Good day. My name is Cole, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Wix.com 2019 First Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Please note this event is being recorded. I would now like to turn the conference over to Ms. Maggie O'Donnell, Director of Investor Relations. Please go ahead.
Good morning, everyone, and welcome to Wix's Q1 20 19 earnings call. Joining me today to discuss our results are Avishai Agarhami, CEO and Co Founder Nir Zohar, President and COO and Lior Shemesh, CFO. 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. You can find all reconciliations between our GAAP and non GAAP results in our press release, presentation slides and shareholder update, as well as our Interactive Analyst Center on the Investor Relations section of our website, investors. Wix.com. Now I will hand it over to Abhisheh Abrahami, who is going to say a couple of quick words about the quarter. Avishai?
Hi. Good morning. We had a fantastic start to the year. Both collection and revenues exceeded our previous guidance. These results show a strong start to 2019 and we are raising our full year collection and revenue guidance to reflect our continued excitement for the year.
As CEO, I always think about where we are and what worked for us in the past and most importantly, where we are going. We have over 150,000,000 users, over 4,000,000 subscriptions and nearly $800,000,000 of cash on our balance sheet. We are quickly approaching $1,000,000,000 in annual collections. And now I'm spending my time thinking about how to build Wix into a company with $10,000,000,000 of annual collections. Our strategy is to focus on products.
We are really good at building and releasing new products with very strong marketing support. Innovations such as our Editor, Wix ADI, vertical application has made Wix the best platform for do it yourself websites in the world. We are evolving into new markets and attracting new type of customers with products like Wix Logo Maker, Wix Payments, Wix Answers and Send and COVID. This evolution of products and marketing provide us with multiple layers of growth for many years to come. And today, I want to share with you another layer of growth that we have uncovered.
We told you in February that we increased our investment in customer solutions. This investment allowed us to gather data comparing problem solving support to a new personalized customer service approach. What we discovered was outstanding. Our analysis showed that the conversion of users who engage with our personalized support was multiple times higher than regular conversion on Wix. This is so compelling that we have decided to invest an additional $15,000,000 in 2019 to build the infrastructure and increase our customer solution organization globally.
We believe this is a huge opportunity that we provide additional year over year growth of at least 5% in collection in 2019 2020, which is an estimated 3x return on this investment. And I believe it can yield even better returns for years to come. To be clear, our focus will continue to be innovation and development of amazing products. But we now hope to have amazing personalized support alongside it. We will share more about this opportunity in our material and in the Q and A.
Thank you for joining us today. Maggie?
Thanks,
And our first question today comes from Ron Josey with JMP Securities. Please go ahead.
Great. Thanks for taking the question. Abhishek, I just wanted to touch on your or ask questions around the customer solutions investment. You talked about the incremental 15,000,000 dollars Can you just talk about exactly what you saw in the quarter? You talked about higher conversion, but maybe talk to us about how what changed in your interaction and what changed in the data that allowed you to see that higher conversion?
Because I think you've always had customer service in the States before. And what what led to that determination to spend the additional $15,000,000 And then bigger picture, as you invest more in customer service, in addition to the investments you talked about coming out of going into 2019, it's different than typical product investments. So wondering, Lior, if this impacts maybe your longer term free cash flow margins or no given the expected return you talked about. So customer service, why now and margin profile? Thank you.
Of course. So maybe I'll start with the why now. And I think the answer to that is last quarter, we told you that we're going to increase our customer support and which allow us to run a few experiments. This was one of them. And for this experiment, we've seen that the data was just fantastic and we've seen that much higher conversion, much better utilization of products and better customer satisfaction overall.
So, we feel very confident about the data and that's why we decided to
do it
now. In terms of as we add more products, there are more possibilities of what you as a customer can do in Wix, right? And but more products means also that you have to spend more time researching and understanding all those different possibilities and how they work together. And we're helping our customers understand everything they can do. We've seen increased conversion, of course, increased ARPU and increased satisfaction.
So, that is the philosophy behind it and we hope to continue doing that going further. In terms of cash flow, you want to answer that, Leo? Yes.
