Thanks for joining us today. Hopefully, you guys like the environment here. We wanted to move it to a more casual, engaging spot where you guys have, you know, good meaningful conversations. Thanks for your support. Special thanks to both Nir and Lior for making the trip from Tel Aviv to come see you, so make sure you spend time with these guys. Thanks for making that trip. Nir's COO and President, and Lior's CFO. If you have questions, you can raise your hand. I'll ask questions for you as well.
maybe, you know, just to kick off, you know, what's kind of on your minds right now, just in terms of topical areas that you think investors should be aware of that maybe they're not hearing as loud as they should, you feel in the business, but maybe we can't see it as investors? What would be the one or two things that you would focus on?
I think, and Lior, you know, you're welcome to jump in and supplement, but I think that there has been a lot. Obviously, there's been a ton of buzz generally in the world around generative AI lately. I think, people are asking us directly, and we've got that on earnings, and I think this is something that people want to talk to us more about, is what does AI, I mean, to Wix, is it a challenge? Is it a risk, or is it an opportunity? I think that's a very fair question, which is something that we believe that is important to address. And I.
For me, the way I think about it is, you know, the strategy of Wix, yeah, which we announced, we've been following for a long time, but we went into depth in it last year on our Analyst Day, sorry, around the partners business and the fact that we believe the self-creator business is extremely profitable, and growing very nicely and is very big. The next big opportunity for Wix is the partners. I do believe that strategy has not changed or should be deterred because of AI, and in fact, actually, AI supplements it. We've been using AI in many places in the company for many years.
We actually trailblazed design in AI with ADI many years ago, and we kept on evolving and adding more and more functionality to it. But granted, I think that today there are even more exciting opportunities around it, we not only believe, we're actually executing on it, that the capabilities that come with generative AI are gonna be something that drives both sides of the business. It's gonna be beneficial to the self-creators by creating a much easier conversion path and quicker site creation and content creation, and just, you know, brings their business online faster in a more effective way, which also will be great for us, because obviously, they'll convert more.
It is gonna also be extremely effective for the partners and agencies and designers because it's gonna make their work much more effective, just by shortening a lot of the processes.
Lior, what's on top of mind for you? From your perspective, from an investment side, what do we need to know that maybe we're not grasping?
Well, I believe that, you know, and it's in a way also, you know, connected to what Nir just mentioned about, you know, about the different segments, about the product. You know, we talk about the self-creators and the partners. Obviously, right now we are in a very exciting, you know, a period for us. We went through a very interesting evolution of the company, and we are going to see, and we already started to see, that the company become much more profitable. We are heading to the Rule of 40, and, you know, even more than that by 2025. It's not just because of growing the revenue, but it's also because of getting a lot of leverage from cost. We build the product, we build the partner business.
We are now getting, you know, the fruits. We can actually see that, you know, from the first quarter, you know, how much free cash flow we are generating. You know, I can say, that we truly believe that by 2025, we are going to get to the Rule of 40, but not just because of revenue growth, but mostly because of leveraging our cost.
Just on AI, one of the questions we get is: Is this gonna be embedded, as a default that helps people come to your service, or will there be incremental features where customers can pay, incremental add-ons for some of these AI features? How do you view the strategy for AI?
Eventually, I think both. I think there's gonna be a very, kind of an almost holistic, basic layer, where the AI acts as your assistant and helps you get through, you know, the creation and also the thinking process. Okay, what do I need to have in my website? You know, if I'm a lawyer, what is recommended versus what is recommended if I'm an ice cream shop? I do think that in deeper places around some certain business logic capabilities, where the AI can create, you know, significantly extra value on the for transactions, for increasing sales, for more complex capabilities, then absolutely, that can also be an add-on.
I think, you know, the first layer of, of contribution is going to be around the very obvious you know, effective process of creation, and then that translates to higher conversion. Later on, it will also start to be supplemented by add-ons, which can also be a driver for ARPU.
