Wix.com Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2024

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Wick's Q4 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Emily Lu, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thanks, and good morning, everyone. Welcome to Wix's Q4 and full year 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. 2023 was a milestone year for Wix. We maintain our leadership position as the go to web creation platform for any user and any business, grew market share for the best in class innovation, executed successfully on key initiatives and achieved strong growth with record profitability. The incredible progress we made this year position us to accelerate growth in 2024. And we now expect to exceed the targets applying in the 3 years plan we provided at our August Analyst Day.

Speaker 2

Lior will work through the details around our updated expectation in a few minutes. For me, 2023 will be remembered as the year of pivotal advance in our product suite. We started off the year labeled by others company facing potential AI disruption. Since then, we believe we've proven ourselves not only to be a beneficiary of broader advancement, but also an AI leader among peers. We have spent the past 8 years developing and embedding AI technology in our product as well as across our operation.

Speaker 2

This year, we meaningfully extended an already impressive toolkit of AI capabilities to include new AI powered features that will help Wix user create visual and written web content more easily, optimize design and content layout, write code and manage their website and businesses more efficiently. The key AI products introduced in the last year include an AI chat experience for businesses, responsive AI design, AI code assistant, AI meta tag creators and AI text and image creators among several other AI design tools. We also recently released our AI site generator and have heard fantastic feedback so far, I believe this will be the 1st AI tool on the market that creates a full blown, tailored and ready to publish website integrated with relevant business application based on user prompt. Our technology has benefited all our users with both our creators and partners having shown excellent engagement over the past year. In fact, the majority of new users today are using at least 1 AI tool on their web creation journey.

Speaker 2

This has resulted in reduced friction and enhanced the creation experience for our users as well as increased conversion and improved monetization. We expect our AI technology to be a significant driver of growth in 2024 and beyond. We also leverage AI to improve many of our internal processes at Wix, especially research and development velocity. This include an open internal AI deployment platform that allow for everyone at Wix to contribute to building AI driven user features in tandem. We also have a JNI based platform dedicated to conversational assistance, which allow any product team at Wix to develop their own assistant tailored to specific user needs without having to start from scratch.

Speaker 2

With these platforms, we are able to develop and release high quality AI based features and tools efficiently and at scale. We expect AI to continue to be a major competitive advantage for us as we build our product suite and more AI tools to make web creation experience more frictionless for our users, as well as helping to improve operations. In addition to AI, we made a huge step in our offering for partners this year with the introduction of Studio, our cornerstone partners web development platform. Since August, more than 500,000 agencies and freelancers have created studio accounts and we currently have more studio premium subscriptions than we expected to have at this point. Most notably, nearly half of our studio accounts were created by new partners who had not created on weeks before.

Speaker 2

This strong start is a testament to the trailblazing innovation of Studio and our success in winning market share amongst our professionals and larger agencies. With all the feedback and our performance so far, I am confident that Studio will ease our most successful product to date. Since our initial investment into professional market in 2019, we continue to see considerable momentum with partners revenue growing nearly 40% year over year in the most recent 2 quarters. This growth has been driven by the incredible strides we've made in building a best in class product tailored for the agency and freelancers market. And we have no plans of slowing.

Speaker 2

There are a number of improvement and new exciting tools underway for partners. We expect Studio and our broader professional product offering to be meaningful catalyst of growth in the coming years. Looking ahead for 2024, I am excited to build upon the success of the past year. Thank you for the entire Wickes team. It is because of you and your hard work that I'm confident that 2024 will be another year of incredible milestone and unbounded potential.

Speaker 2

With that, Neil, over to you.

Speaker 3

Thank you, Avishai. I'd like to share a bit more about the business fundamentals underpinning the strong top line performance achieved in 2023 and the primary growth drivers that we expect to accelerate growth in 2024. The 2023 cohort performed extremely well and was among the strongest non COVID cohorts in our history. Our Q1 'twenty three cohort generated $60,400,000 in cumulative bookings through its 1st 4 quarters. This is the 2nd highest level of cumulative bookings in this timeframe behind only Q1 2021 cohort, which benefited greatly from COVID tailwinds.

