Wix.Com Ltd (WIX) 2022 Q1 法說會逐字稿

Good day. Thank you for standing by, and welcome to the Wix First Quarter 2022 Earnings Conference Call. (Operator Instructions) Please be advised, today's conference is being recorded. (Operator Instructions).

I would now like to hand the conference over to your host today, [Emily Lu], Investor Relations analyst. Ma'am, please go ahead.

Thanks, Michelle, and good morning, everyone. Welcome to Wix's First Quarter 2022 Earnings Call. Joining me today to discuss the results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, our President and COO; Lior Shemesh, our CFO; and Joe Pollaro, our GM of the U.S.

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 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 key operating metrics. You can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in our Interactive Analyst Center on the Investor Relations section of our website, investors.wix.com.

Now I'm going to turn the call to Joe, who will be moderating the Q&A with the team. Joe?

Thanks, Emily. So Avishai, you opened the shareholder letter this quarter with why you believe the Internet will continue to grow. Can you explain a little bit more about your conviction around this growth?

Yes, Joe. Thank you. I think it's based on a few things. First of all, I want to -- if you look right in the United States, in Q1, the GDP actually went down, right, while the Internet has still grown. We've grown at around 14%, and we see that most of our peers have also grown, right? So that's showing that the Internet is still growing and probably when the GDP growth will go back to normal, towards 1% or a bit more than that, they will probably going to see another acceleration in the Internet.

Another thing that is affecting the Internet today is probably that during COVID, we saw the Internet growing at 2x or 3x the average pace of growth. And I think now digesting that growth. And probably it makes sense, right, for growth to revert back to the main. So I think that is another part.

But if you look at the microenvironment of things that actually create that growth of the Internet. SMBs, right, almost 50% of them are still not online. And that is the reason that we're going to see a lot of continuous migration from that. Think about (inaudible), there are still so many things that we do booking appointments in some places, consulting, learning. There's so much more that we're doing every day that what makes sense to do on the Internet, and it's not there yet. So I think that is another path that we're seeing.

And a lot of the commerce is still migrating online. So yes, we are in a place where reverting back to the main. And yes, there is a very heavy weight coming from GDP growing negative. But I think overall, the Internet -- my belief is that the Internet will continue to grow in the future.

And why do you think Wix is well positioned to benefit from this growth?

Well, I think that there's a few factors that play for us. Today, we are in the largest platform for self-creators, right? And I think that self-creators the people that try. They build and manage their own website. And I think that, every year, you have more young people that are really being exposed to technology, feel very comfortable with technology. And this rose as a percent of the population. Those are self-creators, right, there a lot of them want to be -- they want to control their destiny and their marketing and their website. I mean that trend, just by itself, will continue to make our markets growth, right, on the self-creators.

We have -- we see massive growth in partners, agencies, right, that make websites for other, and we started to market. Wix did that cloud about a few years ago, and we see massive growth there. We'll disclose that as we've shown. And I think continued product innovation, right? The biggest barrier of when people use Wix is if they can do it in Wix, they'll do it on Wix. If they can't, they will not. I think we have been consistently proving over the years that we are really good at that. So we continue to innovate and continue that functionality and things by doing that in increasing our market size.

So I want to talk a little bit about the competitive landscape. So we've had many different competitors over the years. How do you view the competitive landscape today? And what are you seeing in terms of any changes in market share during this time?

Well, we don't see any significant change in the market. There's no new competitor that takes new big market share growing very quickly. Mostly SaaS and website builders are still growing faster than anything else. And pretty much in every metric that they are leading the growth in the category of website building or workflow content creation.

Within this category of SaaS worksite builder, Wix is growing the fastest. In fact, this quarter, we added close to double the number of net new subscribers as the next closest competitor. So I think we are growing very quickly, right, in the website builder -- in SaaS website builder. And I think again, the key focus for creation and looking functionality for small businesses to move online. And historically, and I think it's going to continue. We're innovating fastest than more of our peers.