The goal of reaching 40% by 2025, can you talk about the path of growth versus margin and how you get to that?
Sure. Obviously, we assume that we will continue to generate growth. Let's talk about the partners, for example. I mean, you can see that, you know, the last quarter, the growth was about 26%. I believe that it will continue to be a hyper-growth business. I mean, we are taking the market share, clearly, and it looks really good because we see more and more agencies moving to Wix. The self-creators, it's also, you know, it's an amazing business for us. We are actually, you know, we are the leading brand, and obviously we are going to see more and more of that in the future by releasing more features and so on, increasing the ARPU, you know, including more services, complimentary services like the Google Ads and email marketing and payments, that's actually increasing the ARPU.
That said, we are not dependent on getting the Rule of 40 by getting a higher growth. It's mostly going to come from leveraging the costs. I mean, think about it this way: We are increasing revenue every quarter, every year, but at the same time, the costs remain very solid, very stable. This is the way that we are planning it, and obviously, you know, if the growth is going to improve, we might be in a situation where we are going to be in a Rule of 40 +. This is exactly how we plan it, and we have a very, very strict plan for the next three years, till the end of 2025, and we are very positive about that.
Do you longer term, do you think this is a 10% + growth story? Do you think it's a 15%? How do you think about the longer term and where your aspirations are?
Again, so let me, you know, divide the answer into two. The first thing is about the partners. Definitely, the partners is a hyper-growth business because we are getting a lot of market share. We just started. you know, we intend to increase the awareness of partners business, you know, to the different agencies, and we see more and more agencies, you know, moving to Wix. The self-creators. The self-creators is a business that, you know, definitely, we believe that will continue with its growth. Why? Because we are definitely the leading brand. We are adding more and more capabilities. For example, AI. You know, we spoke about AI. AI is a, is a perfect way, and we also saw that, you know, from the last release that we had, you know, about content creator.
Increasing the ARPU all the time, increasing conversion all the time. The third leg is about the business solution. Business solution, you know, have all the complimentary services like payments, like, you know, application, and we are keep on adding more and more, increasing the ARPU. Those three segments are going to generate more growth. Obviously, partner is going to generate much higher growth than self-creators. To your question, I believe that, you know, putting aside all the macro and everything, I believe that we will be able to generate even higher growth than what we see right now, and we truly believe that it will happen.
The margin upside, where are the biggest sources of opportunity to bring margins higher?
Well, in a way, we see that it's already happened. You know, the first thing, obviously, is about headcount, having a very steady headcount, a stable headcount, not increasing headcount. From one hand, we are getting more revenue, but the headcount is being kind of fixed, right? We are getting a lot of leverage out of it. It's all over. It's in the R&D. You know, we gave an example about sales and marketing, how we manage to generate much better result by lowering marketing, especially about acquisition. Why? Because we have a very, very strong brand, and we believe that this is something that it is consistent. We are going to see the leverage all over the P&L, you know, cost of goods sold.
About 50% of the leverage that we saw this quarter was from the cost of goods sold. We managed to lower headcount in care organization, by the way, mostly by implementing a lot of AI capabilities. We managed to decrease the hosting by increasing more technology features that help us to do that. We had a lot of leverage coming from the cost of goods sold, and I believe that it will continue. As I mentioned before, also about headcount. Headcount stable, revenue continue to grow, generating a lot of leverage.
I would also add that as we add more, complex functionality or, higher added value, solutions, business solutions for customers, they come as add-ons on top. Essentially, without any significant further investment, we increase the ARPU, which also contributes.
The, I haven't been yet, but I hear you have this beautiful new building...
Yeah.
in this consolidation. I think you were in 20+ different buildings in Tel Aviv. Are you going down to one or?
