Wix.com Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 9 speakers on the call.

Operator

Welcome to the Wix Q2 2023 Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer Your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Emily Lu, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thanks, and good morning, everyone. Welcome to Wix's Q2 2023 earnings call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co Founder Nir Zohar, our President and COO and Lior Shemesh, our CFO. During this 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 Avishai.

Speaker 2

Thanks, Emily, and good morning, everyone. We continued the momentum built up over the past few quarters into a strong Q2, exceeding expectation As we accelerated both profitability and growth for a 3rd consecutive quarter. This is a testament To our focused commitment to our growth strategy, while balancing operational efficiency, revenue in Q2 grew to $390,000,000 above our guidance. We generated more than $49,000,000 of free cash flow of 13% of revenues also outperforming expectations. A meaningful driver of the strong performance This quarter was our partner's business, which grew revenue 36% year over year in Q2.

Speaker 2

For the last several years that our partner business has grown, we have been listening to our partners' needs and innovating on A set of solutions tailored especially for professionals. This all has led to the launch of One of our most significant products releases in the last few years, Wix Studio, the new corner store platform Our partners' product experience. Wix Studio is the first of its KIND web creation and development platform meant specifically For agencies and freelancers, it is an all in one platform for professionals to create websites, easily collaborate and delegate and maintain, manage workflows And clients at scale and grow their business more efficiently. I want to share a bit more about how Wix Studio came to life. 3 years ago, we launched Editor X.

Speaker 2

Since then, we have gained significant traction with agencies and designers and have learned a great deal about the types of projects they build, about their needs in design and control and about how they are they run their business. We learned that agencies and freelancers need more than just a high end design environment. They need tools to manage and grow their business. The knowledge we have gained has enabled us to make significant leap forward in our offering for partners, which We now deliver with Wix Studio. Wix Studio brings so much more agencies and freelancers in one platform than we We believe anyone else has ever offered.

Speaker 2

The Wix Studio Editor provide a simple way To do complex things online with layers of control over all aspects of design, while still allowing in-depth Simplification of Editor X for the most advanced users. One of the hardest issues that agencies have is keeping consistent design across multiple screen sites. We are greatly simplifying this challenge with responsive AI technology. Wix Studio also includes a full set of native business solution All supported on Wix Infrastructure, like Wix Stores and Wix Booking as well as the ability to add 3rd party apps. For a specific business logic that is sometime needed for clients, Wex Studio offer developers new capabilities and tools to create custom application better and faster.

Speaker 2

For that, We've introduced Wix IDE, a complete new professional development environment based on Versus Code. Utilized using Wix ID developers can extend the functionality of our business solution using hundreds of API and integrations. With integrated AI here as well, developer can use an AI powered code assistant to write cleaner code And it takes us with Wix Blox partners can create custom component widgets and apps that can be reused on multiple sites. Partners Can even sell the apps they create using Wix blocks to millions of Wix users in the app market. Finally, Wick Studio is made specifically for professionals who build sites for a living.

Speaker 2

The Wixstudio workplace includes powerful dashboard to manage clients, projects and teams, which is also accessible on a dedicated Wixstudio mobile And for when an agency hands over a site, Wix Studio includes A client facing dashboard and edit tool with features such as a quick edit, which allow clients to make easy changes to the site on their own and The ability for the agency to deliver resources for the clients such as video guides and tutorials. These are just some Of the many ways to address all of our partner needs from building complex projects to managing client relationships, all in one place. These capabilities are built with all types of agencies across all specialties and skill set in mind, not just design experts. We are incredibly proud and excited for the release of Wix Studio, and we believe it will be a meaningful driver for continued growth with partners. In addition to Wix Studio, We also made a meaningful strides in all of our AI innovation this quarter with the announcement of AI SaaS generator and AI system for businesses.

Speaker 2

Just 2 of among many other exciting products in our pipeline will be rolling out to our user led initiative. This adds to our already robust suite of AI and Gen AI products developed over the past decade. AI remains a key part of our growth strategy for both self creators and partners alike. There are so many More exciting features and highlights of Wix Studio as well as our AI pipeline and vision. And we'll be sharing more details And some demo next week at our Analyst Day.