Speaker 3

This performance is particularly impressive given the significantly smaller user base of the Q1 'twenty three cohort compared to previous cohorts due to our streamlined marketing strategy targeting higher intent users with lower amounts of acquisition marketing investment. Our success here is a testament to the scale of the Wix brand and the value our platform provides to users. This strong core behavior also demonstrates the solid fundamentals of our business, including steadily improved conversion and monetization. ARPS improved to more than $2.53 in 20.23, up 10% year over year, driven by a continued mix shift to higher tiered packages, higher pricing and increased adoption and usage of business solution products as we continue to onboard higher intent and commerce oriented users, particularly partners. Existing cohort behavior also improved compared to the prior year, demonstrated by net revenue retention increasing to 105% in 2023 from 102% in 2022.

Speaker 3

We now expect existing Uozu cohorts to generate over $16,200,000,000 in bookings over the next 10 years, illustrating the power of our business model and differentiated product offering. Turning to 2024. Lior will share the details of our outlook in a moment, but before he does, I want to highlight the drivers that we believe will accelerate bookings growth in the coming year. First, the launch of Wix Studio has been a great success. We have seen existing partners build more projects on Wix and many new partners join our platform.

Speaker 3

We believe Studio will continue to bring an increase to the activity of partners on Wix, which will drive growth in overall monetization of our partner cohorts. 2nd, we expect conversion and ARPA of self carriers to trend positively as our leading product suite continues to resonate and enables users to meet their goals online. 3rd, as Adichai mentioned, uptake of the milestone AI initiatives of 2023 has been incredible and we expect to see ramping conversion and monetization benefits from our entire AI toolkit for both self creators and partners this year. 4th, we expect continued success in bringing on new businesses and commerce users that generate GPV and adopt business applications. We will also benefit from the compounding growth of GPV from existing commerce users.

Speaker 3

Finally, we have recently implemented higher pricing for new and existing subscriptions. This recent price action is part of our goal of aligning the continuously growing value we deliver to users to the price they pay. Our users have responded extremely well historically with strong retention within our courts during past increases, which provides us with the confidence that our approach to pricing is working. Following our price increases in 2019 2022 as well as this one, we believe there is to continue to increase price as we innovate and deliver incremental value to users. We expect to continue to explore potential price actions at a similar cadence going forward.

Speaker 3

Because of these drivers and the continued momentum we've seen this year so far, we are confident that our business will experience an acceleration in growth in 2024. With that, I will now hand it over to Lior to walk through more details on our financials, 2024 outlook and improved 2025 expectations.

Speaker 4

Lior? Thanks, Nir. We finished 2023 on a very strong note, which we believe puts us on a great path going into 2024 2025. As our business fundamentals continue to improve, we have seen early success with Wixstudio and our AI products as well as in improving the macro environment giving us confidence in our ability to accelerate year over year bookings growth in 2024, which we believe puts us on a track to accelerate year over year revenue growth in 2025. We now expect to outperform the 2024 targets we shared at our Analyst Day in August and believe that we will significantly surface the rule of 40 in 2025.

Speaker 4

Before I go through the details of our 2024 outlook, I want to quickly summarize our Q4 and full year of 2023 results. Note that all financial data are non GAAP unless otherwise noted. Q4 total revenue was $404,000,000 up 14% year over year. Revenue growth was driven primarily by partners revenue which grew 38% year over year. As Avishai mentioned, Studio is off to a great start exceeding our expectations.

Speaker 4

Trading subscriptions revenue in Q4 grew nearly 12% year over year and business solutions revenue in Q4 grew 20% year over year. We expanded total gross margin in Q4 to 70% and operating income grew to nearly $65,000,000 or 16% of revenue. In Q4, sales and marketing expenses grew quarter over quarter to $92,000,000 as we increased our investment in the Wix Studio brand. While we expect to continue gaining leverage in marketing due to our streamlined marketing strategy, especially with sales creators, we plan to continue investing in the studio brand in 2024. Q4 free cash flow excluding headquarters and restructuring cost was over $19,000,000 or 22% of revenue as we continue to benefit from high operating efficiencies.