So looking at the 2018 profitability, we had about 15% of free cash flow out of collection. Last quarter, we reported about incremental investments of about $15,000,000 the same growth for this quarter. So that lead us to the same 15% profitability also for 2019 post those investments. I think that it's a good opportunity also to talk about the overall model of Wix and obviously about the long term. The way that we actually think about it is basically to take those 4% of leverage that we had between the years and invested back on our business.
I think that we had an amazing track record of doing so and delivering high growth and also great ROI. Now looking forward, I think that we always look at the combination between profitability, between free cash flow to growth. And every time that we can manage and we have an opportunity to invest in growth and to deliver more cash in the future, we obviously should do so. We are hyper growth company and we would like to stay as a hyper growth company. So I think that it's important to look at the combination and not just about the free cash flow, but the good news is that we are very confident that with those investments, we'll be able to generate better ROI in the future and we feel very excited about it.
Thank you.
Great. Thanks, John. Can we have the next question please?
And our next question comes from Yigal Aronian with Wedbush Securities. Please go ahead.
Hey, guys. Thanks so much for taking my question. So maybe first, I'll just ask on ARPS, it was flat quarter over quarter and you saw you noted in the investor letter that increased pricing and adoption of products haven't really led to an impact on revenue yet. Could you just explain the dynamics of that and why we're seeing that and when we could expect to see that?
Hi, Gar, this is Lior. So, yes, sure. I think that there's still a way to look at the average revenue per subscription. One way is obviously to calculate it through the revenue and this is one of the graph that we show that as you mentioned it's flat because it takes time until it's actually kicking into our revenue. And this is why what we wanted to do and we also provided it last quarter, we also provided this quarter is the average collection per new user coming, for example, in the U.
S, where then you can actually have a pure understanding of how much people are paying right now and talking about the new cost. And as you can see, it is up by 25%. Actually, it continued to increase from last quarter. And obviously, that will kick in also into the revenue, but it will take some more time. So overall, we see the increase in ARPU and it is according to our expectations even a bit higher than what we've expected last quarter.
Great, thanks. And maybe just one quick follow-up on Ron's question on investments. So, I clearly understand the business is growing and it makes sense to invest into it. But this is the Q2 in a row of incremental investment, maybe caught some investors by surprise and think about how we should think about the cash flow and investment profile and all that. Could you just help investors frame how you think about incremental investments and how we should be thinking about it going forward?
Thanks so much.
Sure. So I think that for every new investment that we are doing, obviously, we are doing many, many tests to try to understand how much we should invest and what is the ROI. By the way, it's very similar when you do an M and A. Usually, Wix, if you look at the history, back on the history, the entire growth was driven own products, in our own technology rather than M and A. There are other companies like, for example, increase the top line and the growth through M and A, which I believe that it's even much, much more risky.
So this is the way that we evaluate the investment. We try to understand exactly what is the opportunity, what is the ROI that we can get. And we mentioned that it's about 3x based on our understanding and analysis. It doesn't change the long term model, but what it's going to do is actually going to accelerate growth in the coming few years where we are going to see a positive ROI out of this investment. So, the way to look at it is basically to conduct tax, to look at the ROI, to try to assume exactly where we are and then to obviously to have a record.
And I think that we have a very good history of to show that.
Great. Thanks, Yigal. Can we have the next question please?
Our next question comes from Deepak Mathivanan with Barclays. Please go ahead. Hey, guys. Thanks for taking the questions.
The first one, the 180,000 net adds was better than what we had expected and it sounds like the conversion trends are improving continuously. Is your expectation for full year still in the ballpark of $550,000 And then a quick one on the incremental investments driving 5% of the collections. Is that something that you plan to achieve with the current $500 per month package, what else do we need to do here? I mean, is this an effort aimed at moving further? Or how should we think about the operational efforts involved beyond just the financial investments?
Thank you.
Hey, Deepak, it's Nir. I'll start off, I think, with the first with your first part around the 180,000. So, I think indeed that was ahead of the expectations and obviously we're very happy about it. You have to remember that additionally, Q1 is a very strong quarter seasonally and it was so also this year, which is part large part what we've seen around the growth in the additional subscription. It also ties up pretty very directly to our bids in collections in this quarter.
