Wix.com Ltd. (WIX) Q3 2025 Earnings Call Transcript

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Overview

The earnings call reflects a positive sentiment with strong financial metrics, optimistic guidance, and strategic growth initiatives. Revenue and bookings growth projections are promising, and the BASE44 acquisition is expected to drive long-term synergy. Despite some uncertainties around churn and margin pressures, management's optimism about reducing costs and improving profitability is reassuring. The AI-driven advancements and market expansion plans further enhance the positive outlook. While some concerns were raised in the Q&A, they were addressed with confidence, supporting a positive sentiment for stock price movement.

Key Financial Performance

Total Bookings $515 million in Q3, up 14% year-over-year. Driven by robust new user cohorts, existing users adopting more business applications, and better-than-expected results from BASE44.

Total Revenue $505 million in Q3, up 14% year-over-year. Above the high end of guidance range.

Partners Revenue $192 million in Q3, up 24% year-over-year. Driven by traction among professional designers and solid studio adoption.

Transaction Revenue $65 million in Q3, up 20% year-over-year. Driven by 13% growth in GPV and an elevated take rate.

GPV (Gross Payment Volume) $3.7 billion in Q3, up 13% year-over-year. Partners contributed approximately 55% of total GPV.

Non-GAAP Gross Margin 69% in Q3, down slightly from 70% in Q2. Impacted by AI processing and compute costs for BASE44.

Non-GAAP Operating Income $90 million in Q3, 18% of revenue. Excludes $35 million of acquisition-related expenses for BASE44.

Free Cash Flow $159 million in Q3, 32% of revenue. Increased from 30% last quarter due to strong bookings and working capital benefits.

BASE44 ARR (Annual Recurring Revenue) Expected to achieve at least $50 million by year-end. Increased from previous expectations.

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Operating Highlights

Vibe Coding: Wix is leveraging vibe coding to enable non-coders to create software applications using natural language. This technology is aimed at democratizing software creation, similar to how Wix democratized website creation in 2006.

BASE44: BASE44 has transitioned to a new builder with advanced capabilities, including agentic coding environments and multi-agent layers, making app creation faster and more efficient. The product has grown significantly, now serving over 2 million users and achieving 1,000 new paying subscribers daily.

AI-powered app building: BASE44's share of audience traffic in the AI-powered app building market increased from low single digits in June to over 10% in October, showcasing rapid growth and market leadership.

Geographic Expansion: BASE44 has expanded its reach globally, now serving over 2 million users worldwide, with marketing campaigns launched in key geographies.

Financial Performance: Wix achieved $515 million in bookings and $505 million in revenue in Q3 2025, both up 14% year-over-year. BASE44 is expected to achieve at least $50 million in ARR by year-end.

Marketing Investments: Wix scaled marketing efforts for BASE44, exceeding initial plans due to stronger-than-expected demand. This included branding, customer care, and R&D expansions.

Strategic Shift to AI: Wix is focusing on integrating AI technologies like vibe coding and BASE44 to expand its offerings beyond website creation into software application development.

Long-term Growth Strategy: Wix is leveraging its proven strategic playbook to efficiently enter new markets, focusing on innovation and first-mover advantage.

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Risk or Challenges

Delayed Product Launch: The CEO expressed dissatisfaction with the delay in releasing a new flagship product, initially planned for summer 2025 but now expected in early 2026. This delay could impact the company's ability to capitalize on market opportunities and maintain competitive positioning.

BASE44 Cost Structure: BASE44's predominantly monthly subscription model creates a misalignment between bookings and operating expenses, leading to short-term headwinds in free cash flow and operating profit. Additionally, the company is incurring significant AI processing and compute costs to support BASE44's growth.

Increased Marketing and R&D Expenses: The company has significantly increased sales, marketing, and R&D expenses, particularly for BASE44, to capture demand and scale operations. These upfront costs are creating short-term financial pressures.

AI Cost Pressures: AI processing and compute costs for BASE44 are front-end heavy, as new users consume more AI tokens during their initial build phase. This is impacting gross margins and creating financial strain.

Dependence on BASE44 Growth: The company's financial outlook and growth projections heavily rely on the success of BASE44, which is still in its early stages of scaling. Any underperformance in BASE44 could significantly impact overall financial results.

Convertible Senior Notes: The issuance of $1.15 billion in 0% convertible senior notes due 2030 introduces financial obligations that could impact the company's balance sheet and financial flexibility in the long term.

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Guidance & Outlook

BASE44 ARR: Anticipated to achieve at least $50 million by year-end 2025, an increase from previous expectations.

Revenue Growth: Updated full-year outlook to $1,990 million to $2,000 million, reflecting 13% to 14% year-over-year growth.

Bookings Growth: Raised full-year bookings outlook to $2,060 million to $2,078 million, representing 13% to 14% year-over-year growth.

Non-GAAP Gross Margin: Expected to be 68% to 69% of revenue for the full year 2025.

