All right, let's get started. My name is Chris Zhang, and I'm a part of the UBS Payments and Fintech Research team. We're super excited to have Wix here with us again. We have Lior Shemesh, Chief Financial Officer, and Emily Liu, Head of Investor Relations with us. Welcome back, and very excited to have you.
Thank you for having us.
All right, let's kick it off. So Base44, maybe to start off, how did you find the opportunity set you're pursuing with the Base44 acquisition? And why do you believe Base44 is the right path to unlocking that opportunity?
It's a great first question. I think that, you know, if I may, you know, just to start with the introduction of what exactly we did, Base44 is an amazing Vibe Coding platform. I believe that we're obviously going to see that in terms of the numbers, and we're going to talk about it a lot. But it's opened a completely incremental time for us. Think about, you know, all those people that are looking to build all kinds of applications. You know, it can be like an application, you know, for your family. It can be a big enterprise that's using Base to build a dashboard in order to help its employees, you know, in terms of the production activity. People that use it to build CRM, you know, we see so many use cases that already started to happen.
You know, I'll also talk about the, you know, the profitability of it and why it's so exciting. But it's opened a completely new time for us. When you think about, you know, when we started Wix, I remember I joined Wix like 13 years ago. But when Wix started, we actually established Wix in order to help people to create and build websites, although they don't have any understanding and know-how about code. Okay, because in the old days, you need to know how to use code. For example, if you use WordPress, right? With Wix, you can build a website, drag and drop, very easy. Usually, we tell you exactly what you need, and based on that, you build the website, and you created like the most strongest brand in the world right now for website creation. When we think about it, Base44 is actually the same.
It's helping people to create all kinds of applications without the ability to know how to code. So, as I mentioned before, it's opened a completely new time for us, a huge opportunity. And I believe that, and we believe that it will be also super successful and profitable in the future. The right way to look at it, think about a business, you need one website, but how many applications? All kinds of applications, sometimes hundreds of applications. So definitely, I think that we are truly excited about it, and we've already started to see that with the results.
All right, that's awesome. And just to help us understand more about the product and maybe the unit economics, I know it's still early days, and there must be a lot of things you're still testing, the product you're improving. I guess maybe either longer term or maybe just for the paying versus free subscriptions. How do you see the unit economics of Base44?
I will let Emily answer, you know, if you think about the products and who exactly are the audience and who are the people that are actually using Base44 in general, Vibe Coding. What are the types of people that use Vibe Coding? And then I will get to the, you know, the business model about Base44.
Yeah, sure. So when we talk about Vibe Coding, there's still some misconception that Vibe Coding is just this one homogeneous user base. But really, we see it in two spheres. One is really geared for developers and an engineering team. So you're talking about Claude Code and Cursor and Windsurf. Those are, you know, IDEs specifically for engineering teams. Our teams internally, you know, use, our R&D teams do use and leverage these Vibe Coding tools that, you know, move developers away from coding manually line by line to more, you know, describing things logically and then having Vibe Coding take the rest. So you're able to, you know, just ship code a lot faster. That's not where we are playing in this field.
We're on the other side where it's really, like Lior said, opening the world of software and application building to end consumers with, you know, no or very low coding experience. So it's, you know, the freelance developer or someone that has a software idea, they're now able to execute on it. It's for smaller design and product teams, not within the R&D organization, but within these enterprises that are looking at prototype tools or building internal tools for their own consumption. And then, of course, the biggest population is everyone like me and you who, you know, have something, have an idea, they need a widget, they need something. And that's where Base44 has really been shining.
Our market share of this particular, you know, AI-powered application building, so that second sphere, you know, it was very minimal, you know, low single-digit audience traffic share in June when we acquired it, and now it's, you know, double digits around 10%. So that's a factor of the product being that much better. We launched a new builder a few weeks ago, and that's really shown in, you know, user adoption and feedback. So that's been really great. And then we've also, you know, invested a lot in marketing, and that's what it takes to build a great brand for a new product in a new space.
