Wix.com Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 11 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Wix Q3 2023 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, You will need to press star 11 on your telephone.

Operator

You will then hear an automated message advising you your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Emily Lu with Investor Relations. Emily, please go ahead.

Speaker 1

Thanks, Stacey, and good morning, everyone. Welcome to Wix's Q3 2023 call. Joining me today to discuss our results are Avishai Abraham, our CEO and Co Founder Nir Zohar, our President and COO and Lior Shemesh, our CFO. During the call, we may make forward looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent Form 20 F that could cause our actual results to differ materially from these forward looking statements.

Speaker 1

We do not undertake any obligation to update these forward looking statements. In addition, we will comment on non GAAP financial results and key operating metrics. You can find all reconciliations between our GAAP and non GAAP results in the earnings materials and in our interactive analyst center on the Investor Relations section of our website, investors. Wix.com. With that, I'll turn the call over to Abhishek.

Speaker 2

Thanks, Emily, and good morning, everyone. We delivered a tremendous 3rd quarter that exceeded both growth and profitability expectation For another consecutive quarter, revenue in Q3 grew to $394,000,000 which is $3,000,000 above the high end of our guidance. We generated more than $62,000,000 of free cash flow or 16% of revenues, ahead of our expectations. As a result of our outperformance year to date, We are again raising revenue and free cash flow guidance for the year, and we now expect to finish 2023 ahead of the margin target set At our Analyst Day in August. As we begin to wrap up an outstanding year, I want to spend Most of my time today talking about products that we expect will be our primary growth engine going into 2024 and the years to come With Studio and AI, like prior quarters, our partners business was a meaningful driver of our strong top line performance in Q3, Growing 38 percent year over year.

Speaker 2

We continue to find success with professionals through ongoing dialogue to better understand their needs and best in class product innovation that resonate with the community. As we spoke about at our Analyst Day in August, we took all that we have learned from partners over the years that created Wixstudio, Our new cornerstone product for partners, the reception, feedback and early KPIs have been incredible. The resounding Consensus is that Studio provides agency with everything they want and more for all of their web creation and project management needs. Users particularly love Studio responsive AI technology that simplify high touch and time sensitive tasks such As ensuring consistent design across web pages on different screen sizes, they are also enjoying their AI code assistant Inside the new Wix IDE, which allows them to write cleaner code and detect errors easily. More importantly, Studio optimized partners' workflow and productivity, while elevating their own client offering, ultimately helping them scale their business.

Speaker 2

Features like workflow management, dashboard enabled Agencies to easily manage all of their clients, projects and teams in one place. And Client Kits allow partners to We already have dozens of studio sites live and many active generating GPB. The total number of registered studio accounts and conversion Our existing site to Studio have exceeded our own expectations. All of these early signs of success could not have been possible without The team that traveled across 12 cities over 2 months to bring Studio to life for countless educational workshop, Q and A forums and onboarding sessions. This tool gave us the opportunity to hear directly from hundreds of partners around the globe, and it allowed partners to learn from each other.

Speaker 2

Wix Studio is now fully live to all partners. We have a strong team that continue to execute well and a growing community of professionals excited about Wix. These factors are what gives me confidence in the long period of growth in this business. We did not let off the gas in terms of product innovation as we continue to add our own industry leading AI and GenAI product offering. As we spoke about At an Analyst Day, we have nearly a decade working with AI and machine learning to reduce friction and enable better creation by leveraging AI for co creation for our users.

Speaker 2

Earlier this week, we released our latest AI products. The first was AI metatag creator, a groundbreaking SEO tool powered by AI and our first AI powerful feature within our collection of SEO tools, both self theaters looking to generate SEO friendly tags for each of their pages And professionals looking to enhance their efficiency and make real time adjustment with benefits from this product. The second was our conventional AI chat experience for businesses. This feature, Which is now live, paves the way to accelerate onboarding using AI in order to get business businesses online more quickly and efficiently. These new tools continue to demonstrate our leadership in utilizing AI to help users of all type to succeed online.