Free Cash Flow: Projected to be approximately $600 million in 2025, or 30% of revenue.

BASE44 User Growth: BASE44 serves over 2 million users globally, with more than 1,000 new paying subscribers joining daily.

AI Cost Trends: AI costs are expected to decrease over time as LLMs improve and competition increases.

Sales and Marketing Expense Leverage: Expected to improve as branding investments normalize and BASE44 scales.

Long-term BASE44 Financials: BASE44 is expected to achieve similar operating and free cash flow margins to Wix in the long term.

New Flagship Product Launch: Expected early 2026, anticipated to deliver significant value to users.

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Shareholder Return Plan

Share Repurchase Program: We repurchased approximately 1.3 million Wix ordinary shares for approximately $175 million underscoring our continued commitment to returning value to shareholders. This leaves approximately $225 million remaining on our current authorized program.

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Key Q&A

Q:What are the dynamics of monthly subscriptions versus annual subscriptions for BASE44, and how does this affect churn and investment visibility?

A:Avishai Abrahami explained that BASE44 currently leans more towards monthly subscriptions compared to annual subscriptions, similar to Wix's early days. Over time, as users trust the platform more, they are expected to transition to annual subscriptions. Churn is higher for BASE44 than for Wix but is better than expected. Management is optimistic about reducing churn as the platform advances.

Q:Is prototyping a factor for churn in BASE44, and what measures are being taken to control costs, especially AI compute costs?

A:Avishai Abrahami acknowledged that prototyping is a factor for churn but noted that BASE44 is evolving to support more full applications. On cost control, he mentioned that while cost reduction is not a current priority, there are opportunities to reduce AI costs in the future through training proprietary models, partnerships, and declining costs in the industry. Lior Shemesh added that new users consume more AI tokens, but recurring users have lower costs, which will improve profitability over time.

Q:What is Wix's vision for adapting to the AI era and making websites agent-friendly?

A:Avishai Abrahami outlined Wix's efforts to make every website indexable by LLMs and adopt new standards like MCP to ensure compatibility with AI platforms like ChatGPT. He emphasized the importance of supporting new AI-driven standards to maintain business visibility and hinted at upcoming changes in user interfaces to adapt to the AI era.

Q:How do cohort retention trends for BASE44 compare to Wix, and what improvements are planned?

A:Nir Zohar stated that BASE44's retention trends are similar to Wix's early days but slightly better. Management plans to improve retention by increasing brand visibility, transitioning users to annual plans, and enhancing the platform to strengthen user connections.

Q:What are the learnings from vibe coding for website creation, and how can BASE44 achieve margins similar to core Wix?

A:Nir Zohar mentioned that vibe coding for websites is still in beta and requires improvements to meet standards like Google-friendliness and accessibility. Lior Shemesh explained that achieving margins similar to core Wix will involve reducing AI costs, optimizing marketing investments, and benefiting from economies of scale as the platform grows.

Q:What is the expected duration of margin pressure for BASE44, and how does hyper-growth affect this?

A:Lior Shemesh noted that margin pressure is expected to continue due to hyper-growth, which involves higher costs for new users. However, as AI costs decrease and the customer mix shifts towards recurring users, margins are expected to improve. The timeline for margin expansion depends on the balance between growth and cost reduction.

Q:Is the pricing model for BASE44 finalized, and how does it impact profitability?

A:Nir Zohar stated that the pricing model for BASE44 is still being tested and optimized to balance market share growth and profitability.

Q:What factors contributed to the Q4 bookings guidance, and how does this relate to profitability?

A:Lior Shemesh attributed the increase in Q4 bookings guidance primarily to strong demand for BASE44. He noted that while upfront costs create short-term margin pressure, profitability is expected to improve as the platform scales and costs decrease.

Q:What caused the delay in the launch of the new self-creator tool, and when is it expected to be released?

A:Avishai Abrahami explained that the delay was due to technical challenges and the use of new AI technologies. The tool is now in closed beta and is expected to launch in early 2026.

Q:Did cohort collections growth change in Q3 compared to earlier quarters?

A:Nir Zohar stated that cohort collections growth in Q3 was consistent with expectations and showed ongoing strength, with no significant changes compared to earlier quarters.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on cost reduction measures for AI compute, stating only that it is not a current priority and that there are opportunities for future cost reductions. Additionally, the pricing model for BASE44 is still being tested, and no clear timeline was provided for when it will be finalized. The delay in the new self-creator tool was attributed to technical challenges, but no detailed explanation of these challenges was given.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call summary and Q&A session reveal a positive outlook for Wix. Financial performance is strong with revenue and bookings exceeding guidance, and optimistic future guidance. The partnership with Microsoft and AI innovations are promising. The share repurchase program is a positive signal. Despite some concerns about organic search traffic and lack of specific launch dates, the overall sentiment, including management's confidence in growth and strategic investments, suggests a positive stock price movement in the short term.

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