Speaker 2

I hope you will join us there. With an excellent first half of the year behind us, I'm confident in our ability to continue this momentum and even accelerate profitable growth for the rest of 2023. So we're again raising our revenues and free cash flow outlook for the full year. The outperformance of the last few quarters put us on the path to Achieving the rule of 40 in 2025. There are many exciting things still to come this year and only made Possible by the credible team here at Wix.

Speaker 2

So thank you all for your hard work and dedication to our users. With that, I'll turn it over to Nir to speak more about the

Speaker 3

Thank you, Avishai, and thank you everyone for joining us today. I want to I'll start by sharing a bit more about the significance of Wix Studio for our business and then I'll share more about this quarter's performance. While professionals have always used the Wix platform, over the last several years, we have invested significantly into infrastructure, Product development and marketing to expand our TAM by building the go to platform for professionals. Last year, we presented how the partner cohorts generate compounding growth. This compounding growth Is inherent to the difference between partners and self creators.

Speaker 3

Partners take on more and more projects over time And therefore, each partner generates more subscription revenues over the lifetime of the cohort. Partners' websites also deliver higher GPV And they have a deeper grasp of advanced capabilities, adopting more business solutions and generating higher ARPS across the board. We continue to see this behavior and we will share more at our Analyst Day next week. The financial results from all of this have been outstanding as partners now make up 30% of our total revenue and continue to grow. This growth is a testament to the success of our investments.

Speaker 3

Wix Studio represents an important milestone in this journey. With Wix Studio, we are not only delivering to partners an updated Powerful design and development experience with AI technology, we are also bringing something completely new that meets their specific needs. With the Wix Studio Workspace and its set of new workflow tools that will help agencies manage their business Scale and grow, we believe Wix Studio is a unique offering that no one else provides. And there will be much more to come. We will continue to add products and tools to Wix Studio as our partners grow with us.

Speaker 3

We believe that this product will enable us to enhance the partner cohort behavior I described before as well as grab even more market And accelerate our penetration into this massive TAM. Moving on to the quarter, starting with the cohort performance. Our Q1 'twenty three user cohort generated $42,500,000 in cumulative bookings in its first two quarters ending in Q2. This was approximately 6% higher than that of the Q1 'twenty two cohort in its first two quarters. Despite the Q1 'twenty three cohort containing about 13% fewer users compared to the Q1 'twenty two cohort and lower acquisition Marketing Investment.

Speaker 3

We benefited from solid conversion of new and existing users and continued growth in bookings per subscription and stable retention. These fundamentals show the positive returns from our focus on bringing higher intent sales creators and partners, which convert at higher rates as well as higher monetization driven by Favorable pricing mix, strong adoption of business solutions applications, more transaction revenue as a result of higher GPV and increased take rates and continued contribution from our B2B partnerships. Finally, this quarter's performance again demonstrates the strength and Scale of our global brand is reflected in the success of our marketing strategy shift implemented last year. With that, I will now hand it over to Lior to walk through our financials and outlook. Lior?

Speaker 4

Thanks, Nir. As Avishai mentioned, we continue to make progress In the disciplined execution of our profitable growth strategy in Q2 with growth and profitability accelerating for another consecutive quarter. Continuing to meaningfully expand margin will ultimately drive us to reach the euro of 40 in 2025 under a variety of scenarios. At our Analyst Day next week, I will show you how we plan to reach this goal from where we are today. This quarter, we accelerated gross profit margin further, up nearly 580 basis points year over year Non GAAP operating expenses as a percentage of revenue declined meaningfully from 66% in Q2 2022 to 51% in Q2 This decline was a result of continued execution of our streamlined marketing strategy and the cost savings actions Executed over the past year and completed last quarter, this drove us to log a new record high for quarterly non GAAP operating income.

Speaker 4

Additionally, we achieved the Q1 of positive GAAP operating income in Wix history. This milestone demonstrates strides we've taken towards sustained GAAP profitability, which we believe we are very close to achieving. Non GAAP operating expenses also declined more than 300 basis points sequentially from increased operating leverage as revenue grew 13% year over year, while operating expenses remained stable. This outperformance in Q2 caps off an incredibly strong first half to twenty twenty three with free cash flow generation of $93,000,000 or 12 percent of revenue, which was better than expected. Excitingly, We expect to accelerate margin expansion in the back half of the year as we drive further leverage.