Speaker 2

It has been a busy year at Wix, filled with many product and financial milestones, but we are not done yet. We expect to continue this strong momentum into the 4th quarter and accelerate profitable growth even further. Finally, before I turn it over to Neil, I'd like to end with a quick thought. The terrorist attack in Israel A month ago was a terrible beyond imagination, but Weetwix have navigated Unprecedented challenges before and ultimately emerge stronger from them. This war is no different.

Speaker 2

Even against the current backdrop, I am more confident than ever in the strength of our global team and the execution of our strategy and growth trajectory. With that, I will hand it over to Nir.

Speaker 3

Thank you, Abhishej, and thank you, everyone, for joining us today. Following the strong performance that we've seen so far this year, I want to revisit the key growth pillars we spoke about at our Analyst Day, which we expect We will drive our business in the coming years. 1st, as Avishai mentioned, Q3 was another quarter of accelerating growth in partners revenue. We expect growth in the partners business to continue with a long runway of opportunity ahead, particularly as Wix Studio ramps. The initial months of Wix Studio have been fantastic with more partners coming to Wix and an increase in projects per partner.

Speaker 3

We also continue to see partners adopting more business solutions products and driving meaningful growth in GPV. Combined, These behaviors give us confidence that the compounding growth in partners cohorts and revenue will continue. Compounding partners growth is complemented by reaccelerating growth in our stable and profitable sales creators business, which we saw once again this quarter. We expect our market leading product innovation as well as our powerful AI products and technology to drive higher conversion, monetization and retention as we maintain our leadership position in the website building space. Avishai spoke about the AI chat experience for business and its early weeks and in its early weeks, we have already seen It's positive impact on conversion and revenue.

Speaker 3

We have more AI products in our pipeline that we believe will continue this trend, and I'm confident that our innovation paired with macro recovery will return our self creators business to double digit growth. The 3rd pillar of our strategy is business solutions growth. We saw outstanding transaction revenue growth in Q3, Increasing 22% year over year, highlighting higher GPV as well as increased adoption of Wix Payments. We expect continued increases in transaction revenue and GPV as well as better adoption of business applications will drive growth across both partners and self creators. This quarter was a continuation of the momentum in growth we experienced in the first half of the year, and it increases our excitement about what's to come in the years ahead.

Speaker 3

Finally, I'd like to briefly address our operations and meet the ongoing war in Israel. With all of our employees accounted for And our business continuity plan in place, there has been no disruption to our business, and we do not anticipate any significant on operations going forward even as the work continues. As a reminder, all of our infrastructure and internal networks are cloud based and located completely outside of Israel. Importantly, our users have not experienced any disruptions to performance or support throughout this period. As we have shared, less than 5% of our global workforce were called up to military duty, and we have already implemented contingencies To take on their responsibilities, in the immediate week following October 7, as we focused on the well-being of our employees and their families, We experienced slight delays to some product development timelines.

Speaker 3

In response, we shifted priorities and efforts to successfully mitigate impact On our products pipeline, we intend for these delays not to impact our overall product development plans. Over the last several weeks, we have successfully launched a number of products, including the full global rollout of Studio, as well as our newest AI capabilities. We will continue to introduce new products and features in the coming quarters as planned. Our people in Israel are obviously adjusting to a new work environment. We are supporting them in any way we can, including with the implementation of a work routine that prioritizes the physical safety and mental well-being of our team and their families.

Speaker 3

In addition to supporting our Wix teammates, our global team has implemented multiple initiatives to support our users and broader community during this time as well. We are leveraging our robust platform, global footprint and technological expertise to connect those in need with vital resources, assist small businesses impacted by the war and ensure the reliability of our platform For those who are depending on it the most. The resiliency of this incredible team, along with the support of our community of users and partners, Give me confidence in our growth strategy as we all look forward to better time. With that, I will hand it over to Lior to walk through our financials, outlook and progress against our refreshed 3 year plan. Leo?

Speaker 4

Thanks, Neil. We carried forward our positive momentum into Q3 with another quarter of results that exceeded both growth and profitability expectations. Our exceptional performance year to date enable us to increase full year guidance again and provide increased confidence in our ability To achieve and even exceed the milestone in our 3 year plan provided at our Analyst Day in August. We now expect to exit the year with free cash flow margin of 20% to 21%, which is within striking distance of the minimum of 25% free cash flow margin targeted for 2025. Additionally, we also expect to generate more than 3.5 dollar free cash flow per share in 2023 above the $3 per share anticipated in August.

