Ladies and gentlemen, thank you for standing by, and welcome to Wix's 4th Quarter and Full Year 2020 Earnings Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host, Maggie O'Donnell, Director of Investor Relations. Please go ahead.
Thanks, Sarah. Good morning, everyone, and welcome to Wix's Q4 and full year 2020 earnings call. Joining me today to discuss our results are Avishai Abrahami, our CEO and Co Founder Nir Zohar, our President and COO and Lior Shemesh, our 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 and key operating metrics. You can find all reconciliations between our GAAP and non GAAP results in the earnings materials and our interactive analyst center on the Investor Relations section of our website, investors. Wix.com. With that, I will now turn the call over to Abhishek for some opening remarks.
Abhishek?
Good morning, everybody, and thank you for joining us today. I think that if you look at the numbers, it's kind of obvious to see that this was our best year ever. So it's really exciting for us. But even more than that, I want to point out to think that might be less obvious that I get excited about even more. And this is that we have incredible more than doubling growth on e commerce and of course More than doubling growth on partners, people that are building websites for others.
Both those things represent New kind of businesses that which we said, new revenue streams that we have now on Wix. And both by nature Our compounding, right, e commerce because you have more people adding and also they have more payments. And then on the other hand, all of the partners because they build multiple websites, That's a business to be more and more websites. So for us as Wix, this is a big turning point where we are actually expanding the offering to be Much wider. In fact, if you look at that and you think about the growth rate of Wix and the size And renewal of things on the Internet of online presence on the Internet, I believe that it's kind of Well, maybe be ambitious, but achievable, right, to assume that in 5 years, half of all the new things in the Internet will be built in Wix.
In fact, I'm so confident about it that I have to say that if we continue to have great execution, then this is something that we should achieve. And for me as a CEO of Wix, this is super exciting. It's really amazing to be in a place that you see Such growth in all of the new things we released and of course that will position us as such a core part of the Internet going forward. So thank you, everybody. Thank you for joining us.
And with that, I'll go back to Maggie.
Thank you, Avishai. All right. I think we are ready for Q and A. Operator?
Thank Our first question comes from the line of Brent Thill with Jefferies. Your line is now open.
Thank you. Avshad, just your vision of moving upstream to service not only small businesses, but Mid enterprise and enterprise, can you just update us in terms of the vision and traction you're starting to see beyond the Smaller startups. Of
course. So actually this goes in a few different directions, right. So the first thing is that the product today is a product that fits right. It can build huge websites with Wix. But beyond that, it's also Editor X, which allow you to create this very sophisticated design going All the way to what we see in the most complex websites existing today.
The business stack below that, the ability to actually use Velo And connect everything to your back end to your enterprise offering. And of course, the challenge because most of the larger customers To not build the website themselves, they work with partners, they have somebody that does it for them. So our ability to serve those with a great offering as well. And then all of this has pretty much happened this year. So for me, it's really exciting and we're already starting to see.
We shared some examples On the Editor X launch 2 weeks ago, and we're really starting to see more and more Larger companies using Wix.
Thank you.
Of course.
Thank you. Our next question comes from the line of Sterling Auty with JPMorgan. Your line is now open.
Yes, thanks. Hi, guys. Just one question from my side. Looking in the presentation materials, the discussion around the take rate on payments, It's a really impressive rate for a company being in the payments business as long as you have. I'm curious what's allowed you to get to those level of take rates?
And are those take rates when you first start with a customer, do you ramp to those levels? Are you at those levels from the beginning and they hold Steady when a customer comes on to Wix Payments.
Sterling, it's Nir. So thank you and I think it's a great question. As you phrased it relatively early and actually I'm 100% sure that the take rate is actually going to improve over time as you've seen it improving so far. When you look at a specific customer Dan, you don't ramp up. We started at a higher take rate.
But obviously our ability to increase the overall take rate on the platform Comes from the ongoing improvements that we apply to the platform and the expansion we are doing to the platform also internationally.