Speaker 4

Now on to the details of the quarter. Total revenue of $390,000,000 exceeded top end of our guidance range by $5,000,000 as we continue to execute on our strategic With our partners business performing exceptionally well, total bookings were $398,000,000 in Q2, up 12% Year over year and also above our expectations. As you just heard Nir speak about in detail, Our Powerless business continued to outperform as it remained a key strategic focus for us due to better fundamentals and increased ARPU Through increased business solution attachment and more GPV generation, partners revenue growth accelerated to 36% year over year. We expect meaningful growth to continue to improve the Wix experience for professionals to new products tailored for the needs such as our new studio platform. Partners GPV growth strength across geographies, e commerce vertical as well as higher average GPV per Overall GPV to increase 10% year over year to $2,800,000,000 in Q2.

Speaker 4

Higher GPV and a continued increase in take rate As more merchants choose Wix Payments resulted in accelerating transaction revenue growth of 21% year over year to more than 44,000,000 Strong growth in creative subscription ARR continued this quarter, accelerating to 10% year over year As we continue to benefit from strong core behavior, price increases and growing revenue contribution for partners, Net new ARR growth in Q2 2023 was approximately 66% year over year. We expect net new ARR to continue its meaningful year over year growth through the rest of 2023 as incremental subscriptions On top of accelerating revenue and bookings growth, we also saw an acceleration in margin expansions as well in Q2 Through continued hosting optimization and benefits from previously completed headcount efficiencies throughout the past year, Non GAAP gross margin increased to 68%, adding another 160 basis points on top of Q1 record high and up approximately 580 basis points year over year. Non GAAP creative gross margin increased to 83 percent marking a 230 basis point expansion sequentially and more than 700 basis points Year over year, this improvement was driven by strong revenue growth in this segment as well as continued hosting efficiencies.

Speaker 4

Non GAAP operating margin improved nearly 4 70 basis points quarter over quarter to 18% of revenue in Q2. This was mainly driven by continued execution of our streamlined marketing strategy focused on higher intent users. Q2 Surpassed last quarter record high for non GAAP operating income. As a result of Continued growth and profitability acceleration, we generated over $49,000,000 of free cash flow or 13% of revenue. This excludes CapEx related to the build out of headquarters as well as the remaining cash portion of the one time severance charges Related to the headcount reduction we announced in February.

Speaker 4

Free cash flow performed better than expected again this quarter, Giving us full confidence in our ability to achieve the rule of 40 in 2025, Accelerating free cash flow growth and expanding margin over the past three quarters demonstrate the strength of our business and the success of cost efficiency action executed over the past year, which have been completed. Now let me finish with our outlook for Q2 and 2023. We expect total revenue in Q3 to be 380 For the full year, we are increasing our outlook again. We now expect total revenue to be approximately $1,540,000,000 to 1.55 $8,000,000,000 representing approximately 11% to 12% year over year growth. This is an increase from our prior expectation of $1,520,000,000 to $1,540,000,000 or $0.10 to 0.1 $1 growth.

Speaker 4

With this new guidance, We expect revenue growth in the second half of the year to accelerate compared to the first half of the year. Additionally, We are also updating our profitability expectations for the full year as we see operating leverage from the cost actions completed over the past year as we scale. We now anticipate non GAAP gross margin to be approximately 68% for the full year, up from our previous expectation of 67%, driven by increased profitability across both Creative Subscriptions and Business Solutions. We now anticipate Creative subscription gross margin to be approximately 82%, up from our previous expectation of 81%. For Business Solutions, we expect gross margin of approximately 28%, up from our previous expectation of 27%.