Speaker 4

As a result of robust free cash flow generation and careful dilution management throughout the year. Notably, following the 2nd consecutive quarter of positive GAAP Net income in Q3, we expect to achieve positive GAAP net income for full year 2023 With GAAP profitability expected to be achievable in 2024 as well. I'm incredibly proud of this achievement as it puts us ahead of the GAAP target in our 3 year plan. Moving on to the details of the Q3. Total revenue of $394,000,000 was up 14% year over year and exceeded the top end of our guidance range by $3,000,000 As we continue to execute on our strategic initiatives, total bookings were $389,000,000 up 10% year over year.

Speaker 4

Strong top line growth was again driven by our Partners business. Partners revenue grew 38% year over year in Q3, marking a 3rd consecutive quarter of accelerating growth. With Bartels now contributing to more than 40% of overall GPV, Total GPV in Q3 grew 14% year over year. This growth in GPV coupled with an increased take rate as merchants continue to adopt Wix Payments resulted in transaction revenue growth accelerating to 22% year over year this quarter. Before I move on to profitability, I want to take a moment to highlight our B2B business.

Speaker 4

After 3 years since the signing of our first partnership, Our B2B business has scaled tremendously and is now profitable on a stand alone basis. Today, We are able to integrate with any large business looking to bring the power of Wix to their customers without additional meaningful technological investments from our end. As a result of this achievement, as well as the uncertain macro environment, we are now able to offer partners pay as you go terms And we no longer recognize unbilled contractual obligation in bookings beyond 12 months. One example of this evolution is our B2B model to our B2B model is the strategic partnership we signed with Intuit Earlier this quarter, this partnership represents significant potential in the future, but will be recognized based on usage On an ongoing basis, we believe this shift opens our pipeline to more partnership opportunities going forward. Moving on now to the profitability improvements made this quarter.

Speaker 4

Non GAAP gross margin of 68% was up approximately 3.80 basis points Compared to the prior year quarter, we continue to benefit from a more optimized cost structure as well as better gross margin in our payments business. We generated the 4th consecutive quarter of positive non GAAP operating income, which was 16% of revenue. Q3 included non recurring increases to compensation as well as increased marketing activities associated with Wix Studio, both according to our annual budget. These increases in operating expense were partially offset by continued execution on our streamlined marketing strategy as well as lower headcount and overhead expenses compared to the prior year quarter. As a result of our continued growth in leaner cost structure, we generated stronger free cash flow than expected this quarter.

Speaker 4

Free cash flow grew 28% year over year to over $62,000,000 or 16% of revenue and accelerates our path to achieving the targets in our 3 year plan. Note that this excludes CapEx related to the build out of our headquarters. Now I want to finish with our outlook for Q4 and 2023. We expect total revenue in Q4 to be $400,000,000 to $405,000,000 representing 13% to 14% growth year over year. Following our revenue outperformance year to date, we are increasing our full year outlook again.

Speaker 4

We now expect total revenue to be approximately $1,558,000,000 to $1,563,000,000 representing approximately 12% to 13% year over year growth, an increase from our previous expectation of 11% to 12% year over year growth. We also expect accelerating profitability as we exit 2023. We are increasing our outlook for free cash flow for 2023 To $235,000,000 to $240,000,000 or approximately 15% of revenue, this indicates And exit free cash flow margin of 20% to 21% this year, putting us much closer to our minimum 25% of free cash flow margin anticipated for 2025. This compares to our previous weaker flow outlook of $200,000,000 to $210,000,000 or approximately 13% revenue and an exit rate of approximately 15%. This updated free cash flow outlook, along with careful dilution management throughout the year, Also enables us to increase our free cash flow per share target for the year.

Speaker 4

Following the incredible performance so far this year, I'm More confident than ever in our ability to achieve our 3 year plan as we accelerate along our expected path to the rule of 40 With a free cash flow margin target of at least 25% in 2025. Operator, we are now ready for questions.

Operator

Thank you. At this time, we will conduct a question and answer session. Please limit to one question and one follow-up. Stand by while we compile the Q and A roster. Our first question comes from Trevor Young with Barclays.