And I want to touch on online commerce, something that's obviously an area of growth for us. It's clearly slowed here after accelerating a lot during COVID. But we benefit from being a horizontal platform. So can you talk a little bit about why that is a benefit for us rather than being just exclusively for 1 type of vertical?

Of course. Well, we've seen a slowdown in online shopping, right? And we see it all around, right? We saw it in Wix, but we saw it on Amazon, Shopify, PayPal, pretty much everything that has online shopping.

I think it kind of makes sense, if you think about it, right, for the last 2 years, we've been locked in the house. And now we all get a feeling that we got this free get-out-of-jail card, right? And when we actually go out and do shopping, let's say a (inaudible), they have shopping that normally will do before COVID on the Internet and just want to be out in the fresh air. And so I think that is a big contributor to the slowdown eCommerce. I think the lack of manufacturing in China and shipping and raising inflation, raising energy prices, all those generating an additional strength, all of those combined to slowdown eCommerce. I also think that most of those are temporary, right?

China will open the world. Hopefully, we'll finish. Hopefully, no new wars are coming. So I think that's something we've seen in the regular commerce. However, Wix is very horizontal, right? We have a lot of different things that we do as commerce and of course, products like booking events, traveler, scheduling. And those are less affected, right? And we can see that I think this diversification of what we offer also gives us stability on the long term.

Fantastic. So I want to move over to some financial topics now. Lior, let's start with 2022, the rest of this year. Can you walk-through the expectations that we provided this year for the rest of 2022?

Yes, sure. So if you guys remember, at the beginning of the year, we thought we'll be at around 20% growth on a year-over-year basis. Actually, excluding the impact from the headwinds, and Avishai spoke about it, revenue growth would have been 20% year-over-year. So for Q1, we grew 14% from back of a 41% on a year-over-year basis. And some of the headwinds that we actually see result from a slower payments as a result of lower GPV from the slower near-term growth in eCommerce. And again, Avishai spoke about it a lot, we grew top of a funnel and changes in FX rates, which, by the way, mostly affect the second half of the year.

We also see a higher level of uncertainty than earlier in the year, obviously because of the overall environment in the world. But that said, we are almost halfway through the year. So we are also seeing a stable conversion. And assuming that stability continues, we expect revenue growth of 10% to 13% for the full year. I think that it's also important to mention that without the headwinds from Russia and the changes in FX, revenue would have been 12% to 15% on a year-over-year basis. The fundamentals of our subscription business remains very strong with consistent conversion rates and retention rates.

Okay. We also mentioned in our material that we adopted a plan that was approved by our Board to reach 20% free cash flow margin in 2025. I know we're going to talk a lot about this at the Investor and Analyst Day on Thursday, but just briefly give us a preview of how we're going to get there?

Yes. So Joe, this is something that we are very excited about because, as you know, we invested a lot about the new initiatives in the last 3 years. We see the fruits of it, but we also start to see the leverage from those investments. So we do expect to generate about 20% cash flow margin by 2025, mostly driven by the continued profitability of self-creators. We're actually going to show you on Thursday how profitable these businesses. And leverage from partner business which scales up. I think that we all saw the growth on a year-over-year basis of partners. So we believe that this is something that will continue. Our self-creators business is already at this high level of profitability. So we expect it to continue.

And as our partners business scales, we will see increased margin, which also drive margin expansion for the overall business. So most of the leverage is actually going to come from the partners business. We will share more information around this on the Analyst Day. In general, you should expect about 5 points of free cash flow margin expansion every year.

Okay. A couple of topics I know investors are going to be focused on with our gross margin. So how our gross margins are going to progress for the rest of this year?

Okay. So I will try to explain that, at the beginning of the year, we did expect higher revenue growth, which would have caused creative subscription gross margin to increase in 2022 versus 2021. So despite the macroeconomic headwinds, we remain committed for driving profitable growth and margin expansion. At the high end of our guidance range, we anticipate Creative Subscriptions gross margin will modestly increase in the second half of the year versus Q1, and that Business Solutions gross margin will increase for the full year of 2022.