Speaker 4

Full year non GAAP operating expenses are now expected to be down year over year to 56% to 57% of revenue compared to 57% to 58% of revenue as previously expected, driven by lower marketing expenses and operational leverage from previously completed As a result of higher revenue growth and additional profitability improvements, we are increasing our outlook for free cash flow for 2023 to $200,000,000 to $210,000,000 or 13 percent of revenue, exiting the year with a free cash flow margin of approximately 15%. This compares to our previous expectation of $172,000,000 to $180,000,000 or 11% to 12% of revenue and an exit margin of approximately 13%. With this updated guidance, we expect free cash flow margin to accelerate in the second half of the year compared to an Already very strong and profitable first half. With our cost efficiency plan now complete and behind us, The operating cost in the second half of the year will reflect the necessary run rate to drive meaningful operating leverage Going forward and carry us to achieve the rule of 40 in 2025. Additionally, stock based compensation is expected to decrease to 14% of revenue in 2023 versus our previous expectation of 14% to 15%.

Speaker 4

Finally, we are committed to increasing free cash flow per share going forward. Our updated guidance combined with our share repurchase activity year to date positions us Well to generate over $3 of free cash flow per share in 2023, a significant increase over 2022 free cash flow Per share of $0.51 We will share more about our plans to increase free cash flow per share through 2025 at our upcoming Analyst and Investor Day. I'm extremely pleased with the results and accomplishments we've made on all fronts over the first half of the year and I'm looking forward to continued growth and profitability acceleration in the back half. Operator, we're now ready for questions.

Operator

Thank you. We will now conduct a question and answer session. Our first question comes from Matt Pfau from William Blair. Please go ahead.

Speaker 5

Hey, Greg. Thanks for taking my question guys and great results. Wanted to ask first on Wix Studio. And what are the monetization plans here? Is it something that You're going to charge for some of these features separately?

Speaker 5

Or is it more of a plan to help your partners bring more subscriptions onto your platform? Thanks.

Speaker 3

Hey, Matt. It's Nir. So in terms of how we think about the pricing and monetization. So the pricing for Studio at this point is going to be the same as it was for Editor X. And the way we think about the monetization and I think it also Tightly relate to what I spoke about before in terms of the cohort behavior of the partners is we are by Introducing Studio, we believe that we can be much more attractive for these partners, for the designers and agencies that want to cater and build projects For their clients, it means that we'll have we'll increase the adoption of partners into the platform.

Speaker 3

And by increasing that adoption, we will just Get more completed projects, which mean more websites and more subscription revenue coming out of it. We also know that these kind of websites Much have a much more higher likelihood to be commerce websites that also drive GPV and higher GPV, which is another great contribution to our monetization. And again, these partners are also much more sophisticated in their general approach to More complex business applications on the Internet, which means that they adopt more of our business solution, and therefore end up with a Higher ARPS. So all of that together is a driver for monetization that we believe is going to Not only continue the compounding effect of those cohorts, but hopefully even acceleration, we'll see an acceleration of that effect.

Speaker 5

Great. Thanks for taking my question.

Operator

Thank you. One moment for our next question. Our next question comes from Ken Wong from Oppenheimer and Co. Please go ahead.

Speaker 6

Great. Thanks for taking my question. I wanted to dig into the Partner side of your business, that saw a notable step up in terms of the acceleration. Can you help us walk through of the moving pieces there, how much was maybe the B2B flow through or was there a lot of yet new ARR that might have come through from And kind of the traditional partner channel as well.

Speaker 4

Hi, this is Lior. So I think that in order to understand it, I think that if you look at the net growth of the ARR, which was about 66% this quarter and Q1 was More than 90%. I think that it provides you with the right understanding that we managed to generate an incremental Revenue to our business, mostly coming from partners as you suggested. It's a combination of both B2B We obviously, but most of it is actually coming from agencies that moving to Wix And using Wix to build the website and we need to understand that this business has a compounding effect because once you get an agency, They continue to build website for the customers and on top of it you are getting a new one. This is why we see that the actual growth of partners It's accelerating.

Speaker 4

This is why we so believe in this business and the fact that it can be even more profitable than the self creators Because it's compounding effect. In addition to that, we know that Bartlett's growth It is also due to the fact that it's a different mix of customers. It's more businesses using more businesses applications, generating more GPV and transaction revenue, which obviously also contribute to the growth of this business. It's also worth mentioning that we expect this business to deliver also higher growth in the future due to the fact that we just launched Studio. So it will be interesting to see the result of it.

Speaker 6

Great. Thank you for those thoughtful insights.

Operator

Thank you. One moment for our next question. Our next question comes from Bernie MacTiernan from Needham and Co. Please go ahead.