All right, awesome. Thanks a lot for the background, and I think you also talked about Base44 having not had any marketing motion until right after the acquisition, right? After it became part of Wix. Maybe can you talk about the marketing efforts? Which, for example, which channels are you targeting, and how is that similar to your or different from your efforts around Wix Editor?
Yeah, I think that first of all, we're talking about different intents of customers. People that come to Wix, people that are looking to build a website, people usually that come to Base44, people actually looking to build applications, not necessarily a website. Actually, we don't see many people use Base44 to build websites. So I think that it's a different use case. Now, as I mentioned before, I think that we've done an amazing job, and I'm not too modest about it, but we managed to build a super strong brand, meaning that most of the people right now that are looking to build a website end up with Wix. I think that, you know, we can do the same thing with Base44 and to create a really, really strong brand. And we already started to do that.
I think that, you know, Emily mentioned the fact that we are right now more than 10% of this entire space growing in almost no time. So I think that we have the capabilities, the know-how how to do that, how to do marketing campaigns, how to use, for example, YouTube and create content online and to do it like an acquisition type of marketing. So I believe that we have the ability to do that, and definitely we are going to invest. We're going to talk about it very soon about the business and about the margins. But I believe that we're talking about a different type of customers, again, people that are looking to build applications, and we're definitely going to take the opportunity and to create the brand associated with that.
All right, that's amazing. And you talked about more recently the updated ARR target by year-end, that's over $15 million. And in the past, you've talked about, you know, beyond this year, it's going to head rapidly towards $100 million. Maybe just can you help us understand some of the milestones you've set for Base44 at the time of the acquisition? Are those the ARR targets or there's some other things as well?
If you remember when we bought Base44 and people asked me about, okay, what's going to happen to your margins? I said, okay, I'm not going to assume there will be no difference in, you know, compared to what we've already said to the market. And then again, you know, we mentioned in the last earnings that we're going to invest more because the demand is huge. I think that what we've seen in the past few months since the time that we acquired Base44, that the demand is really booming. I think that first of all, the product is much, much better than when we start. At the very beginning, people use it to build applications with databases, with integrations for all kinds of use cases.
And then we saw that, you know, it was much more than what we expected, which is kind of a good problem to have. The demand is so big and so huge that we said that, okay, when we bought Base44, it was about $3 million of ARR. We're going to finish the year with more than $15 million of ARR in a very short period of time. And when I'm talking about ARR, it's very important to mention we are a public company, and when we pull the ARR, it's a real ARR that is recurring, and you do take into consideration the future churn and so on. Yes, I mean, I think that it's much more than what we expected. We continue to see this kind of level of increase on a week-over-week basis, and we are truly excited about it.
We didn't say that we want to reach $100 million or $200 million in this, you know, specific amount of time. I think that it was much more than what we expected, but I truly believe that we are on the right path to get to what we mentioned about the $100 million, you know, very, very soon. So I think that from what we see till now, we are super excited and even much more excited about this opportunity than when we started with.
All right, that's awesome. And we definitely look forward to following the progress there. Maybe just, as you mentioned, touch on margins a little bit. Maybe just let's just dive into it. At the third quarter earnings, you lowered the full year 2025 gross margin outlook and raised the OpEx, non-GAAP OpEx as a percentage of revenue. And then with one quarter left, of course, that means even a bigger swing or impact in Q4. Maybe just can you first recap some of the investments you're making that caused the margins to be lower, and then how should we think about the trajectory in 2026?
Sure. So I'm afraid then, you know, that it will be kind of a little bit a long answer. Emily told me to do it as short as I can, but I will try. Let's start with the core Wix, because I think that it's really important to explain this margin thing. Like most of the questions today that I got was about the margin and what is the impact of Base on our margin. Let's start with the core Wix. I expect for 2026 that the core Wix margin will actually improve and expand. I think that we are going to have better gross margin for Wix. It's come from a fact that we see a lot of saving coming from the care organization. We can do much more and to serve much more users with less resources.