If we are closer to the lower end of the guidance range, we expect Creative Subscriptions gross margin to be flat through the second half of the year, and Business Solutions gross margin will still increase for the full year. So to summarize it, in either scenario, Creative Subscriptions gross margin will be at least flat through the year, and Business Solutions gross margin will increase versus a year ago.

Okay. And do we still expect 5% free cash flow margins in 2022? And just on top of that, then, can you explain the bridge from the current free cash flow margins that we're at to the 8% to 10% free cash flow margins we expect in 2023?

Sure. So while we have undertaken some actions already this year to reduce ongoing operating expenses, revenue growth is a bit lower than we had anticipated through the headwinds that we spoke about before. If we were at the high end of the revenue guidance range, we will definitely have 5% free cash flow margin. If we are at the lower end of the guidance range, we may not reach the 5% margin. That being said, free cash flow will absolutely be positive.

Into 2023, we will see gross margin expenses in both Creative Subscriptions and Business Solutions. Importantly, we have significantly reduced the pace of hiring an additional investment, but we do observe a full year of those costs in 2022 from hires in 2021. Despite that impact into OpEx in 2022, you will see leverage in 2023, which will bring us to approximately 8% to 10% of free cash flow this year. And as I mentioned before, you should expect to have about 5% improvement in free cash flow every year from now on until 2025, where we get to the 20% of free cash flow.

Okay. So I just want to kind of summarize, just to recap. So the key takeaways here are that we are absorbing a full year of costs from our hiring activity in '21 this year, and that's going to be a drag on margins this year. But we're going to see benefit from slower hiring in 2023. Additionally, we're going to see benefits from margin -- gross margin expansion in Business Solutions. And that's really coming from efficiencies in hosting and just payments continuing to scale and additional revenue growth. Right?

Yes, exactly.

Okay. So Nir, let's move on to partners, another big growth area for us. So this has become a larger part of our business. And I know that the team has spent a lot more time investing in this effort. Why is partners the right direction for Wix? And how do you think it shapes the company over the next several years?

Sure. Absolutely, Joe. We spent a decade basically of investing into a product and a brand around this easy-to-use affordable platform that is serving at least, at the beginning, first and foremost, the people we call self-creators, the people who come to build a website and a business for themselves. And over the years, as that business evolved and it's into a very big and healthy business, we also figured out that there's a lot of people are coming to our cloud platform, but they're actually using that as what we call partners. They are building websites for someone else, whether it's a independent designer or agency of any kind of or even bigger companies. And it was very evident for us a few years ago that this is another path of investment that will take us to kind of the next level of growth in our business, because it's another segment of our business that is probably at least as big as the one that we're serving -- we've been serving for a while and probably even much larger.

So it requires an investment understanding how to expand the brand to also include what they're looking for, which is more professional services and something that fits a professional. And we started making those investments other than the understanding that this can be another major driver for us in the years to come. We always know that it's going to be a multiyear effort in terms of both the perception and the brand building and also on the product side. But I think that, first of all, it's already paying off. It's growing, on its own very, very fast, about 41% year-over-year recently.

If you look at the cohorts of the partners versus the cohorts of the self-creators, the bookings retention there is 3x more than what we see on the self-creators. That's big. And actually, one of the key things what we want to try to do on Thursday on the Analyst Day is to kind of separate and give you more color on what is the difference between these 2 different segments of our business.

That's helpful. What -- so you've met with investors a lot here in the last couple of months, as you normally do. What do you think is most misunderstood right now by investors about this partner's effort?

Well, I think when we just started talking about partners a few years ago, I think some of the investors thought that there's going to be kind of an immediate result, where we knew that it's going to be a multiyear effort. And a lot of our product strategy was connected to that, what we obviously really seeing Wix Code, which was great for the self-creators, but also was something that was very important for the partners in order to be able to create websites at a more complex and cater for specific needs of specific clients. Editor X, naturally, which is an editing environment for professionals, the account management team that we built in New York in order to support the activity with the partners. So we knew it's going to be a longer thing.