Speaker 4

Moving on to 2023 full year results, total revenue grew to $1,560,000,000 or 13% year over year and creative subscriptions ARR was €1,190,000,000 up over 10% year over year. We ended 2023 with a total gross margin of 68%, an improvement of nearly 500 basis points compared to 2022. Throughout the year, we benefited from improved efficiencies in hosting and infrastructure cost and optimization of support cost partially aided by integrating AI into our workflows. Creative subscriptions gross margin expanded to 82% in 2023 and Business Solutions gross margin grew to 29% for the full year as we continue to benefit from improving margin in Wix Payments. In 2023, we generated a total of 246 $1,000,000 in free cash flow excluding headquarters and restructuring costs, a margin of 16% of revenue ahead of our prior expectations and guidance.

Speaker 4

This included breakeven free cash flow in our partners business, a significant milestone and 1 year ahead of our 3 year plan. This was a result of strong sustained growth as well as improved gross margin and meaningful operating leverage driven by the broader efficiencies implemented over the past 2 years. We expect to continue to generate incremental margin improvements from the continued scaling of our business and the stable operating expenses base as our partners business continue to grow. As a result, we now expect to significantly exceed the Partners' free cash flow margin target for 2024 2025 as outlined in our 3 year plan. I'm also happy to report that we finished 2023 with GAAP net income of $33,000,000 our 1st year of GAAP profitability.

Speaker 4

This profitability was due to the careful management of costs throughout the last couple of years, including stock based compensation costs, which declined as a percent of revenue for the 3rd straight year. These results demonstrate the fantastic growth and incremental profitability of our business. We reaccelerated year over year revenue growth due to a strong fundamentals of our user growth and the strong cadence of product innovation, the continued returns from the cost efficiency capture we have implemented at Wix over the last couple of years and drove strong incremental profit. We believe that these results put us in a very strong position to accelerate growth into 2024 as our successful efforts in implementing operating efficiency gives me confidence we can continue to generate incremental profitability. And I want to spend the rest of my time on our expectations for 2024.

Speaker 4

We are reintroducing annual bookings guidance due to the improved visibility and confidence in our business a stable and positively trending macro environment and strong core behavior, particularly in our partners business. For the full year 2024, we expect total bookings of $1,780,000,000 to $1,810,000,000 or 12% to 14% year over year, an acceleration from 2023. We expect year over year growth of total bookings to accelerate in the second half of 2024 to 15% as at the high end of the guidance range. In particular, the acceleration is expected to be primarily in creative subscriptions bookings bringing it to double digit year over year growth in the second half of twenty twenty four. This anticipated growth positions the business to achieve accelerating year over year revenue growth in 2025.

Speaker 4

Nir will walk you through the drivers of our bookings growth in 2024 and you can find additional information in the shareholder update. For the full year 2024, we expect total revenue to be $1,73,000,000 to $1,760,000,000 or 11 percent to 13% year over year. We expect revenue in Q1 2024 of $415,000,000 to $419,000,000 or 11% to 12% year over year. We continue to operate the business in an efficient manner as evidenced by the meaningful operating leverage we generated in 2023 on both a GAAP and non GAAP basis. We plan to operate with the same efficiency in 20 24 and expect strong growth in gross profit due to anticipated gross margin improvements on a year over year basis.

Speaker 4

For the full year 2024, we expect non GAAP total gross margin of 68% to 69% with non GAAP Business Solution gross margin to be approximately 30% for the full year ahead of the plan we shared in August. We also expect to generate additional leverage due to minimal growth in operating expenses year over year. We expect non GAAP operating expenses to be 51% to 52% of revenue for the full year, also better than our August plan and non GAAP sales marketing to remain similar to 2023 at roughly 23% to 24% of revenue. We will continue with marketing activities related to Wix Studio throughout 2024 as we capitalize on the growth we have seen since its launch. We anticipate that our strong growth in operating efficiency will generate positive GAAP operating profit and net income in 2024.

