Wix stock price outlook after Squarespace’s acquisition

Wix (NASDAQ: WIX) stock price came into the spotlight on Monday after Permira, a London-based private equity company, acquired Squarespace (SQSP) in a $6.9 billion all-cash transaction. It jumped by over 3% as Squarespace surged by over 13%.

Squarespace and Wix are some of the biggest website builders globally, with millions of users from around the world. The other big players are companies like GoDaddy, Weebly, and WordPress. Wix and Squarespace have a market cap of over $6.8 billion and $5.25 billion, respectively, meaning that Permira paid a big premium.

The two companies have a simple business plan. Wix makes money through advertisement and advertisements while Squarespace charges a fee for all websites on its platform. As a result, Wix has over 200 million ad-supported and premium users.

Its goal is to let people start building their websites in the free package and then upgrade as their sites become popular. 

Additionally, these companies also make money through other approaches like e-commerce transaction costs, domain sales, and ecosystem app sales. 

Investors love these companies for several reasons. First, they have low churn, especially among their big customers. Second, they have high gross margins and room to grow their profit margins. Squarespace and Wix have gross profit margins of 76% and 67%, respectively. Third, these companies have predictable revenues. 

Squarespace’s buyout implies that Wix is likely undervalued and that it could also become a takeover target. Besides, Wix generates higher revenues and profits than Squarespace and has room for improvement.

Data by SeekingAlpha shows that Wix had $1.56 billion in revenue (TTM) while Squarespace had $1.06 billion. Their revenue per share figures stood at $27.48 and $7.7 while their net income were $33.14 million and minus $7.44 million, respectively. 

Additionally, Wix has over $962 million in cash and $996 million in debt while Squarespace has $288 million in cash and $664 million in debt. This means that Wix has a better balance sheet than Squarespace. It has a current ratio of 1.36 against Squarespace’s 0.70. 

Further, Wix had a net operating cash flow of $248.25 million against Squarespace’s $252 million. It has a bigger room to increase this figure since it had over $63 million in capital expenditure while SQSP had $17 million. 

Wix is also trading at a discount considering that it has a forward 1-year PE ratio of 25.11 while Squarespace has 33.8. This is likely because Wix is growing at a slower pace than SQSP.

WIX chart by TradingView

Turning to the daily chart, we see that the Wix share price has been under pressure in the past few weeks. It tumbled from the year-to-date high of $146.17 to a low of $117.37, a 20% retreat. 

The stock has now rebounded after the Squarespace acquisition. It has remained above the 100-day moving average. Therefore, in the short term, it will likely remain on edge as traders wait for the next earnings, set for May 20th. 

Analysts expect its revenues will come in at $417 million, an increase from Q4’s $403 million. It made revenues of $374 million in the same quarter in 2023. Wix has a long track record of beating analysts estimates.

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