I think that over the years, there's a little bit of kind of a gap between what the investor community is understanding. First of all is about the effort needed. Even though we did create some specific things for the partners, the vast majority of our tech stack, the vast majority of what we do, serves both the self-creators and the partners. So when you think about the investment, when you think about our attention as a management and where our head is, we don't have to really separate between completely different businesses, which are pulling from different angles.

I think there's also still a little bit of a misconception about understanding fully why this market segment is so important and how are we going to keep on running the core healthy veteran business segment of the self-creators versus the partners. But I do believe that over time, as we starting to see more and more returns coming from partners, that is going to be a convergence in alignment between what we see and why we are so excited about it and how investors think about it. And we believe a big part to that what we can do on Thursday is to try and really kind of tell the story of these 2 segments and give that kind of clarity to our investors and shareholders.

Okay. Let's zoom back into the quarter here. Obviously, there's been some uncertainty here in the first quarter, as we've talked about. Can you describe just right now our overall cohort behavior and what we're seeing?

Yes, absolutely. And obviously, both Lior and Avishai spoke about this kind of reduced demand at the top of the funnel that we've seen in kind of the -- in the last few quarters. But when you look at the behavior itself, once people come in, once they are within -- there are users within the cohorts, we see a very stable behavior. It's pretty much the same conversion rates, it's pretty much the same retention rates. It's actually a bit of a higher average revenue per subscriber. And the overall, I think, of all of the cohorts together is still expected to generate almost $16 billion of revenue in the next 10 years.

Okay. And just on cohorts, I mean, we spoke about this last quarter, but I think it's worth emphasizing again. So given the strength and the consistency in the cohort performance, can you explain how the large cohorts from 2020 and early 2021 are impacting our growth now and through the end of this year and then how we lap that in 2023?

Yes, absolutely. So you have to kind of go back in time a little bit. And when you think about it, sometime Q2 of 2020, we started getting these -- let's call them, the COVID cohorts. The ones that came, once people start getting looked down in their houses and the demand for being transactional and moving businesses online suddenly skyrocketed all at once. And these cohorts were massive. It lasted throughout 2020 and into 2021. And when you compare the size of those cohorts to '19, it was -- they were so much bigger. They also -- by the way, they also behaved better. I'm going to touch about it because that behavior kind of outlasted the subsiding of COVID.

But when you think about it from a mathematical point of view, you had these massive amounts of subscriptions is very large cohorts of 2022 or 2021. And when they started to renew going into '22, the rates were similar, but the absolute numbers of cancellations were naturally higher. And this is a behavior that is -- it makes perfect sense, and it will kind of overlap for a while and then it will subside. It's affecting our net subscription, but we expect it not to last for much longer.

And I think for us, one of the exciting things that in those COVID cohorts, we've seen a much higher intent towards a business website. So we've seen an adoption of higher-priced packages, which was the business subscriptions. We've seen a higher GPV and better conversion. And those -- that general behavior is, even though the new cohorts are back to kind of more normalized sizes, we're still seeing that kind of behavior, which we deem is a very good sign. And obviously, that delivers the value which continues and will contribute to that $16 billion of revenue over the next 10 years.

Okay. Great. And lastly, before we wrap up our portion and open the call up, I just want to circle back and get your view on Lior's commentary on free cash flow. And as you said, we're going to dive into this more on Thursday, but give us more insight into profitability and the way that you all are managing cash flow.

So as you said, Joe, we're going to go much deeper into it on Thursday and actually break apart the actual numbers, so it will be clear. But self-creators is really a big margin business segment for us. It's highly profitable from a cash flow standpoint, which makes a lot of sense, right?

And I think it's also important to remind everyone that we have managed Wix towards being cash flow positive for a long time now. We've been cash flow positive for 7 years now. We're going to be cash flow positive in 2022, and we have no intention of changing that ever.