Speaker 4

We expect to generate free cash flow excluding headquarters cost of $370,000,000 to $400,000,000 or 21% to 23% of revenue in 2024. We expect this free cash flow guidance in combination with our share repurchase activity will translate to more than $6 in free cash flow per diluted share in 2024 ahead of our 3 year plan. As we continue to responsibly manage dilution, we expect stock based compensation expenses to decline for the 3rd consecutive year as a percent of revenue to approximately 13% of revenue in 2024 in line with our 3 year plan. We expect capital expenditures including costs associated with our new headquarters build out of approximately $7,000,000 to $10,000,000 in 2024. We will incur the final cost of our new headquarters in the first half of the year and anticipate this cost to be roughly $8,000,000 to $10,000,000 We are very excited about the upcoming year.

Speaker 4

We believe we have positioned ourselves to reaccelerate growth and generate incremental profitability. With that, we will now take your questions.

Operator

Certainly. Our first question will be coming from Elizabeth Porter of Morgan Stanley. Your line is open Elizabeth. Great.

Speaker 5

Thank you so much. Congrats on

Speaker 6

a strong quarter. I wanted to follow-up on some of the comments about better conversion rates, both at the Wix Studio capturing pros that didn't continue through the funnel and also self creators with AI reducing friction to build a website. When we look at the premium subs as a percent of registered users, that metric has been pressured for the last few years. So should we see this ratio start to improve in 2024? And if not, where would you point us to detract the success on better conversion rates?

Speaker 6

Thank you. Well,

Speaker 3

I think hey, Elizabeth, it's me here. I think that generally premium subs, whether as a percentage or as an absolute number is probably not the best KPI to look at. Since it may be significantly impacted by different things like our general goal to drive to get more higher intent, better users that are willing to spend more on the platform. It goes towards pricing, it goes towards generally the changes we've done in marketing and more. So we definitely in some cases have reaccelerated some of the sales activity over time.

Speaker 3

But when we look at the conversion rates, we look at it per geography, separately, per different sources for traffic and definitely in a different manner when we look at the sales creators and as well as the partners. We believe that the best thing to look at is actually the cohort value, which I think can very easily we've demonstrated that not only has stabilized is actually on an increasing trend. And in fact, we are gaining getting to the point where it's close to surpassing even the heights of the COVID cohorts, which obviously are the strongest ones in our history. And I think that's the best way to understand the real impact that all of these improvements on the product and the business are having under the hood.

Speaker 6

Great. Thank you. And just as a follow-up, I wanted to ask on just the algorithm between top line revenue growth and investment. Given your initial 3 year plan suggested roughly unchanged revenue growth and now we're seeing an improvement with growth expected to accelerate in 2025. How do you think about the levers of investment, understanding you guys are still exceeding the rule of 40 in 2025?

Speaker 6

It would just helpful to understand the framework around the opportunity to invest versus maybe less of a need given the prior investment before. Thank you.

Speaker 4

So Elizabeth, as we mentioned before, I think that the only way obviously to significantly overpass the rule of 40 is has to be a combination of both profitability and growth. The reason why we see right now that growth is accelerating in the second half of twenty twenty four for us is a great indication that we will see acceleration of revenue in 2025. Remember that every most of the incremental revenue that we get goes to the bottom line in term of profitability as we keep our operating expenses more or less at the same level. Therefore, I expect that this acceleration of growth will drive further free cash flow which will be demonstrated in a much better or significant surpassing the rule of 40.

Speaker 6

Great. Thank you.

Operator

Our next question will be coming from Brent Thill of Jefferies. Your line is open Brent.

Speaker 7

Hi, thank you. This is John Bea on behalf of Brent Thill. Question is on bookings growth. You mentioned it's going to accelerate and half of the incremental will come from several factors you mentioned like studio creators, comments and so on. But is there a way when you think about them in terms of ranking them in terms of meaningful contribution, in terms of the level of confidence you have behind each of those?

Speaker 7

Thank you.

Speaker 4

Yes. So definitely looking at the next couple of years, I think that it will be much better to look at 2024 and 2025 because obviously it's a continuation of that. Remember that we are a SaaS model. So every time that we launch a new product, the time is passes, we see more and much more contribution obviously. This is why, by the way, we believe that the second half of twenty twenty four, the growth is going to be accelerated.

