always have to focus on.

On the other hand, a lot of the opportunities that we see on the things that we noted, if we had the right offering for that, that will be a great thing, okay?

Sometimes we don't have the available job for that.

So it's always a balance and we always maintain that.

And these are the 2 things that we are balancing between them.

I would say that although I think that we are doing pretty well in that, but of course, there's always some verticals that I'm really sad that we don't have the best solution for and that I'll always wish that we already had it.

Yes.

With regards to your question about our users, many of them are actually choosing at the very, very beginning because they're actually getting what they are looking for.

So if you are a musician and you get much more than just creating at regular rates, I think you're actually using the musician vertical.

The same goes for hotels, the same goes for restaurants, for bookings.

So actually, finding the solution that they're actually looking for and something that they actually can generate value out of it, so most of it is happening at the very beginning.

We do see that some of them over time are upgrading while they see that we provide more and more specific, tailor-made solutions for their needs.

Your next question comes from the line of Naved Khan with Cantor Fitzgerald.

Just a couple of questions.

So on the guidance, I guess the last time around, you've included around $8 million from DeviantArt.

Is that amount still the right amount to think about when you think of the contribution for this year?

Or has that changed?

And then just on DeviantArt, I know it's still early days.

But as we think out over the medium term and longer term and what this acquisition can do for the business, can you just sort of point out the opportunities in terms of what the core can -- how the core can benefit from DeviantArt?

Okay.

So with regard to the first question, yes, it's still valid.

In our PR for the acquisition of DeviantArt, we stated that the impact is going to be $8 million in revenue and $9 million in collection.

And this is still valid.

And with regard to the long-term plan, so DeviantArt has about 40 million users.

Most of them are potential Wix customers.

In addition to that, DeviantArt is the largest community, probably on Earth, of designers.

We love designers at Wix because they tend to make websites for other people as well and essentially are kind of acting like a reseller, right, to us.

So again, it's a compounding value.

And we believe that -- and the reason that we went after this acquisition is that we believe that the chemistry and the values and the synergies are enormous.

And we do believe that long term, it's going to provide tremendous value.

Your next question comes from the line of Tim Klasell with Northland Securities.

Most of my questions have been answered.

But one goes to how the rollout of ADI into international markets is progressing.

And with the new platform, will you be following sort of a similar rollout pattern?

Or will it be different?

So ADI is actually being used internationally, but mostly in English because this is the #1 thing it supports now.

ADI, of course, has a lot of relevant content that is -- it's more than just an interface, it actually creates content for users.

So we have to also internationalize that.

And that's well beyond translation.

So it's going to take a while until we actually do that.

And regarding to the second product, you're going to see that it's starting with a closed beta.

It's a very deep product.

And I believe that it will immediately be available internationally.

Your next question comes from the line of Kerry Rice with Needham.

Maybe, first, on just the attraction of more registered users and conversions.

You usually cite product innovation, ADI, verticals are doing well.

Is there anything else that you would call out?

Was the Super Bowl ad campaign historically more effective than it has been in the past?

Or anything else that you would highlight related to the above 200,000 net adds or conversion hitting about 3%?

That's the first question.

And then the second question is I know in the -- I don't know if it was the highlights, but you talk about scaling infrastructure.

And I was curious whether or not you felt like you were kind of starting to bump up against kind of where you were at today, and so it was just a necessity or there was something else that was driving the need to continue, other than just additional users needing to scale the infrastructure.

So it's Nir, Kerry, I'll take the first question.

In terms of the improvement, it's always a combination of a few things, okay?

So I think that it's the ability to run a very efficient marketing.

I think that this is something that we keep on improving on.

I think that the brand -- the strength of our brand is something that obviously compounds year-over-year.

Super Bowl campaigns are part of it but not only.

There's a vast amount of activity that's being done throughout the year.

And the effect of it is something that we keep on benefiting from.

And then of course, is all of the different product releases and improvements that: a, on one hand, they just make it easier for people to find what they're looking for to build a website, to finish the thing that -- exactly the vision that they want to create online; and secondly, they add capabilities that they were missing before, the specific vertical needs that it answers.

All of that compound is that thing that Avishai mentioned before, this kind of compound being a formula that keeps on driving conversion better and better, and then better cohort behavior.

As for the second question, I think Avishai will answer that.

So you're asking about scaling infrastructure.

So I think that if you look at the technical infrastructure, I think that it's pretty much the same and meaning that the percentage of that compared to the user growth is pretty much identical.