So we have this already 1 very big segment that is operating and generating at high margins. And we have another segment, which is the partners, which is still operating at lower margins because of the more recent investments we did into it. But we believe that those are going to also increase as we go into '23 and beyond. And then we're going to see a much stronger consolidated cash flow altogether. And our plan on Thursday is to actually try and construct a table of those 2 segments separately so it will be very clear to understand.

Okay. Emily, let's go and take questions.

Thanks, Michelle. You can open up for questions now.

(Operator Instructions) And our first question comes from the line of Elizabeth Porter with Morgan Stanley.

First, I'd try to top -- ask on the top-of-funnel engagement. It sounds like the fiscal '22 guide is more a function of being further through the year versus seeing an improvement in demand. So can you just add some color on what you're seeing in the top-of-funnel engagement? How it changed versus last year? And any comments through April?

Of course, I think that -- so we started to see a slowdown, right, in the second -- Q2 last year, and that was -- then things started to stabilize. And we mentioned that actually, towards the end of the year, we started to see a slow improvement. Obviously, this year is, I think, less stable, right, with the war and inflation and other factors. We saw a small decrease. And -- but now it seem again consistent. So we don't see a decrease. We see a new steady state.

We -- I mean the way we think about it is that, we don't know to predict when this Internet slowdown will -- Internet acquisition will stop. So we have no -- we don't try to predict that. We can -- we didn't assume that in guidance, but I would say that we would assume that end of the war in Ukraine and probably opening of China again to manufacturing and delivery will probably be big factors in that. So assuming the those things will change, we're going to see improvement. But until then, we like to assume that it's a steady state because this is what the data is showing us.

Great. And then as a follow-up, I wanted to ask on the price increases. Can you provide any color on just the magnitude, and when we could see it start to flow through the revenue impacts? And just given it's the biggest change from 2019, can you just quickly walk through kind of what happened in 2019 in regards to the magnitude and any impact on churn?

Sure. Elizabeth, it's Nir. So as we mentioned, back in 2019, I think, is the last time we did a significant price increase. We actually -- as the price increases roll over through the renewals and subscriptions, it takes time to take full effect. And in fact, we stopped it at the end -- at the beginning of 2020 because of -- because when COVID started, we felt uncomfortable to continue with those price increases. That being said, we always continued and always do continue to test different prices in different geographies to understand exactly what is the sensitivity to prices are and what should be the best one, the best price for each geography.

And coming -- end of '21, coming towards '22, it was very clear to us that it's a good opportunity in terms of what we're seeing from our test results to start testing again in a more major way and go into a price increase, which we enacted in '22. It's currently in place in the U.S. and Europe, and we -- obviously we'll extend it to other geographies based on results. It's just going to roll out. The impact, I think, in 2022 is not significant. I think most of it is going to be held -- felt after. And it just shows -- the tests show us that it creates a long-term increase in cohorts value, and therefore, we'll do it.

And our next question comes from the line of Ron Josey with Citi.

Maybe I wanted to follow up a little bit more on top-of-funnel, Avishai, but focused on conversion retention rate, where I think you said were steady for the past year, but cancellation rates are rising. Can you help us just provide some more information on those cancellation rates? Are they from newer subs? Perhaps from lower ARPS subscribers? Any details on those cancellation rates would be helpful. And then just on newer pricing or newer packages from newer subs, ARPS continues to improve. Just can you help us understand or talk a little bit more about what packages are newer subscribers adopting that's leading to higher revenue and revenue per subscriber, looking for just product adoption comments?

All right. Thank you. And Ron, I think we might have been unclear because we don't see cancellation rate rising. We see it pretty much stable. The only difference we do see is that the inflow into the funnel, right? So the people that join Wix is actually not as high as we would expected.

Beyond that conversion rate is pretty much the same. We do saw an improvement towards multiple are buying business packages, which is part of the reason for higher -- driving ARPS higher. But cancellation rate is very stable. Conversion is very stable. And the only difference that we see is actually how many people try to build the website on Wix, okay? So this is what -- and I'm sorry, if there was some misunderstanding from how we communicated it.