So this is with regard to the gross margin of Wix, with regard to the operating expenses. Again, we are going to be more efficient, and I think that the fact that AI can help us, you know, generate and produce and develop more product in a much more efficient way, meaning that the free cash flow for Wix definitely is going to be higher than 30%. Now let's go to the impact of Base44 and what it means. One of the most amazing things about this acquisition is the synergy with Wix. Think about a company that's growing so fast, and now you want to create and, you know, everything to support it in order to scale it up. You need the infrastructure, you need to build security, you need to build care organization, you need to know how to do marketing, you need to recruit talented people, engineers.
We have it. It already exists. It's just, you know, we connected to the Wix CRM, we already have the security built in place, you already have the infrastructure to support it, you already have the care organization, you already have G&A and everything to scale it up. So in the end of the day, we are not going to increase even one headcount in order to support this growth because it's all coming from the own resources of Wix. And this is why this synergy makes it so impressive. Now, again, so what are the costs that I'm going to have? We are talking about two types of costs. The first one is about marketing. The second is about the cost of AI. Both of them are variable costs. I can stop it in one day.
And it all comes with the fact that, you know, it starts with marketing. We see the demand and we invest in marketing. We do it through acquisition. We establish the brand. But the most interesting stuff is that we do it based on our own methodology, which is called the TRO, meaning how much time it takes me to get $1 of investment in marketing. For sure, it won't be more than 12 months, but it means that I'm taking into consideration the churn, the retention, the conversion, the usage that I see, and it's all blended into this TTR, and according to that, I'm making my investment. This is one. Second is the cost of AI, and we definitely see the gross margin. You know, I can tell you right now that the gross margin for paying users. It's positive.
It's around 30%-40%, and I believe that it will improve, and it will improve for three reasons. The first one, think about new customers, new cohorts. When they start to use Base44, this is where all the prompts are happening. This is where they build the application. This is where most of the costs are happening, right? But when you look at cohorts and customers that already build their application, they need to prompt a little bit in order to make changes, right? But it's not that high, meaning that people that already build the application, they are more profitable than people that just started to build the application. So it really depends on the mix between existing to new customers. Definitely next year, we are going to see more cohorts for people that already finished, completed their application.
So definitely, you know, by definition, the margin is going to get better. Second thing is about the cost of AI. I truly believe, you know, when we started, when we bought this business, we already took down the cost of AI by approximately 30% on a relative basis. Why? Because there are more players. It's not just Anthropic, it's also Gemini 3, which is an incredible product. And I believe that in the end of the day, the cost of LLM will continue to go down. There's no other way. There are more players over there, and I think that it just makes sense. In a way, it already started to happen. The third thing is about our ability to make a lot of optimization to the cost, meaning that you can use less LLM in order to do the same application.
I think that there's a lot of optimization that we already started to do, and I believe that it will continue. Next year, definitely gross margin is going to be positive, as it is now, even perhaps better. The only cost that I'm going to have on top of it is for the marketing, as I mentioned before. I don't believe that it will bring us to a place where we are going to be worse than mid-20 for the blended free cash flow. I'll be surprised if it will be even mid-20. I believe that it can be even higher than that, but it's a good investment, meaning that we are going to invest in growth. We are going to invest in a business that I believe will be super profitable and super interesting, and it's an amazing growth engine for us.
So this is why, you know, when I'm talking about the cost, it's costs that we know for sure that we see the returns of it. But again, when you think about it, it's like one-off cost. Why? Because there is misalignment between top line to cost. I'm recognizing the entire cost of marketing and AI right now where I see the top line coming over time. In 2027, I already see the fruits of it. So this is why I call it kind of a one-time investment where you actually, because of the super high growth that we see right now. But this is why we are truly believers in this business. So I'm sorry for the long answer, but I think that it was super important, you know, for me to explain, you know, the kind of the economics behind it.
