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Website development platform Wix.com (WIX), or simply Wix, has announced that it will trim its employee list by 20%. The company expects this move to contribute to the $70 million in incremental cost savings that it has projected for this year. However, there is a deeper problem.
Wix has guided for a cut in its full-year bookings by $50 million and has lowered its revenue guidance by $25 million. Further, the perceived cost savings from the reduced workforce did not stop its shares from declining sharply by 8% on Monday's trading session.
About Wix
Founded in 2006, Wix is one of the world's leading website creation and online business platforms. What began as a simple drag-and-drop website builder has evolved into a comprehensive software ecosystem that enables entrepreneurs, small businesses, agencies, developers, and enterprises to build websites, manage e-commerce operations, process payments, market products, and increasingly deploy AI-powered business tools.
Valued at a market cap of $2.8 billion, WIX stock is down a considerable 53.6% so far this year.
So, is the rationalization of its workforce enough to put an end to the decline in WIX stock?
Tough Q1
Wix's Q1 results were below expectations on both the top line and bottom line.
Revenues rose by 14.3% from the previous year to $541.2 million, with the creative subscriptions and business solutions segments seeing their revenues go up by 13.2% and 16.8%, to $382.4 million and $158.8 million, respectively. However, operating expenses (which include the employee costs) jumped by 48.7% in the same period to $423.1 million. This may have been the primary reason for the company's reduction in its workforce.
Moreover, non-GAAP earnings slid to $0.68 per share from $1.55 per share in the year-ago period. This also came in much lower than the consensus estimate of $1.24 per share, marking the second consecutive quarter of yearly earnings decline from the company.
Meanwhile, bookings increased by 15% from the prior year to $585 million. However, net cash from operating activities for the quarter came in at just $78.5 million, which was much lower than $145.5 million in the corresponding period a year ago. Overall, Wix closed the year with a cash balance of $1.3 billion, much lower than its short-term debt levels of $43.2 million, alleviating liquidity concerns for the time being.
The stock is also trading at undervalued levels. Its forward price-to-earnings, price-to-sales, and price-to-cash flow of 9.52 times, 0.82 times, and 6.80 times are all below the sector medians of 25.27 times, 3.46 times, and 20.03 times, respectively. This makes WIX stock an interesting candidate to consider. While on the one hand, mere website development cannot be a niche anymore in the age of AI, Wix's AI-enabled tools can allow it to survive.
AI Upper Hand
Wix's core business would seem to be ripe for upheaval. However, the company is more than hanging on with its own set of AI initiatives, although material growth seems to elude it.
The acquisition of Base44 was a vital aspect of that, which has enabled Wix to evolve from a standard provider of basic web hosting solutions into a genuine leader in AI-driven creativity platforms.
This success stems from its seamless functionality, as Base44 automatically manages user authentication, database operations, server logic, AI connections, email services, and file handling without requiring any manual setup from the user. In fact, it stands alone among major competitors as the only platform that fully completes the journey from an initial prompt directly to a functional full-stack application without any additional manual connections.
Meanwhile, during the first quarter, the company introduced its own large language model called Wix Harmony. According to the firm, this model delivers faster performance for Base44 operations with reduced delays, enabling quicker iterations and modifications. Harmony also supports more cost-effective development compared with rival solutions. Alongside this launch, Wix released Superagents for Base44, which allow users to incorporate intelligent AI agents straight into predefined workflows.
A central element of Wix Harmony is its AI agent named Aria. Unlike traditional one-time site generators, Aria functions continuously throughout the editing environment. It comprehends the overall site structure and user goals while facilitating ongoing development and refinement, automatically identifying potential problems, and maintaining full user oversight at every step. This always active and context-sensitive approach sets it apart from basic generate and export systems. Furthermore, features such as accessibility checks, search engine optimization, generative engine optimization, compliant data hosting, online commerce capabilities, appointment scheduling, and payment processing are all built in by default, eliminating the need for users to integrate external services afterward.
Analyst Opinion
Taking all of this into account, analysts have assigned an overall rating of “Moderate Buy” for WX stock. The mean target price of $90.15 indicates a substantial upside potential of 87% from current levels. Out of 23 analysts covering the stock, 12 have a “Strong Buy” rating, two have a “Moderate Buy” rating, eight have a “Hold” rating, and one has a “Strong Sell” rating.