Operator

Trevor, please go ahead with your question.

Speaker 5

Great. Thanks, guys. First, just any insights on the slight deceleration in bookings, particularly in light of the easier It looks like it decel both on a reported basis and ex FX. And then second question, on a geo basis, What drove that market acceleration in Europe and Asia? And what drove the slowdown in North America that partially offset that?

Speaker 4

Sure. So I would ask both of the questions. This is Lior. So with regard to the bookings, it came in where we expected. I think that it's also worth mentioning the B2B partnership, and I spoke about it briefly Before, we see actually a very positive change into this business.

Speaker 4

As I mentioned before, We completed with products and integration with previous customers or previous partners. So we don't have to do it again. It means that it's not necessary for us to demand any kind of commitment from our partners going forward. Also, when you look at the macro environment, people are our partners, obviously, are not willing to provide a long term commitment as By the way, as I am not willing to do that with regard to my vendors. So from now on, we are not going to recognize A multi year commitment as part of booking, at least that is more than 1 year.

Speaker 4

So it's going to have Kind of a negative effect on bookings short term, but not long term. And but it's not going to have any impact on revenue, It's important to mention. Second reason to your question, we had a slightly higher percentage of monthly play, Partly driven by new subs from B2B partnerships as well as in other specific geographies. Again, there is no impacts on revenue, just about the booking. 3rd reason, I believe, Because of the fact that, that was the 1st full quarter of slacking price increase from spring 2022.

Speaker 4

However, we benefited from compounding growth in Power to Growth driven by business solution. So it's even kind of more than compensated for that. I believe that going forward, We need to remember that we have not yet benefited from strong growth engines that we have, for example, Studio that we just launched, But also all the AI tools that we already see the contribution in terms of increased conversion, but also increasing revenue. With regard to the second question about the geo growth, so in the slide of last Quarter, we had a mistake, meaning that Europe was not 2%, it was 9%, going up to 11% This quarter actually accelerating. So that kind of expands out of the confusions that we have in the year.

Speaker 5

Great. Thank you for that clarification.

Operator

Standby for our next question. Our next question comes from Yigal Aronian with Citi. Yigal, go ahead with your question.

Speaker 5

Hey, good morning, guys. First of all, just Best wishes to you guys and families and everyone. Hope you guys are doing okay and wishing for better times In Israel and the region. I have two questions. First, just on the acceleration in partners And in studio, and the impact that's driving there.

Speaker 5

I think typically when you guys launch new products, it feels like it takes a little bit more time until You start seeing a more meaningful impact and it's coming through the numbers. Are you seeing it? Is that been a notable driver of the Acceleration in Q3, or is it really more, still to come? So you're seeing some good early signs, but It's not contributing a lot to the numbers yet. And then on the AI side, just a follow-up on the comments around Driving better conversion.

Speaker 5

So a lot of new AI products coming through. Can you just expand on that comment on conversion, what you're seeing in the KPIs Around conversion, monetization and retention? Thanks.

Speaker 4

Yes. So I will start with the first Question about partners. So you're absolutely right. We still don't see a significant impact of Studio because we just launched it. I think that this is why we are so excited about it.

Speaker 4

Every the entire growth that we see right now are coming from our Previous product and everything that we've done with partners, Including Editor X, not necessarily Studio. And we need to remember that we still see the compounding effect of it, meaning that any agency that joined like Few quarters ago, we see the benefit of it right now, buying more and using more payments, for example, or Google Ads. So we see a tremendous increase in business solution. A big part of it is because of partners. The reason why we are so excited because we believe that Studio is a great engine for us to continue and increase growth For partners in the future, we are going to see some of it next year.

Speaker 2

I believe your second question was in regards to what kind of effect we're seeing from different AI products that we are launching, Mostly in regards to improvement in conversion. And we do actually see an improvement in conversion, which It's probably the most important KPI by which we measure our success in deploying new products. The reason for that And that with AI, we're able to ask the user better questions and to understand in a smarter way What it is that the user is trying to achieve. From that, we're able to generate a better starting point for their business on top of Wix. And that is not just the skeleton.

Speaker 2

We are also able to fill in a lot of the information A lot of the content that the user would normally have to fill in manually. The result is that the amount of effort and knowledge that you need to create a website and for your business on Wix It's dramatically reduced and from that we are able to see very good results in terms of improvement of conversion.