Speaker 7

Hi. This is Stefanos Crist calling in for Bernie. Can you just talk on the revenue acceleration, what you're seeing in the macro environment and how much impact that's had?

Speaker 4

So we see some modest improvement in the overall economy, But it's only modest obviously. Most of the acceleration that we see right now in the revenue is actually coming from the fact that We are getting and taking more market share in our partners business. I think that it's worth mentioning the growth on a year over year basis was 36%. So yes, we see some modest improvement in the overall economy as people buying more online, But it's really, really modest. I think that most of the growth is attributed to the fact that Partner's business is going very well for us.

Speaker 6

That's great color. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from Elizabeth Porter from MS, please go ahead. Great.

Speaker 1

Thank you so much. Really impressive growth on the partner side of the business. I want to switch and ask on the self creators and more specifically about top of funnel trends. Are we getting back to kind of normal cadence after digesting the impacts from COVID? And can you also speak to any change in conversion rates from paid customers to the user base that you've been seeing as you've been attracting kind of more high quality customers?

Speaker 1

Thank you.

Speaker 3

Hey, Elizabeth, it's Nir. So From the standpoint of the self careters, we asked whether we are getting to normal Pre COVID cadence from the top of the funnel, the answer is not yet. As Dior mentioned before on his comments on the macro economy, we have seen Sami, proven to top of funnel, but we it's still not where it was pre COVID. And our belief is that there is still room For more recovery there over time and as the general economy gets better and better. In terms of conversion rates, Yes, we have seen conversion rates going up.

Speaker 3

First of all, because of the significant change we've done to our marketing strategy, And we're bringing much higher intent users now. So obviously that is paying off. But we've also seen improvement simply for Due to the cadence of our product release and innovation that is aimed at helping users become more successful, The introduction, the February release of Check GPT within the editor is a good example for something that drove that. And obviously, we have many, many of those coming. So that's also another positive effect on conversion.

Speaker 1

Great. Thank you so much.

Operator

Thank you. One moment for our next question. Our next question comes from Chris Zhang from Credit Suisse. Please go ahead. Hi.

Speaker 6

Thanks for taking our question. So the question is around the marketing expense guide, which you took down from 27 Net to now 25% to 26%. And remember previously you mentioned The second half increase of the brand marketing expense, which would represent probably a 400 basis points step up, Are you still expecting that or is there any change in the strategy there? Thank you.

Speaker 4

Hi, Chris. This is Lior. Yes, we do Expect to see increase in marketing due to the fact that we just launched Studio. So obviously, we are going to invest In order to accommodate, the amount of spending that we have in our plan, yes, we plan to increase the investment in marketing. But going forward, obviously, it will be a reflection of how successful we are In with this product, meaning that it's a strict variable cost, very linked and attached To the success that we are going to see in studio.

Speaker 4

So it's hard for me to tell you what will be the run rate. But obviously, yes, we are going to see some increase of our marketing investment in the second half of the year.

Speaker 6

All right. Thank you very much. It's very helpful.

Operator

Our next question comes from Yigal Aronian from Citigroup. Please go ahead.

Speaker 6

Hey, good morning guys. Good afternoon. So first on Studio, can you Maybe just talk a little bit more about when you expect it to kind of hit general availability. Is there anything additional to share on the marketing efforts Just talked about around it, the agencies that are currently partners, do you just switch them over? How are you on that kind of expectation that partner growth accelerates or has more strength from here because of this product?

Speaker 6

What is that kind of sell through process? And then, just want to talk about GenAI for a little bit. You guys have done a great job of late, Highlighting how its benefits and the things you're doing, site generator looks really interesting. Are you seeing any tangible Evidence that AI is helping drive more website creation and Web building helping your customers create better websites, so far is it still too early for that? Thank you.

Speaker 3

Hey, Gal. It's Nir. I'll start with the first question about the studio. So the current launch pass That already we already started this Tuesday. I aim to first open and invite our Existing a very large base of partners to adopt it, obviously to get feedback, to More improvements to iron out whatever needs to be ironed out as well as understand and help them help educate them on this new platform With the goal of, 1st of all, treat these people that have been with us for many, many years and already use Our platform in order to cater to the needs and for of their own customers.