In terms of the full year expectations, Lior, do you want to comment on that?
Yes, sure. So last quarter, we told you guys about the evolution of our model, which is where we eliminated the connect domain package. And we are not just looking about net premium additions. We're actually looking at the combination of ARPU, of retention, of many other things. But primarily what we want to do is to optimize the code value, the lifetime value of the code.
And this is something that is right now is the most important for us. And this is part of the evolution and also connected to the new products and so on. So the KPI of just about net premium addition is not the most important one and this is why we don't guide for it. We gave it last quarter just in order to demonstrate the performance or the evolution of our model. So, in the past, we've made a lot of test to pricing.
I believe that in the future, we will continue to do many, many pricing. By the way, as we speak, there are few tests that running over our pricing to try to determine what is the best value of our code. So, if we do more changes, obviously, it will impact the net premium additions in the future. So, this is something that we need to take into account. Yeah.
And with regard to the second question about the investment, so Deepak, the 5% is totally, totally attributed to the new investment. It's nothing to do with enterprise or with other any other opportunity. Obviously, if that happens, so it can be another upside to the model. But just taking into account based on our initial analysis, the return over the investments of the $15,000,000 in our support organization.
Great. Thanks Deepak. Can we have the next question please?
And our next question comes from Lloyd Walmsley with Deutsche Bank. Please go ahead.
Thanks for the question. This is Seth on for Lloyd. Just wondering if you could talk about how the test of customer solutions have gone in terms of up sales versus retention? Are you finding the team able to drive more of an are you finding the team able to drive more attach of additional products? And then also ARPS has increased nicely in the U.
S. And you get the stat of 25% year over year. Can you better can you help us better understand the key drivers of the increase, How it stacks up to 25 percent? How would you rank order price increases, vertical applications, Ascend and maybe any other new products? Thank you.
So, as we roll
Pardon me. This is the conference operator. I'm not hearing any feedback coming from the speaker location. This is the conference operator speaking. I've reconnected the main speaker location.
Please begin.
Hi. Just want to apologize about the interruption. We just had a brief technical difficulty, but we are ready to answer the question.
So, I mean, I believe the question was about what do we see from the personalized support? Do we see more customers up sales or do we see a better conversion? And the answer for that is, as we wrote, is better conversion. We do see that customers are using more products, but I think the big emphasis is on better conversion. We're also seeing much higher customer satisfaction.
So, all three of those together for us are very strong signal that this is a much better approach and this is why we are so we're feeling so secure in our decision to follow that and do the additional investment. Leo, you want to take the second question, which is RPS versus average collection per sub?
Yes, of course. So with regard to the 25% that we've seen in the last couple of quarters, So most of it is actually coming from the evolution of our model where how the way that we described it last quarter, eliminating the connect domain packages and changing the pricing. So obviously that is the result that we expected to have. I think that it was also a bit better than what we expected initially last quarter. We also have some contribution of what we see for more people buying those business packages like, for example, all kind of online and e commerce and other verticals and going so well.
And it's also part of the evolution of our customers where the business evolve and getting better and better and they're obviously buying more and more services like G Suite for example. I believe that this trend will continue also in the future and this is something that is very exciting for us.
Great. Thank you, Seth, and apologize again. Can we have the next question, please?
And our next question comes from Brent Thill with Jefferies. Please go ahead.
Thanks. Good growth in the U. S, but I'm just curious, there's some questions around Asia and Latin America showing some pretty big slowdown. Anything going on there other than the macro that you're seeing?
I think that obviously, Brazil with the election, which was very tense and Asia with a lot of different events. Had some, but I think a lot of it is behind us. The other part of it is that you have to remember, we always launch our products first in English and then translate them and move them to other locations. So, I think that also contributed for that. But as you could see that I think that the products already proved itself in the U.
S, which is the harder territory. So, I feel very confident about that the rest of the world will catch up, again, assuming that the macro will get better.
Thank you.
Great. Thanks, Brent. Can we have the next question please?
And our next question comes from Jason Helfstein with Oppenheimer. Please go ahead.