Speaker 4

But then again, also 2025 will be much better than 2024. I think that the first reason is definitely the launching new products. In the end of the day, we are technology, a product company and this is how we drive our growth mostly from new features, from new products and this is what we did in the past and we will continue also to do in the future. So definitely coming from the partners business with launching studio, it was a great launch for us. We see the attraction in the market, we see the demand, We see how our agencies use it.

Speaker 4

I think that we mentioned a few times about the numbers of new accounts with more than 50% are new. I think that it's for us it's a great proxy to the fact that we are going to see much more that it will be significantly the major growth driver for us in the next few years. The second one is everything that we've done with AI, we see a tremendous results out of it, which we believe that we will continue into the next year. And as you know, as always, the third one is about trying to optimize our pricing strategy. And this is what we've done in the past.

Speaker 4

We'll continue to do in the future.

Speaker 8

Thank you. And then maybe a follow-up. I just want

Speaker 4

to mention like a 4th reason, which is the overall demand that we see on the macro basis.

Speaker 7

Great. Actually that's kind of leading to the other question I had was when you mentioned positively trending macro in your prepared remarks. Wondering if you could share more details what actually you're seeing specifically? Thank you. And that's it.

Speaker 3

Hey. Well, I think generally, it's still not massive, but definitely I think we're seeing a positively trending behavior in terms of the businesses being formed on the platform in terms of the GPV through that is going through the website of our users both on the self care side and the partner side. You have to also remember that we have a very wide activity of commerce, so not only shops, but also people are selling scheduling time, selling digital goods, booking selling tickets to events, booking hotels, etcetera. And I think that in most of these cases, we're seeing a positive upward trend. So I think that's what makes us feel a bit more comfortable about the macro economy.

Speaker 7

Thank you very much.

Operator

And one moment for our next question. And our next question will come from Yigal Arunyan of Citi. Your line is open.

Speaker 9

Hey, good morning, everyone. Good to see all the product, the strength of the product pipeline, all the innovation here, the kind of expectations for more coming through. I don't know if there's anything that you can comment on the new things that are coming up in the pipeline that you're talking about here? And maybe specifically on AI Site Generator, if there's more you could share on what early users are seeing, what you're seeing from them and when we could expect a more general launch of that?

Speaker 2

Of course, I think that I'll start with the site generator. So we released what I would call Version 1. It's a great way for people to start with their website, meaning that you come in and you say, I'm a spa in New York City, and I specialize in some specific things. And we'll and AI will interview you on the what makes your business unique, where are you located, how many people, tell us about those people and the staff members. And as a result, we'll generate a website for you that is a has all there has great content, right?

Speaker 2

And the content will be text and images. The other thing that then will actually get you to this experience where you can choose how you want to have the design look like. And the AI will generate different designs for you. So you can tell it, well, I like this thing, I want a variation on that, I don't like the colors, please change the colors or I want colors that are more professionals or I want color that are blue and yellow. And then I will do it for you.

Speaker 2

On the other hand, you can also say, well, I don't really like the design, can you generate something very different or generate a small variation of that? In many ways, a bit similar to Midjourney, what the Midjourney is doing with the images, we are doing with the full blown website. And the result of that is something that is probably 70% of the website that you need to have on average, right? Sometime it's 95%, but sometime it's less than that. So it gives you an amazing way to start your website and then shorten the amount of work that you need to do by about 70% to 80%.

Speaker 2

I think it's fantastic and very exciting and it's even more exciting considering that we have some really cool ideas on how to take it even further and make it a better product that not just create more beautiful website, but also is more tightly coupled with your vision about your own business. And so we're going to see a lot of that is coming. There's a lot of other things that we're working on mostly for self care, it's mostly in how you manage your business. So at Wix, we had we have the opportunity to see how millions and millions of businesses are being run, what works and what's not. And we can recommend our customers how to do things better, how to make the business more successful or what they should be saying and they don't say.

Speaker 2

And we are adding assistance that help you figure out how to take your business to the next level. I think that this is really unique. I don't believe anybody else is working on something similar to that and I found it to be an amazing opportunity for small businesses to learn how to do things better. And a lot of it can also be automated. So I can tell you well, I think we should have more post on your website about things that regarding to if you're a yoga studio about what is the right way to eat what kind of food you should consume or what is better.