We're going down to one. You know, it's, a lot has changed because we went through this whole thing pre-COVID. Back then, we were spread at around 20 different locations in Tel Aviv, with 40 different offices, because even in one certain location, you could have different little pieces. It's extremely hard to manage, both on the, you know, hard to meet people and for teams to work together and collaborate, but also it's a big operational mess to try to, you know, to give the same kind of service and to all of the employees, when it's all spread out. We did the first phase move to our new campus this last October. It's amazing. It's such a different experience, suddenly.
We were in very shabby offices around town. Now, in October, we're gonna be moving the other two pieces that are still not in to the campus, and everyone is gonna be in the same headquarters. I think it's gonna actually be another great improvement to our efficiency. We also get everyone back to the offices and working together again, not remotely. I think all of that is also a great contribution.
Yeah, you know, to add to that, I think that long term, it's gonna save us cash. When you're spread over 20 different buildings in, like, in the center of Tel Aviv, the cost is very high. We actually are getting the campus in about half of the price per square meter, allowing us to get more space and having, you know, everyone in the same place. Long term, definitely, it's also going to save us in terms of the operating expenses.
The word is that the Jefferies conference in Tel Aviv in September are going to come and visit us and see the campus.
Please join us, September. Tech Trek. It's a good one. When you think about this consolidation theme, my wife runs a small business.
Yep.
She's moving a lot to you guys. She's kicking out three or four different vendors. I'm like: "Why do we have eight SaaS apps for eight employees? We need Wix for commerce, for the site, for, you know, Ascend with marketing.
Yep.
You know, I think still a lot of investors don't really, maybe truly, or and a lot of users, like my wife, had no idea you had all these products. I mean, is there one or two? I know you love all your children equally, but is there one or two that you're like: "I can't believe clients haven't embraced this product," or you're excited about coming?
Wow! That's a hard one. It's like trying to choose between my four kids, but I have an answer for that, but I'll let you know later. Can't be public. It's really hard for me to answer that, but I'm really excited. I'm always excited about the new things, okay? I'm actually... The one thing I'm mostly excited about, you guys actually haven't seen it. I can't, you know, I can't launch it here, but I can say that it is another evolution or another new, much more impressive version of what we do with the combination of AI capabilities and the actual creation process of the website.
This is something that's gonna be probably later this year, and then I'd love to come back and demo it and talk about it because this is something I'm extremely excited about.
When you think about just back to AI, are you doing this on your own, or are you leveraging your relationship with Google or one of the other big hyperscalers? How are you building this AI muscle?
We have an internal muscle, an internal team that has been working on, you know, AI, different AI projects and models for almost a decade now. Think about it, you know, the big ADI effort was introduced in 2016, but we didn't spend a month on it to introduce it. We were working on it for a couple of years before that. There's a very, very strong team that is actually collaborating with a lot of these other AI developers, giants out there. We've been in really good contact with IBM and with Microsoft. Very deep connections with Google and Google X Labs, as well as OpenAI, and we're implementing different things in different places.
Some of this is our own development and our own models. In some places, we're collaborating, you know, ChatGPT within the editor, obviously, is a collaboration with OpenAI on ChatGPT. You know, some enhancements for images, for users. When you come in and you upload your, you know, an image for your products page on your commerce, for your wife's commerce, for example, she wants it to look a little bit better, okay? You have this, like, a magical enhancement tool, which is AI, completely AI-based, that does it for you. This is our own development, and we actually compared it to the others, and we got better results, which is why we went with ours and not integrated with them.
Down the line, we will, you know, we'll continue working with everyone, and if it makes sense to bring something from the outside, that's a better solution. It's easier, right? In some cases, when, you know, for example, understanding all of the different layouts and design capabilities and what people need, I don't think anyone out there has the amount of data we have about how to smartly design a website with AI. We'll, you know, we'll leverage our knowledge and our capabilities more than anything that's out there.
... you mentioned the modest signs of the macro recovery, you said, "Hey, it's not maybe fully recovered, and maybe we don't know if it's a trend." I guess, what are you seeing that's maybe different than six to nine months ago?