Hey, 2. Just first question on the initiatives around getting into agencies. Can you give us an update on how that's going? I think the impact financially would be more next year, but if you can give us some kind of progress there? And then secondly, just a follow-up on the questions around the pricing increase.
How are you thinking about churn in your guidance for year relative to the price increases you're kind of modeling collections? Thanks.
Mike, so in terms of the industry, as you know, we started that last year. We've been we've grown that in the Q1. We're seeing really good results there. We have a few tens of thousands of agencies that we work with now on different levels. And we can definitely see that working closely with them improves our understanding of them, improve their understanding of what they can do with Wix with COVID and of course drive better results financially and in terms of growth.
So, we are very happy with the initiative and agencies for us are always the best kind of customers because they're not just building one website, they're building many. Lior, you want to take the second question?
Yes. Yes. So obviously, Jason, before we made those price changes, we test We had so many tests to try to understand exactly what is the impact of retention and so on. And so there is no change. Actually, when I provide the guidance for this quarter, there is no change in term of the metrics of the churn.
And it is really the same as last quarter and the quarter before. So I didn't change anything with regard to my model.
Great. Thanks, Jason. Can we have the next question please?
And our next question comes from Nat Schindler with Bank of America Merrill Lynch. Please go ahead.
Yes. Hi, guys. A couple of quick questions. 1, help me frame that 3x return on the $15,000,000 in spend in 2020. This is customer solutions, so this is largely people.
So I assume that in 2020, that $15,000,000 is at least an incremental $20,000,000 dollars next year if you're doing it for 4 quarters as you hire those people. So are you talking 3x15000000? So you think incremental collections of 45,000,000 dollars because of the $15,000,000 spend this year, but that would also be at a margin, a much lower gross margin incrementally because you would have at least $20,000,000 in customer solution spend next year? Also, why is this customer solution not have kind of more immediate effect? Why do we see the return more in 20 20 than in 2019 on collections as you hire these people on?
And then a second question, just you've rebranded Wix Code. Can you give us any follow-up on Wix Corvid business model?
So let's start with the first question. So you're asking if the 3x return on $15,000,000 means 3x revenues of $15,000,000 right? So, that's $45,000,000 The answer is yes. Will it have lower profitability, right, on those? You have to remember that since all of those customers already we paid for marketing for, so you have to deduct marketing from it, right, because we don't pay for marketing.
So I think it's pretty much going to end up being similar return on TROI or return on investment on those gross margins. So, it's probably going to be very, very similar, if not a bit higher. In terms of why does it take time to train people in order to be able to do that because we have to train people and we didn't build the product there. Humans were built by somebody else. And it's all about training and I think that takes time.
Hiring and training and infrastructure, there's a lot of infrastructure we need to prepare for that. So I think these are the things that I'm to answer your questions. In terms of the update on COVID, So, we decided of course, it's Wix Code. We decided to change the name because we felt that the Wix website builder is addressing one kind of customers with a very specific value offering and this is a new value offering addressing different kind of customers. What is the way to speak about both of them separately?
In terms of what are the differences, we released a lot of functionality last quarter, things like gradual releases of versions. You can actually have the same application running in 2 different or 3 different versions. You can have telemetry and app monitoring connecting to Google or to other places, external data sources, collaboration, the ability to work with your local IDE, with your local code editor and then work as a team on a project. So, we did a lot of really exciting stuff. We announced all of it, of course, with the Google partnership last quarter.
In terms of the price model, I'm not going to discuss all of it now. I'm just going to say, we are now very much leading to doing it based on functionality more than based on usage. So and this is something we're already testing with the potential end acting customers. And so the concept is that if you have different functionality, you have different pricing, not necessarily how much you use.
Great. Thanks, Matt. Can we have the next question please?
And our next question comes from Matt Pfau with William Blair. Please go ahead.
Hey guys, thanks for taking my question. Just wanted to ask on the payment solution and get an update there. Maybe you can just talk to us about how that product is trending versus your initial expectations? And then in terms of what you're seeing from new customers creating online stores, what has the uptake been like for the payments product versus other payment options that they have? Thanks.