Maybe a tiny bit higher just because of more databases, because of more verticals, but it's kind of meaningless if you look at the cost of that today.

Because the other thing that is balancing it, I think, is reduction of the cost on infrastructure -- cloud infrastructure.

The one thing that we always have to think about and plan very carefully and support, okay, and in theory, right, we should have increased support every time by the same amount of new users that we have.

And we're doing a lot in order to automate a lot of the support functions and global products and see where our users need support and add a clear user interface, or make it that the user can solve the problems themselves, or provide videos that instruct in order to not needing to increase the infrastructure of support.

You're next question comes from the line of Lloyd Walmsley with Deutsche Bank.

This is [Seth] on for Lloyd.

A follow-up on ADI, if I may.

As you anniversary the rollout of ADI, can you maybe talk about how you expect conversion rate improvements to trend in the existing markets first rolled out as well as among the cohorts of premium users who came in after it was rolled out?

And also do you think conversions can continue to go up in older cohorts?

Or does the benefit mostly occur at the time you sign-up?

We believe that -- so that was a couple of questions, right?

So ADI conversion trend is, of course, positive.

And we are very happy with it, overall conversion on Wix from previous cohorts.

So I think that part of what happened with ADI is that previous cohorts did not know they had the option.

So a lot of them already know how to use the Wix Editor.

And the result of that is effect that ADI has on existing older cohorts is not as significant as it is on new cohorts.

The effect that we expect to see in non-English markets, I personally believe -- but this again, this is a belief, it's not something that I can support with facts because we never tested it.

But once ADI is translated, including the content that is relevant to the other countries, we're going to see that it is probably going to create the same and equal improvement to the one that we saw in the United States and actually the English-speaking countries.

Your next question comes from the line of Mark Kelley with Citi.

The first one is just going back to Wix Video.

Do you think you'd ever be open to opening -- I guess allowing your users to open their video inventory to programmatic advertising in the future?

And second one, just a housekeeping item, on the DeviantArt, the $9 million and $8 million impact you cited.

I know that's intact.

But should we assume that's fairly linear throughout the year?

Or are there any accounting items we should be aware of in terms of deferred revenue recognition?

So regarding to your first question, are we going to allow users to use their videos on their websites for advertisement?

And the answer to that is obvious is yes.

It's their content, it's their website.

And in fact, we're going to partner with the advertising agency platforms in order to allow our users to do that.

We strongly believe that it's their complete -- this is their content.

They can do whatever they think they should do with their content.

And our job is to provide the tools for them to be successful in doing what they want to achieve.

With regard to DeviantArt collection or revenue, yes, you should expect it to be linear.

Your next question comes from the line of Jonathan Kees with Summit Redstone.

I just want to talk about 2 topics.

One is the other acquisition, flok.

I assume you're going to be integrating that to help with increasing strong platform engagement.

Is it flok deals with the customer loyalty programs?

Just curious in terms of where you think the contribution or maybe if you can kind of quantify the kind of impact from flok in terms of the subscribers, their premium subscribers.

And then second thing is, I guess, more of a housekeeping.

I noticed the percent of new subscribers signing up for long-term contracts kind of ticked down quarter-over-quarter and year-over-year, and then monthly subscribers went up as a result.

How do you think that should impact -- how should I think about the impact on deferred revenues trending going forward with that?

So I'll take the first questions about flok.

So I want to say that when we acquired flok, we looked at it as 2 opportunities.

The first one, right, is to include the technology and allow our users to use it, so allow users basically to build loyalty clubs for their users.

And we think that this is a really great opportunity.

Of course, it will not affect the new premiums.

But it will make the users' business more successful.

And I believe the result of that will be higher loyalty for us, for our users.

The other opportunity is that flok is a pretty good business on its own.

And we are still in the process of examining how we should work with it and how we should think about it.

But again, I don't believe that there will be any level of -- at least not in the short term, you'll not see that flok is contributing to new premium growth, probably more to sustaining existing premium and providing more values and maybe some higher ARPU to premium users that we would get normally in the regular way.

With regard to the second question, you're right about the different mix between our subscription between monthly to yearly.

And as we mentioned before, we managed to bring incremental monthly subscription last year.

And basically, if we take, for example, this quarter, the first quarter, collection went up by 51% year-over-year, deferred revenue by 53%.

So I still think that deferred revenue will continue to increase obviously as long as collection is increasing.

And I don't think that there is a big effect on deferred revenue, at least not in dollar value, since most of the monthly are incremental.

There are no further questions at this time.

Thank you for joining.

This concludes today's conference call.

You may now disconnect.