Yeah. Well, you know, I think the reason we refer to that as a recovery, but of it, a slight one, and it's, I think, you know, the last few years have surprised all of us so many times. I think none of us wants to jump the gun and be, you know, overly optimistic or try to foresee the future. The reason we refer to it as a recovery is because we saw it across the board in almost everywhere. We saw it in the behavior and improvement in conversion of the new cohorts that come into our platform, but we also saw that same behavior in a similar manner on the existing cohorts.
We saw an improvement in GPV and transaction revenue, again, we saw it for the new users, also for the existing cohorts. When we see something like that happens in all different pieces of the, of the, of the system, we say, okay, we haven't done one thing that can push all of this all at once for the new and the existing users. We have to refer to that as probably, which is probably some external effect of the economy, in terms of, the behavior. We've seen people building more, creating more businesses online, purchasing more online. Their businesses are performing better, it's still in a very small improvement, I wouldn't call it anything out yet.
By the way, yeah, most of this improvement is actually, firstly, in the U.S., meaning that in Europe, we still don't see that, obviously, you know, because of the situation over there and the war and everything, but it's mostly coming from the U.S.
You just finished $300 million on the buyback. Are you excited to buy more?
This?
Well, it's this price, obviously, you know, presents a big opportunity for us. Look, I believe that I believe that buyback is something that should be part of our strategy. I mean, in the next three years, again, based on the plan that we believe that will happen, we can generate about $1 billion in the next three years. Obviously, some of it is going to be used for buyback. Not just an opportunistic buyback, but a buyback that actually based on a program that it's out of the free cash flow that we are generating. Definitely, we believe that this is something that should be part of our strategy for the long term, and we will continue to do that.
Any questions from the audience? You can say, I'll read it.
There's, you know, on YouTube, there's videos of people using generative AI to create a website. We don't know how much of it is actually choreographed, but you can also look and find on the same topic, it shows up the Wix's presentation of ADI in 2016. There's multiple videos of that. It looks almost exactly, except obviously, it took a little bit longer, maybe two minutes, which is a minute or two now. Just wondering, you know, are you working on a next gen of ADI, or will it go more across the entire product suite of website creation? Or will we see a generative AI version of ADI soon?
You want to repeat the question?
The question is just around building websites through AI.
I, we definitely have some great ideas in that direction, and I'd rather not just say much more right now. I do want to say something about the creation of websites. When you think about a website, and, you know, this is something that 10 years ago we needed to emphasize, I think today it's quite kind of obvious, that the website is no longer text and images and maybe a video. The websites are expected, the business owners expect their websites to do much more. They expect it to be, to have a, you know, some unique structures to it.
They expect it to be transactional, not only commerce, okay, but also collect leads and communicate with my customers and build a database of my customers, so I can understand who buys more, or when is their birthday, or how do I wanna initiate sending them a, like, a coupon or a reminder around the holidays or around, you know, around an anniversary or whatever. There's a whole lot of complexity of business logic that comes below, which is not as simple as just, you know, drawing something and saying, "Now publish it to the Internet." Okay, that business logic requires software capabilities that are embedded in our product.
Below that, you're still not done, because even if you have all of that, you need the website to be hosted somewhere, and you want it to work well everywhere. You want to put it behind a CDN, and you want to understand if you are selling globally, then it needs to be a global CDN. you know, sometimes you have to go through software updates for your server, okay, or for the software that you use in order to build your website. You need to take care of that. You want it to be secure. Security is top of mind for everyone today, right?
All of these things, you know, in theory, you can say to the AI, "Do this, and do this, and do this, and do this," and et cetera, et cetera. One, it means that you need to know what to ask for. Two, it means that you end up having to work with AI for, through a very lengthy process of doing that. Unless you have a platform that does it all with you, but gives you the assistant capabilities of the AI on top of it, so you can get all of that value, but in a much easier fashion.
Thank you for joining.
Thank you for having us, guys.
Thank you.