Hey, sure. So in terms of Wix Payments, we actually in most of Europe, in the U. S, in Brazil. And obviously, we have plans to continue that global expansion we're evolving the product itself, we're still getting mostly the new users to adopt it. We evolve in the product itself, we're still getting mostly the new users to adopt it.
We haven't gone back into the existing user base yet and migrated people. However, we're seeing very high adoption of Wix Payments through those users. So, out of those users who are now building new services that require payment on Wix, The majority clearly will take Wix payments over anything else. So we see that as very, very encouraging.
Thanks very much, Matt. Can we have the next question please?
And our next question comes from Nick Jones with Citi. Please go ahead.
Hi, thanks for taking the question. Just to touch back on the agency initiative, how should we think about net adds or new subs that originate from agencies? Is that a big contribution today? And can that dominoat accelerate net
adds? Hi, Nick. This is Lior. So, obviously, we are extremely excited about the progress with our agencies. We actually are working right now with thousands 10,000 of agencies.
The progress was amazing in terms of how we engage with them and how working with them. Look, I believe that if obviously everything goes according to the plan and we are able to increase the number of the agencies and so on, obviously, it will have a big impact on net subscription additions. But as I mentioned before, this is not right now part of the guidance that we provide. But to answer your question, of course, any agency generates more premiums than the regular customers And this is exactly the potential that we have within these new product initiatives.
Great. Thanks, Nick. Can we have the next question please?
And our next question comes from Jonathan Kees with Summit Insight Group. Please go ahead.
Great. Thanks for taking my question. And I'll follow instructions there and limit myself to one question. My question I want to ask about gross margins. You've talked about the hit from customer solutions is what brought it down for the Q1 and you guided for Q2 as well as for fiscal year 2019.
I guess the overall trend has been kind of been going down. I realize some of that has been a shift from the agency model and the G Suite and now you're rolling out of payments, which is, I guess, lower you're recognizing it differently. I guess, is there going to be more of this kind of volatility of gross margins beyond this year? Is it something we should just be more cognizant about or just more aware that this stuff will kind of happen and gross margins will kind of deviate here and there? Thanks.
Yes. So let me provide some understanding about the model and the way that we actually see that because obviously we are not trying to optimize the gross margin as a number. I think that what we are trying to optimize is that the overall cash that we can generate now and in the future. The gross margin has an impact due to the first recognizing the G Suite on a gross basis. That was one that happened last year.
But also this year was impacted by the payments that we spoke about and also right now about increasing the support organization and it has about 2% 2 points impact over this year. To your question, I believe that it might happen in the future that we have more services, for example, like the payments, if the payments are going to be more significant in the future, it's going to have an impact on gross margin as well. I believe that when it's going to be significant, we will divide the numbers or the gross margin into 2 separate layers. The first one is from subscription, the other one from the other services. So I think that it will provide more understanding.
So once it becomes significant, so obviously we will do that. But again, the purpose is you might have lower gross margin, but the better profitability because it doesn't involve with R and D and sales and marketing. So the purpose is obviously to optimize the free cash flow.
Thanks, Jonathan. Can we have the next question please?
And our next question comes from Zachary Schwartzman with RBC Capital. Please go ahead.
Great. Thanks for taking my question. In the shareholder letter, you provided an update on Corvid, which now has 880,000 users and 180,000 of those highly engaged. Can you remind us how you calculate highly engaged users? And I guess the more important question here is on the packages you're testing for pricing that include Corvid.
Can you talk about some of those that are in the field and the early traction or feedback you are receiving? What are those price points and ranges? Thank you.
Hi. So, the way we so because COVID and the traditional Wix website builder have very different functionality. It's very easy for us to see who's actually using that. And so finding who's using COVID or who's using just a site builder, it's very easy. The other side is that, when we see somebody who's continuously continue to develop things with COVID and because and one site or more, right, but because in COVID, you can actually sit for 3 or 4 months and program something, right?