Speaker 6

Thank you.

Operator

Stand by for our next question. Our next question comes from Andrew Boone of JMP Securities. Andrew, please go ahead with your question.

Speaker 7

Good morning and thanks for taking my question. We as well are also thinking about you guys. I wanted to tie back the comment of self created growth returning to double digit with sales and marketing going forward. Historically, you guys have had a very strong framework between those two items. And so can you just Talk about how we should expect your marketing and performance marketing specifically to either ramp as we think about self creators getting back Double digit growth or anything else you want to unpack there?

Speaker 4

Andrew, so this is Lior. So I believe that looking at the history of Wix, almost the entire growth that we managed to deliver in the past It was due to products. Obviously, Abhishek, I mentioned, for example, the AI tools that we just launched, and we see a tremendous You know, increase and potential upside for the future, you know, to be more specific about conversion, for example. We also see a much bigger usage of our business solution tools like payments, for example. So looking at everything and including Fully, the market and the macro recovery in the future, we do believe that we'll be able to gain a double digit growth for sales creators.

Speaker 7

Great. Thank you. And then I just wanted to touch on core's profit margins. Can you just help us unpack the improvement there? And how do we think about that Going forward, any change from Analyst Day?

Speaker 7

Thanks so much.

Speaker 4

So yes, certainly. So we saw this year A tremendous improvement in margins, in gross margin, and it came mostly from 2 places. The first one is a lot of improvements and savings that we had with our infrastructure, mostly the hosting Activity, so we had a lot of savings over there, but also about our care organization. So for example, benefiting from All kinds of AI tools that enable us to be more efficient. So I believe that that was most of the improvement that we've seen this year.

Speaker 4

I believe that next year we are going to see some more improvement. I don't I'm not sure that it will be drastic of this year, but we're certainly going to see more improvement, Especially around being more efficient, but also from the fact that we see a much better gross margin coming from the business solutions, for As tech rate is increasing, we are able to generate more margins out of transaction revenue. I believe that this is something that we continue also next year and will drive gross margins up again next year.

Speaker 7

Thank you.

Speaker 4

The question was just about the gross margin or the overall

Speaker 7

I was going to keep it gross profit margin. I'll let somebody else go and ask that OpEx. Thank you.

Operator

Standby for our next question. Our next question comes from Chris Zhang with UBS. Chris, please go ahead with your question.

Speaker 6

Hi, good morning. Thanks for taking our question. So I have the first question regarding The marketing expense this year, you lowered the guide for the market expense by about 200 basis points As a percentage of revenue, can you maybe unpack the drivers of the reduction? How much from the more direct response channels? How much from the partner spend that you previously expect To go up and also can you talk about the return environment right now on the acquisition marketing?

Speaker 6

So one of the competitors mentioned leaning more into the more direct channel versus the partner spend.

Speaker 3

Hey, Chris, it's Nir. I think I'll kick this off and Yore can go into maybe a little more of the financial aspects if needed. But Generally, already last year, we communicated our change in marketing strategy that worked We leverage the strength of our brand against buying TransLink, understanding that we can get Better ROI simply because the brand is compensating because it strengthened so much throughout the last few years. So this year, we communicated continuing this strategy, but also Basically, deploying a lot of marketing dollars towards the release and the launch of Wixstudio. Now we explained and we put most of that spend in the second half of the year.

Speaker 3

But if you remember, when we Share the kind of the cadence of the release of Quick Studio. Q3 was about mainly about an internal launch. So we were launching to our existing partners, and therefore, we didn't need to spend and to use most of The marketing budget, so the plan was always to put more of it to use in Q4. Even Q3, by the way, within the plan of the internal plan, we managed to create Some savings, which was great, but the goal was to put more of it towards Q4. That being said, Looking at the 1st few weeks of the launch of Studio, the adoption is fantastic.

Speaker 3

It's higher than we even expected. So we believe that the actual deployment of the marketing dollar will be done more gradually between Q4 and heading into 2024.

Speaker 6

Great. That's super helpful. And I guess if you can also comment on The return environment, and I think that's also kind of related to the self creators, Gross trajectory and how you're thinking about probably just putting some dollars in or incremental dollars in the acquisition marketing?