Got it. Thank you.
Thank you. Our next question comes from the line of Ron Josey with JMP Securities. Your line is now open.
Great. Thanks for taking the question. Maybe a similar question in terms of the graduation rate for users. I was pretty impressed to see 37% of 2020 cohort revenue from newer online customers or subscribers or commerce subscribers. And I think you talked about maybe a 2x increase in terms of The rate of those subscribers adopting G Suite and Ascend and Facebook ads, can you just talk about the journey of how a new commerce Subscriber goes about adopting these products.
Is this something immediate? Is this something that happens over the next couple of months once they start using the product? That would be helpful. And then maybe, Lior, on subs, I have to ask with 185,000 new subscribers this quarter, you just talk about the strategy here? I think they declined sequentially and just maybe a little bit more about just the new subscriber growth.
Thank you.
Of course. So most of the time, what we're seeing is that people will start with a very basic e commerce business. And as time passes, they will extend and add new things to it. So it's not like you come in one day and build everything. I mean that for example, if you look at the automatic advertising product that can happen after a few years or After a few months, but it's almost never happened in the 1st month, right?
And we're seeing that the consumption of additional tools from us It's something that is the more people know the system, they understand the system and actually appreciate it and have trust with it, right? That's where they start looking around and Okay. How we can accelerate our business. And so normally people will come to Wix and in the first couple of, I would say, week or so, They'll build online presence for like the basic offering. So if it's a shopping cart business, they add the products, they set up the billing, the payments, The policies and the clients start selling.
If it's a if it's having to book booking, They build the basic offering of booking at some of the teachers, some of the classes and start working from that. After that, they usually start using the applications, Right. So they make the application and after that they start going deeper and deeper into business tools. So usually a process that takes a bit. And so it usually takes something that it takes time and that's what We're seeing by the way, a lot of things that we're seeing is that a lot of them will start adding different tools.
So somebody that has a booking business will start selling products, Right. To these customers that we're starting to see there and then somebody just doing selling product, we start offering classes and teaching and Thanks. So we're seeing a lot of this cross between the Vericast Hotels, obviously. They have a store, they have a spa. So there's a lot of a cross between the verticals.
So it's more of a vertical offering necessary vertical customers In many cases. Neil, you want to take the second one?
Yes. Hey, Ron, so with regard to the question about the net Sats, so Q4 2019 actually the growth was about 107% more than Q4 2019, meaning that 2020 actually growth was Double, more than double than Q4 last year. That said, Q4 was in a way Also impact by typical seasonality with a bit of a higher volatility due to the epidemic And probably also because we came out of a very strong Q3. So obviously, we see that the impact is kind of temporary for the Q4 and it's also reflected in the Q1 guidance that we provided that the Growth, for example, of creative subscription is more than 30%. I think that it's also important to mention that the value Of each subscription is so different.
So it's really hard to measure and compare. And this is why by the way we in a way we are Valuating or looking at ourselves as the value of the core, just as an example. I think that we also provided to you in the shareholders update, the 2020 call generated nearly 7.5x The amount of revenue compared to 2016 quote, I think that it's a great indication to understand that Each subscription today, the value of it is much higher than a subscription a year or 2 or 2 years ago. So I hope that it answers your question.
It does. Thank you very much.
Thank you. Our next question comes from the line of Navit Khan with Chula Securities. Your line is now open.
Yes. Thanks a lot. So, Avishai, on your vision of maybe Accounting for 50% of new sites in 5 to 7 years, where do you think you are on that metric today in terms of share? And then maybe if I heard you correctly, just a clarification, did you say that the contribution or the growth in partner channel Double last year and how should we think about growth in the channel for this year?
Yes. So I did mention that. And I think that hopefully it will more than double this You as well. And this is something that 2 3 years ago, we spoke to about a year and we mentioned that we're going to invest into that. And I think we're seeing really massive success.