You actually write code. It doesn't necessarily mean that they have building more than one website, which would normally be the case somebody is so engaged on Wix, the website builder. So, that's why we disclose the number as we do it now. But the majority or pretty much all of the people that we're seeing that are highly engaged are people that are spending many hours working on COVID every month, writing code, adding databases, really using the full functionality. And I would say that the vast majority of them are professional developers to some level or have at least the professional developer skill set.
In terms of pricing, so we're not going to disclose the price list yet because we're still working on the final details of that. But we already are working with customers. We're working with a variety of different customers from large enterprises to startups and to people that actually build websites that are very advanced. The price list is based, as I said before, mostly on functionality and not on usage. I know there's some question about it in the previous quarters.
And so, we're very excited. We really see that this product is taking off. It's way ahead of what we hope for to be at this stage. So we are very happy about the results of COVID.
Thanks, Zack. Can we have the next question please?
And our next question comes from Mark Zutowicz with Rosenblatt Securities. Please go ahead.
Hi, thank you. Not to beat dead horse on gross margin, but maybe just to be specific here, what's the sustainable gross margin in 2020 beyond? And then as you talk about TROI and sort of the leverage there to, I guess, continue drive TROI higher. What type of operating leverage do you need to see in light of the, I guess, delevers that you're seeing on the gross margin line to continue to drive TRR higher? And maybe specifically on sales and marketing, you're obviously making incremental investments in the sales and marketing line.
Just curious how that may continue into '20 and beyond? Thank you.
Okay. So I will start with the gross margin. As I mentioned before, I look at 2 separate revenue lines. The first one is subscriptions and all the different packages that we are selling. And definitely there, the gross margin is more than 85%.
It's actually looking at it long term is about 87%. That said, you have also a separate what I call the business line, for example, for all kinds of services with lower gross margin, like payments, Like what we've just invested with the support organization and other third party services. And I think that over there, the gross margin might be different. And it's hard for me to tell you exactly where it's going to be, but I assume that it's going to be more than 50%. Obviously, it's going to be less than the 85% for the regular subscription.
So it will be interesting to see in the future the combination between the 2 revenue streams. By the way, very similar, for example, for other companies that separate those 2 separate lines of revenue. With regard to the marketing, so I believe that the current model of the TRY of 7 to 9 months will continue. I think that this is something that demonstrates a very good leverage for our operating expenses. You can see how it's dropping by a few points on a year over year basis, and it's going very well for us.
So I believe that this is something that will continue into the future, and we'll see more and more leverage coming from the sales and marketing.
Great. Thank you, Mark. Can we have the next question please?
And our next question comes from Naved Khan with SunTrust. Please go ahead. Mr. Khan, your line is open.
Yes, can you hear me?
Yes, we can hear you.
Thank you. So I'm just trying to reconcile the tens of thousands of agencies and developers for Corvid with the 180,000 highly engaged users. Is the tens of thousands base that's using Corvid kind of the one that you think is more likely to monetize and maybe they're starting to use Corvid kind of with the understanding that at some point they will be paying for it. How should we reconcile the 2 different metrics in the $180,000 and the $10,000 And then I had a follow-up after that.
So we don't actually I don't I think that the tens of thousands agencies using Wix, okay, are not necessarily the one who are using COVID, right? We have a lot of people using COVID. I think the vast majority of them are not in the agencies that we described before. They will be more professional developers. We do have agencies that are using COVID, right?
And I'm actually not sure how much of that is common and how much is not in terms of groups, right? So in terms of pricing, I think that we're probably not going to go back and change pricing on people that use COVID. But most of the functionality we're going to be charging for is new, right? And it's coming from needs that we get from people using Corvid today. So, we understand what is critical, what is more important for bigger projects and how we should charge for it.
So, most of it is new and we're not going to go back and change pricing on people in the past.
Understood. And then my follow-up question was just around the margins. And I think, Lior's commentary around how with the customer solutions investment, it's more of conversions benefit and you don't have to acquire that customer. So the incremental margin might actually be better. How should we put that in context of your long term margin outlook?
Is that incrementally better now on the contribution margin level?