Speaker 3

That being said, the next Step will indeed be to go to general availability sometime in probably Q4. We will determine what is the best path to do that as we gain More insights from the first phase of the launch, which is already happening. I'm happy to say that Already yesterday, we started opening and adding partners into it in 1,000 in many 1,000. And the initial feedback we are getting is very, very encouraging. We're getting very positive feedback on many, many different fronts.

Speaker 3

So we are very happy about that and we will continue to monitor that and make sure that we have a very smooth transition into it And then continue in the launch plan towards the general public.

Speaker 2

In regards to your question, if we see any tangible evidence that JNI is actually improving Business performance. Then yes, we do. We've I'm not going to disclose all the details, but I'm just going to say that the thing we released In the 1st part of the year and late last year, already are showing improvement in business KPIs. So it makes us very optimistic. And of course, the more we put this kind of technology in front of more users, we expect that factor to grow.

Speaker 2

But if you think about it right, the core value that Wix brings is reducing the friction when we try to build the website. And when you use those technology that can do tremendously well in order to improve that core value And then of course, we expect the results to be significant.

Speaker 6

Okay. Thanks. Anything you can share on when Like generator will be ready or can't do that yet?

Speaker 2

Like every research project, it always looks more Easier than it actually is in reality. I can say we already managed to generate real websites with it. So it seems to We are past the critical and hard parts. Now it's a lot about polishing it and making sure that it is a clean product and reliable.

Operator

One moment for our next question. Our next question comes from Clark Jefferies from Piper Sandler. Please go ahead.

Speaker 7

Hello. Thank you for taking the question. I wanted to ask about profitability, certainly at brisk pace in terms of getting And 18% operating margins and even going back to the last Analyst Day, I think it was contextualized that much The profitability improvements are going to come from the partner business. Is that still tracking to be the case? And has the recent revenue outperformance in that segment Lended at all to a faster paced cash flow breakeven?

Speaker 7

And then as sort of a follow on to that, I think it was interesting to see sequential dollar decrease in accretive subscription COGS. Lior, how much Optimism do you have that the actual dollar value in COGS could go down in the future recognizing we have guidance here for gross margin on the Creative Subscription side.

Speaker 4

So first of all, let me start with saying that I will show in our Analyst Day A very detailed plan, both for our in terms of the profitability, both for sales theaters and partners, And we'll show exactly how we are getting this leverage. I want to start and say that, Yes, improvement is coming from partners, but not just from partners, but also from self shareholders just from the fact that we become more Efficient company, so for example, when you are taking down our hosting, it impacts both partners, but also self creators. So we managed to optimize the gross margin by keeping the cost fixed While revenue is increasing, so there they get more and more leverage, we are doing it by developing all kinds of tools in order to help us to optimize the hosting. To your question with the gross margin, yes, I think that I believe that we are going to see more leverage also next year. Obviously, it's not going to be huge, but there will be some more leverage To our gross margin just from the fact that revenue will be growing more than the cost or more than the variable cost Part of the cost.

Speaker 4

Now with regard to the profitability, the overall profitability, I will show in the Analyst Day during the Analyst Day that we've already reached To in the second half of the year to our run rate in term of our cost structure that will lead us to the rule of 40. And this is something that is really important to mention. We don't need to do anything else. We're simply going to see Every quarter, every year, some more leverage coming from the fact that revenue is growing, but Only the variable part of our cost is growing, which deliver a huge leverage to our model.

Operator

Our next question will come from Andrew Boone from JMP Securities. Please go ahead.

Speaker 8

Good morning and thanks for taking my question. I wanted to go back to generative AI. As you guys bring us to market, can you talk about how you feel like your product will be differentiated versus the competition as we think about AI generated site builders? Thanks so much.

Speaker 2

You're mentioning the AI. So how is what we do in terms of generating websites, right, It's different than others. So the one that we've seen until now are essentially doing the following, right? They take a template and generate the text for the template and that then they save that as a website. Essentially, they're using ChargePT to write text and then just put it inside of a template.

Speaker 2

We started we did that we're now doing with Chiazza P2, we're doing it since last, I think, November.