Speaker 2

If you and I mean that can be also done by the AI. So AI will not just recommend a lot of thing it can be doing for you. So that is another exciting project that we're working on. And of course, in Wix Studio, there is a long road map of really exciting things that you're going

Speaker 9

to see coming this year. Very helpful. Just a follow-up on that. I think a lot of what you've talked about in the previous answer will address this. But on the obviously a lot of great things to focus on here in this quarter.

Speaker 9

But for self creators, the growth decelerated a bit sequentially on an easier year over year comp last quarter. I think it was Nir commented on just seeing that business get back to double digit growth. Do you still think that that's the right framework for that? And is it just AI and these components that you there? Or is there something else to think about?

Speaker 9

Thanks.

Speaker 4

Yes. Well, the deceleration of I think that it's also super important to mention that is a result of a few things, not necessarily from the business perspective. But obviously, we were lapping with the price increase that from spring of 2022. So obviously, we see the results in the second half of twenty twenty three. We spoke about it also last quarter, but I think that as Nir mentioned, we obviously believe that this price increases and optimization is something that we will be doing on a regular basis as long as we need to obviously as to optimize the pricing.

Speaker 4

The second thing about the self creators, I believe that we had a slightly higher percent of monthly plans in the second half of the year. So obviously, all the above will not be a headwind in 20 24. I believe that everything that we are doing right now in the product and AI and so on. And we mentioned that for sales theaters in the long run, we believe that it will be a double digit growth just because of that because it has the most effect of the macro environment, which already started to see that it's improving. But then again, also the new product and AI is one of the examples how we can bring increased conversion and also increase the growth of sales creators.

Speaker 9

Thank you.

Operator

And one moment for our next question.

Speaker 5

I just wanted to ask about the sales and marketing leverage. It's not too often you see company grow revenue by 25% over 2 years and yet cut sales and marketing expenses by 25%, roughly those numbers are right. So just talk about the sustainability of that. Is it due to the increasing contribution from partners revenue? Is it due to

Speaker 9

the fact that you've reached

Speaker 5

enough brand awareness and scale where sales and marketing can become more of a fixed cost going forward? I know you gave guidance for this upcoming year about where sales and marketing is, but just talk through again the pretty significant leverage you have and the potential for keeping that just as a fixed expense going forward? Thank

Speaker 3

you. Hey, Mark, it's Nir. So I think you touched on both drivers. And I would say that, yes, definitely partners plays a part in it. But I think that more than anything, it is about the scaled brand.

Speaker 3

And you have to remember that we've seen a surge in our brand recognition in the years kind of leading up towards 2023, mostly throughout the COVID era, which combined a very high increase in our marketing spend because there was a high extremely high demand, but also because so many people are now actually forced to go online in businesses and in areas where naturally before they weren't. And they got we generated a crazy exposure throughout that period of time. That led us kind of late 2022 to the point where we started testing whether we can go and decrease the investment in marketing and what would that do to our sales and revenues on an ongoing basis. What we've seen, which we thought was very remarkable that not only does it that it really helps us quickly stabilize and continue growing even at a lower base of marketing, simply because a lot of our a lot of the traffic we kind of lost by not buying it was replaced by organic traffic, which came through the strength of the brand. And even that traffic, again, you see that the core bases are smaller in essence, but it was a much higher intent traffic.

Speaker 3

So it generated actually better financial results. So from our standpoint, yes, we do believe that on the self created side, the marketing investment can pretty much be a fixed cost, obviously, with some fluctuation over time based on opportunities. Whereas when we look on the party side of the business, I think 2024, especially with the fantastic results we're seeing on the studio side in terms of the product is where we're going to see more investment into marketing.

Speaker 5

Thank you, Nir.

Operator

And one moment for our next question. Our next question will come from Chris Zhang of UBS. Chris, your line is open.

Speaker 8

Hi, thanks for taking our question. As you discussed a little bit in the release and the shareholder update about the pricing increase that's currently underway. I just wonder if you could share a little more detail about the extent of the pricing increase on which products, for example, and the level compared to 2022 you're thinking about? And also the timing and how that factors into your guide this year? Thank you.