I think that 50%, right, of the new So it's been going to the Internet built in Wix. Obviously, it's an ambitious call, right? And I think that this company want to be ambitious. But I think that you could just play a little bit with the mathematics, right? And you'll see that it's not hard to imagine that we'll be there.
It's actually Very unlikely that only something changes, right, we'll be able to achieve that. Of course, we'll be we'll need to do Excellent execution and we have to continue to innovate and drive product. But I think this year's growth rate we look at the history of the growth rate, it's such that it's showing that it's very likely to happen. Oil can be Not 5 years, but 6 years, right? But it can also probably 4 years.
So I think when I say 5 to 7 years, I believe that it's something that is very achievable. And for the finger as a message internally for the company, it's a very important thing because This is really something we believe we can achieve and this is something that we work very hard to achieve.
Thank you.
Thank you. Our next question comes from the line of Ken Wong with Guggenheim Securities. Your line is now open.
Great. Thank you for taking my question, guys. I wanted to maybe touch on payments again. Previously, you guys updated us that about 30% of the installed base had attached payments and 80% of the new. Any refresh of those numbers?
And then on the take rate, as you think about where you guys could go, any rough sense of what that ceiling is? Some of your competitors out there have roughly 2.50 basis Point, is that what we should be thinking for Wix Payments longer term?
Hey, Ken, it's Nir. So in terms of I think the 30%, 80%, it's growing. It hasn't changed dramatically. I don't think There's something different to report at this stage, but the adoption continues at a high pace. I think that in terms of the take rate Yes, I think that definitely over a longer period of time we will get to industry standards as we keep on evolving the product and expanding That's definitely the goal.
Great. Thank you.
Thank you. Our next question comes from the line of Nat Schindler with Bank of America. Your line is now open.
Yes. Hi, guys. So, when you mentioned in the gross margin discussion that there was a the decline was partially due to the customer Care expansion, how much of that is leverageable? And longer term, where do you think the gross margins will settle out? Secondly, if I look at your TROI slide, I think this is one of the first times that I've seen just on the Q1 slide, Which should be, I think, on average, 10.5 months of time from that on that Q1 result and it still hasn't gone into positive returns, so a little off your 7% to 9%.
Was that A function of just Q1 this year and some seasonality or is that an actual trend that you're looking to expand your TROI?
Okay. So I will start with the first question about the gross margin. I think that I want to divide the question the answer into 2. First, let me talk about the creative subscription. So you're absolutely right.
The creative subscription is actually the gross margin went down as a result mainly Of the expansion of our customer care to address the huge demand that we see right now, but also in the future. Obviously, We see that demand is continue to grow. So we have to make sure that we prepare ourselves, prepare our ability to support Users that come to Wix and looking to build an online presence. So we hired about 700 agents in 2020, which obviously has a full impact in 2021, but we will continue to hire more about 600 more in 2021. So it has an effect.
To your question you're absolutely right. I think that and we mentioned that by second half of twenty twenty two, we are going to be back to about 80% of Gross margin as we saw powering in accelerated mode. And also there is a lot of infrastructure improvements That we've done in order to support this growth that we won't do obviously in the near future. So definitely it's kind of a temporary effect in order to answer the growth and we feel very good about it. With regard to the business solution, nothing dramatically changed except of 2 things.
The first one is the change of mix Well, payments become more dominant in terms of the business solution. Actually in 2021, it will be like the number one Revenue stream on the business solution kind of amazing taking into That we just started this business. And the gross margin of payments is increasing as we scale up. We talk about the take rate for example. So we're also investing a lot in order to build the infrastructure to support payments.
Everything about the onboarding process, about the support. So next year, for example, we are not going to invest as much as we Investing this year. So gross margin is expected to grow up as well there. But it's also important to mention That the focus of business solution is about the product for users, not necessarily the gross margin, because in the end of the day, It's generate incremental free cash flow to our balance sheet and this is very important. It also has an indirect effect Over the retention of the creative subscription.
So this is obviously something that is very important for us.
