Wix.com vs. Squarespace: Which Web Building Stock is a Better buy?

Website builder companies offer solutions that enable users to create a website without editing manual code. Website builders provide drag-and-drop tools, allowing users to quickly and easily build landing websites, small and medium businesses websites, and e-commerce websites.

According to Verified Market Research, the global website builders market is anticipated to grow at a CAGR of 7.73% over the next five years, reaching $2.62 billion by 2027. The increasing demand for online websites among businesses should support the industry's growth in the long term.

With this in mind, today I’ll analyze and compare two web-building stocks, Wix.com Ltd. (WIX) and Squarespace, Inc. (SQSP), to determine which company is a better buy at the moment. 

Founded in 2006, WIX is an Israeli-based company that provides a cloud-based platform, enabling customers to create a website or web application. The company’s product portfolio includes different solutions such as Wix Editor, Wix ADI, Corvid by Wix, and others. Headquartered in New York, Squarespace provides websites, domains, e-commerce, tools for managing a social media presence, marketing, and other tools to help businesses and independent creators expand their online presence. 

Year-To-Date (YTD), WIX stock plunged 46%, while shares of SQSP lost about 10% of their value.  

Recent Developments 

On January 13th, payment technology company Nuvei Corporation announced that it had entered into collaboration with Wix to ease payment processing for Wix merchants in North America. Under the terms of the deal, Nuvei will grant Wix with local acquiring and payment processing for their merchants, thus facilitating transaction success rates for Wix's users. CEO of Nuvei Philip Fayer said, "We’re very excited to be working with Wix, it's the perfect partnership for us. We're delighted to be a part of Wix’s expansion plans."

Recent Quarterly Performance & Analysts’ Estimates

On February 16th, Wix.com reported earnings for the fourth quarter of 2021. It is important to note that the company's shares dropped over 25% after it had released Q4 results amid revenue miss and a weak FQ1 outlook. At this point, let’s dive deeper into its fourth-quarter report. 

In Q4, its total revenue rose 16.2% year-over-year to $328.3 million due to higher revenues in all business segments, however, missing Wall Street estimates by $4.5 million. The lion's share of WIX's revenues made up for creative subscriptions revenue. The company's fourth-quarter creative subscriptions revenue came in 15% higher year-over-year at $246.7 million, while its creative subscriptions Annualized Recurring Revenue (ARR) has been reported 15% higher year-over-year at $1.01 billion as of the end of the fourth quarter of 2021. Besides, WIX's Non-GAAP EPS stood at ($0.37), beating analysts' consensus by $0.05. 

In terms of FQ1 guidance, the company plans to generate revenues between $338 million and $343 million, representing a moderate 11%-13% YoY growth. However, WIX expects revenue growth to accelerate each quarter by the end of 2022. 

Currently, Wall Street expects WIX's EPS to drop 16.56% year-over-year in FQ1 to ($0.63). However, the $341.14 million average revenue estimate for the current quarter implies a 12.18% increase year-over-year.  

Squarespace last issued its earnings results on Monday, November 8th. In Q3, its total revenue increased 23.8% year-over-year to $200.96 million. Solid revenue growth in its Presence and Commerce segments supported SQSP in beating the revenue consensus estimates by $3.05 million. However, Squarespace's GAAP EPS was $0.04, missing expectations by $0.02. 

Furthermore, the number of unique subscriptions increased 13.5% year-over-year to 4.02 million due to the acquisition of new subscriptions and the retention of existing customers. Its annual run-rate revenue (ARRR) grew 21.2% YoY to $788.6 million amid an increase in unique subscriptions and an increase in commerce revenue. However, the company’s fourth-quarter Adjusted EBITDA decreased to $38.39 million compared to $40.61 million as of 4Q2020.

Analysts reached a consensus estimate of $0.15 EPS for the fourth quarter of 2021. Besides, the company's Q4 revenue is expected to come in at $205.91 million. 

Comparing Options Market Sentiment 

Looking at the March 18th, 2022 option chain for both WIX and SQSP, we can define options market sentiment by analyzing the open interest levels. For WIX, the open calls/open puts ratio at the $85.00 strike price comes in at 0.78x, indicating a bearish options market sentiment. When it comes to SQSP, the open calls/open puts ratio at the $30.00 strike price stands at 10.14x, demonstrating a strong bullish sentiment.  

Conclusion

At the moment, I believe SQSP is the better buy. WIX's lower-than-anticipated fourth-quarter numbers and soft FQ1 outlook initiated a massive sell-off, which may continue. At the same time, SQSP's overall financials and growth prospects look brighter than WIX's. Finally, options market traders suggest bullish sentiment for SQSP stock.

WIX shares were trading at $83.10 per share on Wednesday morning, down $1.72 (-2.03%). Year-to-date, WIX has declined -47.34%, versus a -10.09% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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