In regards to driving ARPS, we see that we have more people that try to build business, eCommerce, scheduling, things that require higher subscription. So that's one side of it. The other side of it is, of course, we have a payment as part of it, right, obviously, because it gives us part of the revenues generated. And the last part, Ron, is that we see more of the Business Solutions being consumed by customers. So payment, AdSense, Facebook ads and stuff like that. So those are the reasons for the higher average revenue per subscriber.

And our next question comes from the line of Ygal Arounian with Wedbush.

Just one more on pricing because we're getting a decent amount of questions on this already this morning. Just can you compare what you're doing now to what you did in 2019, a little bit more color? I think in 2019, there were 2 phases. One of them was getting rid of your lowest-priced tier. And then I think in the second round, you're repackaging products. Is this more of a straight price increase? Or are you doing anything similar to that this time as well? And then you saw the net additions kind of slowed as you were doing that. Is that something you expect to happen this time as well? Or is it different this time around?

Ygal, it's Nir. So in terms of what you were referring to in '19, actually the part where we removed the low-priced package was back in '18, I think. So it wasn't part of the '19 change. The '19 change was a more straightforward increasing price like you referred to. And what we've done now is similar to that to '19.

In terms of effect on net additions. Yes, there will be some impact, there always is, because when you test pricing, basically, you know that there will be some impact for people who are very highly sensitive to the new price. And you're trying to balance it so the overall financial impact will be positive or even significantly more positive towards -- between what you're losing on conversion to what you're gaining in terms of the higher price point. Naturally, we only continue forward with new prices when we test and we see that, that actually makes sense. So we will probably have some impact on net additions.

Okay. Helpful. And then not to front-run Thursday too much on the free cash flow guidance. But first, any more color you could share on the difference between the partner profitability and the DIY profitability in terms of magnitude? Or anything else that's helpful for investors? And then understanding better revenue growth leads to better leverage, and you're going to let the headcount growth kind of roll through, what other cost areas are there, maybe specifically on the marketing side that kind of build through from where we are today to the 20% margins?

So with regard to the first part of the question, we are going to provide a lot of details on Thursday talking about the different segments and the related costs and so on. But I can tell you that the self-creator is what you expect in terms of long-term profitability from a SaaS business. So we are going to show it on Thursday. I think that it will be very, very clear.

With regard to the target of the 20% free cash flow and marketing expenses and so on, so look, of course, when you are done with the major build-out expenses of a business, you start to see the leverage, meaning that we are going to see every year that the growth of partner is going to be much higher than the growth in cost. So that will be delivered a lot of leverage, which will be resulted in a higher free cash flow, but it's mostly because of that. Marketing is always react as a TROI for the top line. So -- but most of the leverage is actually going to come from -- mostly from headcount and also from infrastructure investments.

And our next question comes from the line of Trevor Young with Barclays.

Avishai, I think you said that premium subs were up year-on-year in the quarter and is 2x the growth rate that peers saw. Could you just clarify whether premium subs were actually up Q-on-Q? And then second question, the shareholder letter alludes to actions taken this year to improve gross margin and reduce OpEx. Could you expand upon that a little bit? And are there any headcount reductions contemplated in that? And if so, what's the order of magnitude?

So the first is to net sub, it's...

We're net sub adds up sequentially quarter-over-quarter.

Yes, yes, yes. That is Okay. I missed that. I thought you mean 2x. No. So yes, it is true. I think that this is one of the reason that we're saying that we're seeing a steady state with small improvements. And that this is something that I think is probably as a result that the Wix going back to the average Internet growth is now slowing down. And I think this is part of what we're experiencing now. Again, it's very hard to tell what happened because most of the drive is outside of our influences, right? Only reason we have some estimations because we talk to customers or people that try to use Wix.

And what I did mention is that we are close to 2x the number of new net adds as to our next competitor, right? So our next competitor is a -- and website building, right, in all the categories of SaaS, website building, we're growing almost twice as fast. So that was my main point there. What was the second question? I'm sorry I missed that. Trevor?