Ned, this is Abhishe. I just want to about your question about TRY in the Q1. So it was influenced by a couple of things. And first of all was that if you remember in the 1st month of the pandemic, everything actually slowed down a bit and then accelerated obviously in that quarter. The second thing is that we launched we spend marketing dollars in launching new products.
And that always you always spend there to start creating this pool. So that was mostly so that was the effect of that. The last part of it was that We started investing into e commerce product and the behavior of retaining cash is influenced also by, of course, Outtake of payment and that's something that we have to learn how to include better into the mathematics. However, I want to say that as the CEO, We came up with the number 7 to 9 months because we thought that this means that we're efficient in a certain way. But for me, if you're in 10 months or It's actually better than if we are in 6 months, right?
Because that's actually is what I would be worried about more. And by the end of the year by the way, last year, we came back again to the same range of 7 to 9 months. But Thank you for noticing that. And I think it was influenced again by the pandemic, releasing of new products and Trying to think about what is the model with which we should measure all the ecommerce things, which of course Have a different way to be able in terms of return on investment because they tend to go more in the future, right? So if in the first year you get x, usually In the second year, you get 1.5x or 2x from them.
So maybe we should be a bit more open to spending a bit more on those guys.
Makes sense. Thank you.
Of course.
Thank you. Our next question comes from the line of Jason Helfstein with Oppenheimer. Your line is now open.
Hey, everybody. Thanks. So maybe start with a question about Your comment about you're targeting half of all new sites or things in 5 years to 7 years. Where are you today? So kind of what's the starting point that you're using to get to that glide path?
And then a question about The gap between collections and revenue, maybe take us through just the puts and takes We get a lot of questions from investors on kind of we go through periods where obviously it's the gap, right, because the revenue is expanding And then it narrows, so just kind of take us through that. Thanks.
All right. So I think that if I answer one of your questions, as far as I know, if you look at the Internet, right, you have to divide it, right, between a few different sectors. So the first thing would be people that are building small business website, mostly building themselves. And I think there are self creators, which is by the way a trend that is super growing on the Internet, right? So that trend in itself is growing.
And in that trend today, I think Wix is already above 50% of it, close to 50% of new sites being created on the Internet today. So from self creators on the Internet. And then if you look at partners and designers, So it's very hard to estimate exactly what their number is on the planet, but I assume always that their number on the planet is probably equivalent to the amount of people using Photoshop, Right. It's not exactly, but very similar. So about $3,000,000 or $4,000,000 And we are getting to be about well, I don't know if you Close that number or not, but we're already double digits in that from that, right?
And this is a new offering that we have. So even we are doing just continue to go in the same rates that we go, we'll be at 50% of those. Now those guys are responsible for 2 kind of websites. There is possible people that buy websites, right, to have somebody else designing their website. And of course, for enterprise, for most of the enterprise, a large company's website.
I think just by looking at those 2 key factors, right, you can see that it's very trivial for us to be 50% of all new Internet websites. And the one thing that we don't address as much today, but we're seeing growth already with EditoX happening today Our company is building their own website, so enterprises, so medium sized companies or large sized companies. And again, we're seeing growth with Aetorix, which is surprisingly fast, ten Month over month. So more than 10% month over month. So I think that if you factor all of that, it's very easy to extrapolate that would probably be 50% All new websites being built in the world within 5 years.
Jason, with regard to the second question about collection and revenue, a general comment about it, I think that we need to relate to 2 different behaviors. The first one is the creative subscription, which mostly It's recognized over time as you know. Business solution is mostly recognized immediately, for example, payments. So collection is equal to revenue, with regard to payments, for example. In Q4, We had more collections coming from payments than what we anticipated initially.
Therefore, the revenue was all recognized immediately and it was kind of Increased more than what we anticipated as I mentioned before. So obviously, the gap between revenue It really depends on the nature of the growth. If the growth is more coming from creative subscription, you will see The gap is increasing. You see that the growth of business solution is increasing, so the opposite. So it really depends.