Speaker 3

Hi, Chris, it's Nir. I think I'll kick this off and then hand it over to Lior to talk about how the modeling and the guidance part of it. But generally, there is a variation obviously between different geographies and different kind of subscriptions in terms of what is the increase in percentage. I would say roughly 5% to 15% really depends on those different parameters. And the cadence, again, because for new prices in the U.

Speaker 3

S. And in Europe are already in place and they're going to be expanded globally. And in terms of the cadence for the subscriptions, obviously, they only increase when they renew. So that's something that's going to be in effect throughout this year and actually will overflow also into 2025. Lior can share more about his thoughts on

Speaker 4

the guidance. So with regard to the price increase, we obviously took it into consideration when we provided the guidance for those places that we actually tested and implemented the price increase. Very important to mention that it's not cover all of our customers, not all of our geos. And this is something that we'll probably test and if implemented, will be an upside to the guidance.

Speaker 8

Understood. That's super helpful. And if I may, I think just a quick follow-up. Just for your revenue by region, Asia is a smaller part and usually that fluctuates a little bit. And if our calculation is correct, Asia and other region actually saw a slight Q on Q decline.

Speaker 8

Can you maybe talk about the drivers behind that? Thank you.

Speaker 4

Are you talking about the North America revenue?

Speaker 8

Sorry, the Asia and the other.

Speaker 4

Asia and other. Well, I believe that Asia and other is like has an impact of kind of small amount of specific customer in channel. So it's kind of fluctuated. I think that obviously when you look at, for example, at Europe and North America, it has been impacted by a specific product that we've launched only in the second half of last year. So we do see the effects of it right now.

Speaker 4

I'm talking about specifically about Google Ads. I think that it's a great way to see that since we launched a new product, it was a huge impact on significant impact on our numbers, which show the ability to introduce new products. But specifically, with regard to Asia and other, it is kind of fluctuating, really depends on a specific customer, especially with coming from the channels activity.

Speaker 8

Understood. That's super helpful. Thank you so much.

Operator

And one moment for our next question. Our next question will be coming from Trevor Young of Barclays. Trevor, your line is open.

Speaker 9

Great. Thanks. First on the expanded partner revenue share, can you just kind of walk us through how the accounting works there and the timing of the impact? As I understand it, it's a contra revenue and maybe recognized in arrears. I'm just trying to understand how that potentially impacts revs later this year for partners.

Speaker 4

Sure. So the revenue recognition will be on a net basis. So for example, if we got a $1,000 from Parter and its share is about 20%, so we are going to recognize only the $800,000,000 over the period of the service. As you know, any other subscription that we do are very similar to that, but it will be just on a net basis. So there will be no impact on the profitability or the gross margin, for example, of the operating profits.

Speaker 4

I believe that this kind of program together with the amazing studio, the product that we just launched, it's a thing that's a combination that it's a win win. From one end, it's a great solution to our partners. On the other end, it's a great business for them, actually providing them the ability to be a SaaS model and get them a subscription base for a very long period of time as we are. So I believe that it's not going to have an effect or any impact on the margins, but definitely we believe that it will be one of our significant growth drivers for the future.

Speaker 9

That's really helpful. And as a follow-up, the 33% margin in Business Solutions in 4Q, what drove that outsized step up? Was that pricing actions in Google Workspace? And then on the implied step down to 30% for fiscal 2024, is that just kind of a mix of more payments versus Google Workspaces?

Speaker 4

So there are like many reasons. I think that the number one reason is obviously our payments. When usually Q4, we told the holidays and so on, you have increase in GPV. Increase in GPV means that the increase in the volume of payments when payment is going up, so we get a better profit. We always say that.

Speaker 4

And by the way, one of the reasons why we believe that the gross margin of Business Solution will be increased in 2024 is this is the reason. We see that payment scaling up and with that we see better margins.

Speaker 9

Great. Thank you.

Operator

And this concludes our Q and A session. I would now like to turn the conference back to the company for closing remarks.

Speaker 1

Thanks everyone for joining us today and we'll talk to you next quarter. Thanks. 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 Q4 2023
00:00 / 00:00