Wix Reaches "Rule of 40" Milestone Prematurely: Essential Insights from Q4 2024 Financials
Wix Soars Ahead in 2025, Smashing Growth Goals
On February 19, 2025, web design giant Wix.com (WIX +0.65%) announced its stellar fourth-quarter and full-year 2024 financials. Displaying remarkable growth and operational improvements, Wix aced its "Rule of 40" objective (a merger of growth rate and free cash flow margin surpassing 40%) a year earlier than anticipated. Now, the company is aiming even higher, shooting for the "Rule of 45" in 2025.
Riding the Wave of Success
Wix's extraordinary crew navigated turbulent waters between aggressive expansion and enhanced financial performance, surpassing its ambitious target one year ahead of schedule.
In 2022, we laid out an ambitious plan to hit the "Rule of 40" by 2025, and it's with immense pride that I announce we've smashed this milestone. Thanks to our team's unwavering commitment and execution, we've reached this goal a year ahead of schedule.
— Avishai Abrahami, CEO and co-founder
Bookings swelled 15% in 2024, with a Q4 surge of 18%, while non-GAAP operating margins expanded to a substantial 20% of revenue, marking an impressive 450 basis points uptick from 2023. Free cash flow skyrocketed to a jaw-dropping $488 million (28% of revenue). With an eye on the future, Wix aims to instill even greater confidence in its balanced approach to growth and profitability in 2025, setting its sights on the "Rule of 45."
Studio Platform Fuels Professional Segment Growth
Wix's professional partner segment has emerged as its fastest-growing revenue generator, propelled by the overwhelming adoption of its Studio platform.
Partner revenue soared an impressive 30% year over year. Now boasting over 2 million Studio accounts, Wix has cultivated a thriving community of creative professionals, with a whopping 75% of these accounts belonging to partners dipping their toes in Wix's waters for the first time.
— Avishai Abrahami, CEO and co-founder
Unveiled in October 2023, Studio has captured the hearts (and minds) of web professionals and agencies, accounting for about half of all new purchases. Streamlining the website creation process, Studio abolishes the need for separate design and coding specialists. As a result, partners can deliver superior results faster and more efficiently, fostering both adoption and loyalty.
AI Investments Yield Higher Conversion Rates and Income Streams
Wix's AI approach is bearing fruit in user conversion and yielding new income streams.
The AI website builder, the backbone of Wix's AI suite, is leading the charge in web creation. Over 1 million sites have enlisted its assistance, proving its conversion-boosting powers. As reported last quarter, this AI website builder is driving stronger conversion and purchasing behaviors, particularly for independent creators.
— Avishai Abrahami, CEO and co-founder
Phase two of Wix's AI strategy is upon us, with the launch of its first monetized AI product, AI Site Check. Offering 24/7 AI chat capabilities, this service is now available to businesses. Wix is now cooking up an AI assistant for its business dashboard and an AI marketing agent that crunches website data to spew out tailored marketing plans, broadening its AI revenue horizons.
Evolution in User Quality Drives Enhanced Cohort Performance
Wix's tactical shift towards pursuing higher-intent users is yielding better cohort economics and increased lifetime valuations.
The Q1 2024 user cohort generated an impressive $61 million in cumulative bookings over its first four quarters, making second place in the earnings ranking to none other than the Q1 2021 cohort, buoyed by COVID-19's tailwinds. However, Q1 2024's performance was nothing short of remarkable given its smaller user base.
— Nir Zohar, President and COO
Year-over-year, the average bookings per subscription swelled 13% to over $294, driven by an uptick in premium packages and heightened business solution adoption. Wix now projects an astounding $18.4 billion in bookings stemming from its existing user cohorts over the next ten years, up considerably from last year's estimate of $16.2 billion. Net revenue retention soared to an even 100% in 2024, bolstering the company's quality-focused policy.
Upcoming Products to Fuel Self-Creator Growth
After throwing its weight behind the partner strategy in 2024, Wix is now banking on accelerating its self-creator segment through remarkable product launches.
Two potential game changers are on the horizon for our self-creator market. The first will immerse powerful design capabilities beyond merely website construction and is slated for release around late spring. The second will signify a revolutionary shift in how self-creators establish an online presence, with a launch rumored for the early autumn.
— Avishai Abrahami, CEO and co-founder
Though these new products aren't factored into 2025's financial forecast, Wix anticipates they will turbocharge self-creator revenue growth by 10% before 2026. The first product promises to amplify design capabilities to formats like social media content, while the second embarks on an unprecedented journey in online presence-building. These initiatives underscore Wix's commitment to innovative advancements for both its self-creator and professional segments.
Venturing into 2025 with Momentum
Wix commences 2025 with significant momentum across both its partner and self-creator businesses. As CFO Lior Shemesh pointed out: "The high end of our revenue and free cash flow expectations positions Wix to achieve the Rule of 45 in 2025, reflecting our indefatigable pursuit of driving growth and profitability improvements alongside the impressive achievements made in recent years."
- With the success of achieving the "Rule of 40" a year early, Wix is now focusing on becoming profitable according to the "Rule of 45" in 2025, demonstrating their commitment to strategic investing and financial growth.
- The professional partner segment, fueled by Wix's Studio platform, saw an impressive 30% year-over-year revenue growth, highlighting the importance of finance and investment in technology solutions.
- Wix's AI investments have shown promising results, with the AI website builder leading conversion boosts and driving stronger purchasing behaviors among independent creators, demonstrating the significance of technology and innovation in finance and finance-related industries.
- The company's shift towards pursuing higher-intent users has resulted in better cohort economics and increased lifetime valuations, indicating the importance of quality and targeted investment in user acquisition for finance and finance-focused businesses.