Speaker 4

So we should out of the sales, Pietro, there's not much of change from the last quarter. The thing that we show that The change that we've made is consistent and stable. We managed to generate obviously the same amount of collection With less investment in marketing, and I think that it's great to see that this strategy is actually working Due to the fact that the brand become much, much stronger, right now, the return is obviously has Change dramatically then compared to the beginning of last year, which stands at less than 1 quarter. I believe that we see the strength of our brand. We believe that this is something that can continue and sustain also over the next couple of years.

Speaker 4

So we do not see any significant change over there for sales creators.

Speaker 6

Thank you very much.

Operator

We'll stand by for our next question. Our next question comes from Bernie MacKernan of Needham and Company. Bernie, please go ahead with your question.

Speaker 8

Great. Thanks for taking the questions and just reiterating thoughts and prayers with you guys and the Wickes team. Maybe just on Self Creator, Talking about getting back to double digit growth, how much of that can you control versus waiting on the macro, anything that you can call out like Technology or maybe even just marketing wise to that you control to get that growth back to double digits.

Speaker 3

Hey, Bernie, it's Nir. So I think on the subcreators, obviously, macro environment is something we cannot control and we don't anticipate But we do believe that a lot of our product innovation is towards generating that growth in any environment. And obviously, if there is a recovery, that can be even a plus to that growth. From what we've seen already, 1st and foremost, I think that the AI innovation that we are aiming for and Avishai just Explain how does the AI drives conversion and we have this is the 1st milestone or the first part of a much deeper And wide products around AI and the creation for self creators that we plan. Obviously, that Improvement in conversion is can be a big driver for growth, and marketing is something that follows Product.

Speaker 3

So if the conversion improves, then obviously, we can consider what more we want to do in terms of the marketing towards self creators. But from that standpoint alone, we think there's a significant potential for growth. The other side of it is the business solutions. Okay. The business solutions, although they're growing much faster on the partner side, They are also growing significantly on the self created side.

Speaker 3

And we've seen that both on the side of GPB and growth and adoption of Selling and e commerce platforms, whether it's stores or scheduling or restaurants or hotels and we have or events and we have a very Wide variety, which is part of big part of our strength. So the GPV growth is definitely a driver there, as well as other solutions that are More business solutions, e mail marketing, Google advertising, etcetera. So our belief is, yes, we can drive it. That's in our control, and hopefully, recovery will come on top of it.

Speaker 8

Understood. And then just to follow-up on Wick Studios. I know it's really early days, but adoption higher than expected. Anything you can comment just in terms of like Tangibly what you're seeing, whether it's the partners being more efficient or you think you're taking share of their workload, just We'd love just to get some more tangibles in terms of just like exactly what's happening as the adoption occurs in Wick Studios.

Speaker 2

I think that there is a variety. There are many different kinds of partners that are using Wick Studio. And I think that when you look at more of the freelancers or the People that do it part time, then it is just a more familiar user interface, which is very similar to a lot of design software. So, the recent design software is using how to use that. It's very easy for you to adopt to Wixstudio.

Speaker 2

And then because of the power of the AI tools, We can create very strong, very professional websites because the AI will continue and finish for you the things that would normally require you to specialize In the case of the more professional companies What we're seeing is that the way we built it is that it enable you to finish things very quickly in And kind of a sketch mode and then take that sketch mode and make it into a real live website, while having the ability to go Really below the hood into the CSS, into the code and change it to the exact specification that you want. What it means is overall in terms of operation, you save tremendous amount of time. You can do things that beyond before that We require to hire very expensive people to do the specific things. And then So the overall thing, right, is the increased efficiency, while even going into making better projects. So we're seeing different values to different kind of partners, of course.

Operator

Stand by for our next question. Our next question comes from Ken Wong with Oppenheimer and Company.

Speaker 2

Great. Thank you.

Operator

Ken, go ahead with your question.

Speaker 2

Thank you

Speaker 9

for taking my question. Obviously, I wanted to touch on the Intuit Mailchimp agreement. I think the earlier press releases seem to lean largely towards utilizing their CRM, their marketing tools. You mentioned it's a bilateral agreement. Can you help us understand kind of how much of a Commitment there is to potentially using the Wix website builder.