But again, this quarter, it was a nice it was very nice to see how business solution is Scaling up, especially payment, which obviously was all recognized.
Thank you.
Thank you. Our next question comes from the line of Yigal Aronian with Wedbush. Your line is now open.
Hey, good morning guys. Thanks for the questions. I want to ask around the $60,000,000 in incremental investments this year and How you think about that being the right level of investment, how that flows through to the revenue collections guidance This year and next year as well. And then within that, you have 2 real big initiatives, I guess, right, Editor X and At Editor X and the partners and e commerce, is Editor X with 200,000 subs kind of tracking Where you thought you'd be at this moment? And how does Editor X contribute to commerce?
Are you seeing more commerce Sites being built on Editor X, is it a boost to the commerce initiative? And then I have a few kind
of technical follow ups I'll ask after.
So I will start with the $60,000,000 incremental investments that we've made. So we mentioned that we are going to use it for several things. The first one is about the clear headcount expanding it. So it's a good question because internally we try to understand how many people, how many agents we need to support The continuous growth. We also assume that the growth will continue.
I mean, we talked also last quarter about the new state of mind And it's actually happening. The growth continue and the demand is actually increasing. So in order to For that we have to recruit more people, more agents and it takes time to train them. So I believe that 2021 we are going to increase the investment as we mentioned before. We are going to see the benefit of it Already in 2021, but mostly in 2022, have the gross margin actually increasing again to 80% for creative subscription.
We are going to use it in order to support payments. We talk about the payments, the product and the growth And how we increase the take rate. And there is a huge opportunity for us on payments. Payment has already started to deliver free cash flow On the bottom line, I think that next year it will be much more significant for us and the same goes for account management. So we believe that this is like the appropriate amount that we need to invest.
Obviously, we are not doing it in day 1. It will be based On the actual growth that we are going to see and witness throughout the year.
I just want to
add that
I think that in many companies that have a balance As strong as ours, we'll use that in order to grow the business through M and A. I think that we've our approach is that most far growth will always come from innovation. I think we've proven that investing into innovation is what works best for us to generate that future growth.
Okay, helpful. And I wanted to just a couple of mechanical things. So people have asked about payments And the take rate. Can you just explain the gap between the 1% and what's there on your website, which is Kind of amounts to 2.5% to 3% already. What's the difference between what's listed on your site and what you're recognizing?
Are chargebacks Being accounted for in the take rate or as a cost? And then, again, going back to the Creative subscriptions collections, which decelerated this quarter and you're expecting to accelerate again next quarter, is that all coming from The kind of pull forward you talked about in subs in 3Q and normalizing again in 1Q or are there other seasonal elements that are causing that?
So I'll start with the second question. It's exactly what we said before about the seasonality Effect that we've seen and the volatility that we had in the Q4 again especially after a very strong Q3. But we already see on January number that it's going up again to more than 30% on a year over year basis. So I think that it's a great indication for the fact that it's only a temporary effect and we are back to the growth that we've seen before.
As for Editor X, you asked about the growth of Editor X. So I got to say that it's your first question was about Growth of Edidorex and for me, I think this is by far the fastest growing product we ever released. And in terms of growth and taking into account that this is not something that you just can Broadcast and use regular marketing channel because you're going after professional people. I think this is amazing and it's A testament to the quality of the product and to the quality of the marketing team working on this product. On in regards to does it do, It's growing over 10% month over month, 200,000 users already.
So really, it's fantastic. In terms of contribution to e commerce, we do see more e commerce there and we do see more complex projects there. And I think a big part of the reason for that is that this is not you know, Ready to Exit is really a tool for professionals. I struggle to finish a website with it. It takes me time.
Having that, if you use ADR, obviously, it's never an issue. But even if we use the classic editor, it's very simple to do. Editor It's much harder. So of course, we're using that more professional, bigger projects, deeper projects And that's part of it. Again, for me, the most amazing thing is that I did not expect it to be anywhere near where it is now In terms of numbers or growth rate, it's amazing.