All right, this is amazing. We really appreciate all the details. So just to recap, the core business margin is still improving, expected to be definitely better this year north of 30%. And for Base44, overall gross margin positive. And then for the overall total consolidated business for the free cash flow from where you're looking right now, it's mid-20s or better for free cash flow margin.
Exactly. It's a good summary.
All right, awesome. Thank you, and then just one follow-up on the free cash flow margin. I think just for this year, it looks like the numbers, the free cash flow margin has benefited from some of the outsized positive impact from working capital changes. How should we think about a normalized level of contribution from the working capital changes to your free cash flow margin going forward?
So again, it's a good example of what we're seeing right this year, like a one-off benefit. Why? Think about a super growth business where we need to invest most of the cost at the very beginning, where we see the fruits of it later on. But it's simply an issue of payment terms, okay? When I have vendors that I'm already recording the expenses, but I'm going to pay them based on payment terms only next quarter. So you see the benefit of working capital. But obviously, you know, over time, it's kind of one-off because then there will be more alignment between the cash to the, you know, to the P&L expenses. But again, this is what happens usually when you have like a super growth, incremental growth in every company, and you have payment terms. So you have like one-off benefits coming from working capital.
This is exactly the case also this quarter and also the fourth quarter.
All right, that's awesome. And then aside from Base44, looking back at the core business, you touched on the margins. That's super helpful. And then how should we think about the growth of the core website business in 2026? Maybe if you can just provide some color in terms of top of funnel, the conversion, the pricing, or any comp dynamics.
So I'm happy for the question because I think that in the last couple of months, most of the question was around Base44. But we have $2 billion of income coming from the core business, which, you know, I remember that at the beginning of the year, I said that we view acceleration, we focus acceleration in the second half of the year. And it happened. It's not because we know how to predict the future, because we started to see the performance of the new cohorts. And it's coming from three different reasons. The first one, we see better top of funnel, more intent of those customers. We see better conversion and increased output. Increased output coming from the fact that we see also different mix of customers, more mature businesses that are using more business solutions, payments, email marketing solutions, Google Workspace, and so on.
The strength of top of funnel that we've seen lately coming from, I believe, three different reasons. The first one is because the strength of the brand. The brand of Wix has become better and better. More people are looking for Wix. You know, actually, the search for Wix is all-time high. People are looking for Wix in order to build websites. Second, we see some kind of improvement in terms of the macro, especially in North America, meaning that most of the growth is actually coming from the U.S. We see some improvement in terms of business formation. Third, I believe that people recognize the fact that in order to be discoverable with AI, they need to use a platform like Wix. Think about, you know, the old days of SEO, okay?
Today, you know, the SEO using Wix, the SEO is much better than, for example, building a website on WordPress. But it took a lot of time to do that. You know, there's a widget that we have that explains to you exactly how you need to do your SEO, what you are missing in order to have the best SEO. But think about ChatGPT, think about Gemini. If you build an online store and you are selling furniture, how will you be recognized? How will you be discoverable with ChatGPT? You need to build those capabilities. There's no way that you can do it yourself, as there's no way that you can build the best security. And therefore, you know, using the Wix platform, or for that regard, you can also use Squarespace or Shopify.
But at the end of the day, it's connected, for example, to the galleries that we have. And then you know, okay, if I'm looking for a specific furniture, I know how to do it through the Wix because it's part of the LLM integration. And I can actually do also a deal or using PayPal and do like the, you know, to complete the interaction. And actually, someone that's looking for this specific furniture also to buy it within the ChatGPT, but it's all done in the backend of Wix. So at the end of the day, people really, really understand that if they want to have a good business with the best website, the best design website, that it's a website that can actually be discoverable on the different LLMs, they need to use Wix, and we see the strength of the brand.