Speaker 9

And then just following up on the shift to kind of shorter duration B2B deals. I Should we assume the same level of exclusivity with these partners going forward? Yes, any comments on those 2 would be great.

Speaker 3

Hey, Ken. It's Nir. I'll tackle the first intimate question and then hand it over to Lior. So I think in terms of what we intend to do together on the Mailchimp side and maybe other functions on Intuit portfolio. First, I think it's what's very interesting for us is from the conversations we've had They're a fantastic team over the last few quarters.

Speaker 3

It's very clear that There's a lot of overlap in terms of the profile of the Wix users and the Intuit users, but very little overlap in terms of the offer, Meaning that we are complementing each other in many ways and in many different places. The idea is for us is to map these places and start hooking up the user flow in a way that will be as seamless as possible for the end customer, But we'll be able to deliver the core values of Wix and the core value of Intuit, of Mailstream to the best possible way and the best possible experience for the end customer. It means From our standpoint that eventually, we will have better products offering, where they're spending a lot of efforts and we're not. And they'll have better much better offering on the digital presence and the creation tools that we're spending a lot and they're not. And the combined upside will be a very healthy Experience for the end user who will be willing to pay for more services.

Speaker 3

So our hope is we're going to generate something here, which is a win win win Intuit, Wix and the obviously and most importantly, the customers and the users. Lior, you want to take the B2B?

Speaker 4

Yes, sure. So Ken, to your question, there is no change in the type of the arrangements, meaning that if we have exclusivity, it will remain exclusive. I believe that the only change is about the fact that we will not recognize as booking anything that is beyond 1 year. I believe that it's, 1st of all, more conservative. 2nd, there's no need.

Speaker 4

I believe that we have the best product right now in the market to serve partners. They want to bring the power of Wix to their customers, and we are the best alternative in order to do that. I think that it's also saving them R and D cash, R and D money and provide them with the best solution. So this is something that will continue. The second reason, obviously, why it doesn't make sense to recognize as booking any commission that is longer than 1 year It's because of the lumpiness of this business.

Speaker 4

You can have a huge agreement in 1 quarter. The other in the following quarters, there's no other No huge agreement. So it's kind of making this business kind of lumpy between the quarter and it doesn't make sense. And in any case, it doesn't involve any impact on revenue. So I believe that, that would be the best decision.

Speaker 4

And secondly, it's open More larger time for us, because then you don't negotiate on the commitment, you negotiate on the assets on what is more important In order to make this partnership successful.

Speaker 9

Perfect. Thank you.

Operator

Stand by for our final question. Our final question will come from Mark Zegedowicz with The Benchmark Company. Mark, please go ahead with your question.

Speaker 10

Thank you and good afternoon. Just a follow-up on the gross margin Question, just curious how much more run rate you have over the next 12 months on customer care leverage there And how meaningful that's been in terms of driving gross margin levers versus other lever points like hosting efficiencies? And then second question, just curious how meaningful was the B2B partnership contribution to 3Q partners revenue and any expectations as you look at it into 2024 in that regard? Thanks.

Speaker 4

So I start with the first question. I'm not going to provide details about How more efficient we can be with carry is always the case by the way. We always look for more ways to be and more needs to be more efficient. I did mention that we are going to see some contribution and some more efficiency around gross margin next year, But it can be also from the fact that we are more efficient in payments. We are more profitable in payments as we scale up this business.

Speaker 4

And obviously, there will be more cases where we can drive efficiency. So of course, we are going to do that, but I'm not going to go into the details of it. With regard to the contribution of partners of the B2B partnership for this year, so of course, it was are more significant than last year. And it's a SaaS business as any other SaaS business. So it will be Most significant in the following years.

Speaker 4

This is like the nature of it, but I must say that most of the improvement That we've seen our partners business actually coming from the fact that we are getting more and more agencies. I did mention many times in the past that we see that as like the most The strongest growth driver that we have, it's mostly coming from more and more agencies joining Wix and the compounding effect of it.

Speaker 10

Thanks much. That's helpful.

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Earnings Conference Call
Wix.com Q3 2023
00:00 / 00:00