Yes. I wouldn't change the long term margin in term of the free cash flow or the EBITDA of what we introduced, I think that going long term, the way that we actually envision that is always look at the combination between growth to profitability. That's so I believe that when we get and hopefully it's not going to be soon to the steady state phase. So I believe that the free cash flow is going to be higher than 30% out of revenue. So there is no change to the model.
But obviously, because of all those new initiatives, the collection, the number itself as revenue is going to be much higher. So then it will increase the overall cash that we are generating in the near future and also the long term.
Great. Thanks, Naved. Can we have the next question, please?
And our next question comes from Sterling Auty with JPMorgan. Please go ahead.
Hi. This is Matt Pron on for Sterling. Thanks for taking the question. So two questions actually. So this $15,000,000 investment, could you, I guess, give a bit more color in terms of how much that's going into sales and marketing and R and D?
And then in addition, on the new items front, what areas are you guys going to be focused going forward? And what's the timeline that you guys think they'll be launched? Thanks.
So, this is Zio. I'll start with the first question. The entire $15,000,000 is part of the cost of goods sold. So it has a direct impact on gross margin, as we mentioned before, going down by 2 points, not R and D or sales and marketing. Everything is support.
With regard to the next question about products and timings of new products.
And I'm going to ask you.
Yes. So, Matt, obviously, we have a lot of things under our that are in planning and in different stages of execution, but we never announced the product timeline before we actually announced the product. But as always, I think you guys have there are things to expect and you'll see more coming from us throughout the year.
Great. Thank you. Can we have the next question please?
And our next question comes from Mark Grant with Goldman Sachs. Please go
ahead. I appreciate all the color around Corvid as well. I just wanted to touch on some of comments you made earlier. When you look at the pricing model potentially being based on functionality, can you talk a little bit about the common use cases that seeing in terms of what kinds of businesses require the functionality from Corvid for their sites or the types of web applications that are most commonly being built on the platform?
Absolutely. So, I think that we're seeing that it's mostly divided into, I would say, roughly 2 big different categories. 1 is internal applications and websites and other one is external. External will be something like wish.com, right? People from the outside of the Internet can actually come and use it.
And then we see a lot of intranet project being built on COVID as well. One example of such functionality is including it in your domain, right? So, if you're an enterprise that nobody outside of the enterprise can even access the website, so that's not just password protected. It's actually network protected. So, that's one example of functionality.
In terms of what we're seeing that if you go one level deeper, we're seeing a lot of portals being built, search portals for functionality. So, for example, renting a yacht. This is the demo that we did in with Google. We demoed our customers' website on the Google Next event. So that was a and that really uses COVID, right, because they have this website that can find you a yacht, they can talk to many different suppliers, they do it offer APIs, you can do all the transaction there, you can go to your account, follow the transaction history, change things.
It's really the full blown capabilities of a development of a project that is unique. In tenant in the organization, we see a lot of things that are mostly about the corporate procedures and education inside the corporates and we see a lot of those. So, things like managing classes, attendances, what people consume, what they didn't and some other things of that nature.
Thank you. And then if I could just follow-up on that, when you look at those internal use cases, who are your customers displacing with Corvid? Is this a greenfield opportunity for you? Or are there incumbents there that you're actually ripping and replacing?
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Hi, everyone. I apologize again. I think we just have time for one last question.
And the last question will come from Tim Klasell with Northland Securities. Please go ahead.
Hey, guys. Thanks for squeezing me in. Just one question. Around the customer support agents, obviously, this will help in the vertical market applications you've rolled out. Will these customer support agents carry a commission?
And what products do you expect to see the biggest benefit from these agents helping with the process? Thank you.
So, first of all, about commission, no. We don't intend to have them get commission. It's not the sales position. And, supposed to, I think, a lot of other companies, go down it, for example, we have sales engines on the phone. This is a completely different operation.
We do, however, expect products that have thus more functionality to be the biggest benefit us from that. So, things like Ascend or the booking systems, I think those will be the main benefit from that. I probably expect e commerce to also benefit from that to some level. I know that when I want to set up e commerce on Wix, I always find that there's so much interesting stuff for me to learn and to do.
Great. Thank you. Very helpful.
Thanks so much. And thanks everybody for joining today. I apologize again