Speaker 3

And with ADI, we did

Speaker 2

it, of course, with algorithms that are less sophisticated. But even then, we didn't just inject text to template. We actually created layouts around the text, which is the other way around, right? And that creates a huge difference in what you generate because When you fill text into a template, you are creating essentially artificial text that will fit the design. Well, in most cases, if you think about building a business, you do the other way around.

Speaker 2

You create your marketing messages and then you create a design, right, to fit that. And visually, it's a massive difference efficiency of those websites and very different. So that is the first difference. The other difference is that If you think about it, since probably 1998, you could write text in a Word document and then save it as HTML, Okay. So now you just build the website and you wrote the text and you have a very, very basic website.

Speaker 2

Of course, you cannot run your business on top of Because it doesn't have everything you need to run a business. It doesn't have analytics. It doesn't have contact form. It doesn't have e commerce. It doesn't have transactions.

Speaker 2

All of those are the platform that makes it into a real business. And this is something that most of the tools or all the tools I've seen so far are lacking, right? They just Build the page, which you could do in 98 and then with the board and just have it as HTML. So that's another huge difference, right? And the last part is the question of how do you edit.

Speaker 2

And this is a very important thing. A website is not something that you create once and you just Publish it and you never go back to it. You constantly have things to do. You change products, you change services, you change addresses, you add things, you remove things. You need to add content, so Google will like you and this is very, very important for your for finding your business in Google.

Speaker 2

And there's a lot of other things, right? So you need to be able to edit The content. Now when it comes to edit content, you don't want to regenerate the website, okay, which is the current flow you see in all of those things that fill a template, Because it's not only about filling a template, it's not about editing the content. And this is the thing that we spend so much money on doing, right? The back end of technology, the e commerce and then the ability to go in and point at something and edit it or move it and drag it.

Speaker 2

So those are the things that created Wix And those are I think still our differentiator. Even if you generated a template with Checkatrade and it looks great and for some magical reason actually fit Your value that the marketing value that you want to put in your website, editing it is not going to be possible, the current technology they use. And then even more than that, the ability to have all of the applications on top of it that you really need for our business don't exist.

Speaker 8

Thanks. And the letter talked about a growing number of partners. Can you talk about the driver of that Understood Studios to come? And so was that more

Speaker 4

So In terms of the growing number of partners, yes, it's both product driven more than think we need to remember that we haven't really started with marketing campaign for partners. I think that we build Business that is close to $500,000,000 in a few years without significant investment in marketing. Obviously, now when we have the complete solution studio, Wix Studio, we are going to invest more in marketing. So A different way to look at it is just open for us much more opportunities in terms of the growth. But most of the growth for partners is actually was driven by product.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from Brad Erickson from RBC Capital Markets. Please go ahead.

Speaker 6

Yes. Thanks, guys. Just a couple of follow ups. I guess, first, as you speak to the acceleration in the second half growth and kind of Looking into next year, maybe just talk to the growth algorithm for bookings between subs and price, particularly as you lap those price increases? And then second, just some housekeeping.

Speaker 6

Can you just Lior, can you just speak to any FX changes that are Assumptions that are contemplated in the guidance versus last quarter? Thanks.

Speaker 4

Yes. So, look, everything with regard to the FX It was not meaningful. I mean, there is a kind of a few $100,000 or $1,000,000 effect of FX. So it's not really worth spending time over it. When we look at the second Half of the year in terms of the acceleration, obviously, the comp are different.

Speaker 4

Remember that Q1 of this year, the growth was about 10% over a very Strong quarter of last year. So we are benefiting from a different comp. But on top of it, we are very encouraged to See the growth in our Palms business and the growth of our business solution. So as usual, what We do and we provide the guidance, we see the cadence, we see the fundamentals that we have in front of us now. And based on that, we provide the guidance.

Speaker 4

So it's simply just taking what we see right now and without taking into effect any upside, for example, from the launch of Studio. So this is with regard to the acceleration.

Speaker 6

Got it. Thanks.

Operator

Thank you. I'm showing no further questions at this time. I will now turn the conference back to the company for closing remarks.

Speaker 1

Thanks, everyone. Thanks, Anton, for that. Thanks, everyone, for joining us today. Have a great day. Bye.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Wix.com Q2 2023
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