Yes. The second question was just on the steps you've taken so far this year to improve gross margin and reduce OpEx. Just could you expand upon that a little bit?

Lior?

Sure. So look, this year, we started, obviously, when we started to see the slowdown, so we reacted. Some of -- obviously, some of the reaction is mostly -- is something that we do or plan to do for a long term, meaning, for example, not hiring as much as we did last year. But that was always part of the plan. We will kind of finish with the most of the build out of the business. We are still going to hire. There's no doubt about it. But obviously, it will not be at the same pace.

The second thing is about a lot of benefits that we see in infrastructure actually leading to a higher gross margin. Third thing is about payments scaling up. So we see also a better margins around it. And obviously, you have all the related costs which, when you have less demand in the Internet in terms of traffic, so by definition, you have less marketing cost as a result of that.

Remember, it's always about the TROI. So obviously, we are reacting according to that. So everything together we managed to reduce the operational cost quite a bit this year, meaning that despite of the headwinds that we see, if we hit the high end of the range of what we provided, we're still going to be at around 5% of free cash flow this year.

And our next question comes from the line of Matt Pfau Saw with William Blair.

I wanted to ask on the top-of-the-funnel activity. Obviously, an improvement in the macro would help out there. But do you think you guys can do on your end or that you're contemplating to help out the top-of-the-funnel activity and get that 50% of SMBs that still aren't online to move online?

Yes. So I think that there are a lot of things we can do, and we're doing some of them. First of all, it's a lot about marketing and adjusting marketing to the right period and the way the messaging should be done. So this is the first thing.

The second thing is increasing the availability of the product in different places. And this is something we work on. So the more channels we have. So Vistaprint is one example, LegalZoom is another one. But also allowing us to market, like we couldn't do marketing for weeks at a shopping cart 3 years ago. And now we can, why because we have a good product. We couldn't do marketing for Wix as a really good scheduling solution, and now we can. So those are another ways that we can do in order to increase our exposure.

Of course, there is always a limit, right, because if the market slows down, okay, it will affect. No matter how good your marketing engage and how adjust -- how agile you are with product development, going to be some effect to that. But I think that -- I'm very confident that if we are in a new status quo in this growth rate of the Internet, we stay consistent. And then we're still going to be able to achieve a much more aggressive goal in the next couple of years. And we're going to show you and walk you through that in the Analyst Day. But a lot of it really is just about the thing I mentioned, smarter marketing, expanding product capabilities, which allow us to address new markets, and channels, a lot of way to go after new markets.

Okay. Great. And I wanted to follow up on commerce. As you pointed out, you have exposure to a lot of different areas there. What are you seeing in the parts of your commerce business that are more related to in-person activities? Or are you seeing an uptick there? Is that portion performing better than the eCommerce segment that you pointed out?

Well, yes, some of them do. Some of them are still very slow. Trials are still very slow. While we do see that, I think that we enter that and although we're not there before. They're still not where they should be. So I think there's still a lot of room for improvement there. And obviously, eCommerce has slowed down dramatically. I think we're pretty much in line to the average of what everybody has seen in the shopping cart. Catering meetings, we're also seeing that starting to recover. So this is another exciting thing for us. During COVID, one-on-one meetings and group meetings were going down. And now we're seeing them, again, going upward.

And our next question comes from the line of Naved Khan with Truist Securities.

So one question on payments. If I just run the math for Q1, it looks like your take rates like 1.4% blended. I'm just curious how we should think about that as we go through the year? And then the other question I have is just on the current commentary, which is the one that Lior gave on the fourth quarter call. You said you expect growth to accelerate through the rest of this year. And even if I sort of adjust for FX for second quarter, it's not. So is that de-sell just because payments are slower? Just kind of run us to the math there.

Naved, it's Nir. I'll take the first part of the question and hand it over to Lior. So in terms of payments and the take rate, yes, you've seen that kind of increase. But I think that going forward throughout the rest of the year. I would say that expectations are that it should be roughly flat throughout the rest of the year. Lior, you want to take?

