Needham's Developer Checks For Highlight Continued Funnel Weakness

  • Needham analyst Bernie McTernan reiterated a Buy rating and $85 price target on Ltd WIX following a round of web developer checks. 
  • He spoke with 22 developers in the WIX Marketplace to shed light on the broader funnel. They did not indicate any improvement.
  • Failure of the funnel to return puts his 2H'22E and '23E estimates at risk. 
  • In a note titled "Developer Checks Point to Continued Funnel Weakness," he provided a scenario analysis contemplating the funnel lower for longer and negatively impacting his adjusted EBITDA estimates by -9% and -18% in '22E and '23E, respectively. 
  • That said, the stock looks cheap to him on his '23E estimate, even in his bear case scenario.
  • He thinks the subscription nature of the business would support relative outperformance in a worsening economy.
  • Utilizing its freemium-based business model, Wix's broad funnel approach to user acquisition is attractive through both a value creation and marketing efficiency lens, in his view. 
  • He believes penetration of SMB websites is low and sees growth potential from companies being brought online and companies switching from existing domains to a more vertical-specific design-build. 
  • Moreover, consistent cohort behavior and further evidence of monetization abilities through a relatively inelastic consumer base raise his conviction in the sustainability of the long-term growth trajectory of the business in an already large, fragmented market.
  • Price Action: WIX shares traded lower by 0.43% at $65.52 on the last check Wednesday.

Posted In: BriefsAnalyst ColorNewsPrice TargetReiterationAnalyst RatingsTech

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