Was there any more questions or Lee answer everything?
Yes. And then the pay what's the difference between the 1% take rate in payments and what's listed on your site? What are the factors there?
You have to remember that first of all this is a young product and you're evolving it. A lot of our existing users who are transacting on our Not necessarily on our own gateway and in which case we have different kind of commercial terms with the other gateway. So naturally it's not as favorable as to ours. We're not forcing them to move. We're enticing them to move by offering a better product and higher value.
This is also why you see the take rate taking off from the 0.5 percent it was in 2019 to the 1.3 percent it should be In 2021 and we are very confident that it will continue to go up.
Great. Helpful. Thank you, guys.
Thank you. Our next question comes from the line of Nick Jones with Citi. Your line is now open.
Great. Thanks for the question. I guess a follow-up on some of the incremental investment, Specifically on the growing the account management team for the high volume commerce users, How do you feel the Wix platform is positioned against some of the, I guess, competitors for kind of agencies or higher volume e commerce Companies, is Wix's suite of solutions today adequate for someone to scale to a sizable E commerce company or is that a risk as they get bigger that they turn to maybe custom applications to improve speed or things like that? Thanks.
Well, I think that I think that we are to a place where we're actually very competitive in those categories. And I think that if you use Wixi comments, which is really a fantastic product, and then Editor X, which is nothing compared to it in the ability to design any Cotoli's side, work as a team, right? We have the ability we're the only company on the planet to give you a way to actually work as a team when you build projects like that, right? So you can use concurrent editing, right, for that. You have the history, the versioning and then you have Vero, right, the Wix Code solution.
So you can actually custom build whatever you need and you don't have to rebuild new servers and infrastructure. So I'd say that If you look at our ability to compete this year on bigger project, it's fantastic. I think we have the best offering on the planet.
Great. Thanks.
Thank you. Our last question comes from the line of Chris Montage with Deutsche Bank. Your line is now open.
Thanks for taking my question. Maybe 2 if I can. You talked about having these commercial relationships with some of the other gateways. Can you just help us think about the opportunity for Wick's to charge a transaction fee similar to what some of your peers are doing on Transactions that are taking place on, yes, other payment rails, and not through Wix Payments. And then just kind of thinking through your 2021 payment disclosures that you've or guidance that you've given here, How should we think about, yes, as we look at gross payment value from existing users versus new users, how should we think about the drivers there?
And just curious, yes, why is the revenue guidance so tight at this point in time for a product that's growing so quickly? Thanks.
It's Neil. I'll take the first part and I think Lior will cover the second one. So in terms of the opportunity to charge transaction CE is part of Payment Gateway. First of all, of course, we have that opportunity. At this stage, we haven't Implement it or don't intend to do it in the near future.
We believe that our ability to move the merchants and the customers is Through the depth of our product and offering and making it so excellent that it's just much superior. We may do that in the future. Currently, we don't think that that's the best way to go about it.
With regard to the 2021 payment guidance, so obviously we see a Strong growth coming from both existing and new users. But for example, a lot of new users in 2020 Driving the growth, it's in a way think about it as a compounding effect where you see the growth of our users. In addition, we are getting more because also the mix is changing and we are getting more kinds of business interest. So we see more than that and it's actually growing. And at the same time, we also increased the take rate.
So all those indicators actually lead us to believe that the guidance for 2021 is actually Something that is quite realistic. We are very excited about it. And actually, I can tell you that it can be even more than that. It really depends on how the year will be and how much people are going to embrace the new product. For example, point of sale.
Point of sale is going to move many people from offline to online. So it's also going to contribute global expansion of Wix Payments. So there's a lot of opportunities over there, but certainly also long term opportunities that we intend to pursue.
Got it. Thanks for the color.
Thank you. I will now turn the call back over to Maggie O'Donnell for closing remarks.
Thank you everybody for joining us today. I hope you have a good day. Bye.