Yes. So with regard to the growth of the second half of the year, so obviously, yes, I mean we see -- we do see the impact of those headwinds that we talk about. And there, they have a big impact on the second half of the year. But let's also bear in mind that most of the FX effect is actually in the second half of the year. If we actually going to hit the high end of the range, so that the growth in the second half of the year is going to be actually higher than the first half of the year. So this is something that we also need to take into consideration. And obviously, seasonality, usually first half is better than the second half.

That said, there is a lot of uncertainty. We provided a very wide range, where usually, we don't, of about 3%. And you think about it, it's almost $50 million. But that just reflects the uncertainty that we see. But on the other end, we are halfway through the year. So it just makes sense to provide guidance the way that we know right now. But certainly, there is a lot of impact of the headwinds over the second half of the year.

And our last question comes from the line of Andrew Boone with JMP Securities.

Can you talk a little bit about the linearity in the quarter for Europe? How big of an impact was Ukraine to results there? And then secondly, the LegalZoom partnership sounds exciting. Can you talk about any holes that you feel like you have in terms of your partnership strategy in terms of distribution? Where are you investing there? And what can we expect in the future?

So Europe, the impacts are the euro impact from Ukraine, you are talking about the impacts from the Ukraine-Russia or just Ukraine? I'm not sure I understand the first question.

Broadly speaking, as we think about 1Q and as we head into April and May, did you guys see a substantial slowdown in Europe as we kind of got into the back half of February, March and April, May? Like can you just help us size the impacts of the war within that region? Does that make sense?

So yes, definitely, we see slowdown in Europe. I think that is very similar also to the U.S., even slower than the U.S. But yes, definitely, we see a slowdown in Europe.

But I'm not sure we can tie down to the war necessarily, right? I think it's hard. In a way, it also has an impact. It has an impacts on gas.

Well, we've seen a fewer impacts, right? Of course, this first one was that we have about almost 1,000 people working in Ukraine. We had to do a lot to help them and evacuate them from Ukraine, mostly to Poland. And the other thing, of course, it did some slowdown to road map and product delivery, not massive because most of them went back to work, right, when they could, so that is saying a lot on their mentality and their strength to do that.

We saw a slowdown, of course, in Europe as inflation drove prices higher and uncertainty, and so we saw that. And the last thing was FX, right, which is, of course, when you sell in euros and you count profits in dollars, that had an impact. Overall, I think that if you look at the impact from the -- all of the war, we had about 1% because we stopped business activity in Russia. So that was about 1%, right? And we had 2% more coming from FX, from -- and kind of like it's a bit harder to estimate what happened in terms of acquiring new businesses, but I would say that it's also about between 0.5% to 1% that came from direct effect of demand in Europe because of the war.

In terms of LegalZoom, again, obviously, we're very excited about it. As the Vistaprint deal is maturing into reality, and we're starting to see the beginning of traffic coming from there, obviously, striking another very big deal with another fantastic company like LegalZoom is something that we're very excited about. And I think we're working and strategizing how to continue bringing like this kind of a big size deal to the table, while continuing to, by the way, also closing out of smaller deals that are less -- not get to the same level of -- I would say, don't get the same exposure as something as big as LegalZoom.

I think that in terms of the distribution, there's always things to improve, obviously, but we are covering many, many areas. We are strengthening the team there all the time. And I think that also the response time and our ability to really get deals done has improved significantly and now is really at a timeline that I'm very happy about. So I think this is another great area of our business that is growing and maturing.

This does conclude today's question-and-answer session. And I would like to turn the conference back over to the company for any further remarks.

Thank you. So just before we go, I wanted to obviously thank everyone for being with us today, and we would really, really hope that you will also join us this coming Thursday. I think it will be a great review in much detail of this plan we're putting in place, a much better understanding of how we think about our business in terms of those -- at least the core -- 2 core segments of the self-creators and the partners, and also the kind of the path for the 20% free cash flow margin that -- by 2025 that Lior mentioned before. I'd love to see you there and to talk some more about it. Thank you, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.