Definitely, the last quarter has actually proved that. We've got to a place where we see all-time high in terms of the performance of the course, and we say that it's improved. It's actually happened in the second half of the year. We are truly excited about it. Again, we look forward to the product that we are going to launch for creators that I believe we just will improve it.
All right, that's amazing. And you actually also answered a lot of the questions that I'm going to have for the self-creators because.
Because I knew what you're going to ask.
Those are very important points. And I think one follow-up or feedback or question we've received from the investors is also just on the new product side, the new self-creator product next year. Will there be any accompanying significant marketing investments associated with the product launch or why or why not, just from your experience?
We are going to continue with the TRO methodology as we did for so many years, so there will be no difference. You know that for every dollar that we invest in marketing for the core Wix, most of it returns in day one because most of the customers are non-monthly. Actually, we see a phenomenon that many people, you know, starting to do like two-year and three-year subscriptions. There will be some branding investment, but again, it's not going to be significant or huge even to have like a significant impact on the financials.
All right, that's great. It's a great follow-up, I guess the follow-up or clarification on this point. I'm sure that investors will appreciate it. I guess just moving, looking at the corporate level, over the last two years through, or exactly eight months over through Q3 of 2025, you've spent, I think, exactly $1.0 billion, rounded $1.0 billion share repurchases, which was 100% of your cash flow during that period and double your 2023 investor day target. And of course, you're still going to generate a ton of cash flow, free cash flow in Q3, effectively double the size of your convert. So the shares at the current level, how much would you like to spend on the buybacks in relation to the free cash flow going forward?
How much we need? $1.5 billion?
Yeah, since 2021.
Since 2021, $1.5 billion. Look, I think that definitely we will continue with buyback. I mean, I think that first of all, we intend to eliminate the dilution, you know, that we have for, you know, granting equity to our employees, even reducing share count by doing so. And we were very successful, by the way, in the last couple of years. Definitely, we also need to take advantage of the current share price. And, you know, we are in discussion with our board, but there is an opportunity. I think that, you know, right now, it's a good investment.
All right, awesome. Yeah, we agree. Maybe just a couple of kind of rapid-fire, your high-level thoughts. What do you think of pricing next year?
You want to take it?
Yeah, I think, look, like we have a new product coming next year, the new self-c reator product, and I think launching that, driving adoption, fixing the bugs in it, and making sure that users are really enjoying that product is probably our primary focus. We don't have any plans right now to increase pricing, but of course, like we test it very, very regularly, so you know, we could do it on our classic Editor, the new Editor, we could do it on studio, but there's just nothing planned right now.
All right, appreciate it. And I guess the next one is going to be a little bit of a change because I think you're starting to pay taxes, and how should we think about that for 2026?
About what?
The tax rates, corporate tax rates.
Yeah, I think next year, OECD Pillar Two is likely going to come into effect. So, you know, I think we expect like a corporate tax rate of around 15%.
All right, awesome. That's super helpful. Just maybe in the last minute or so, I'd just like to open it up for any audience questions. All right, please go ahead.
Kovitz, thanks for your time. Just wondering, do you see any structural advantages based on the source data?
Hey, it's Tim from Kovitz. Thanks for your time. But do you see any structural advantages of Squarespace partnering with Perplexity versus you partnering with Gemini?
No, we haven't seen any change in terms of the competition, especially not from Squarespace. I think that since they went private, we haven't seen really real changes about competition. I believe that we're actually taking more market share. But, you know, let's wait and see. I think that they have a good product, not as good as our product. But I believe that the technology gap between us to them just keeps on increasing.
And I'll say too, I think like our end goal, and I'm sure it's similar for them too, is to make sure our merchants and our Wix user sites appear and are very well visible in all of these AI search engines. So I think eventually the end goal would be for us to integrate directly with these LLMs. And I think that's probably what, you know, the next era of web would likely be anyway.
All right, awesome. With that, please join me in thanking Lior, Emily, and also Avi that joined us here today. Thank you so much, and look forward to.
Thank you.
Thanks.
Thank you for more of the program.