Wix stock price is overvalued ahead of earnings: is it a buy or a sell?

Wix stock price will be in the spotlight this week as the technology company publishes its first-quarter earnings. It was trading at $182.75 on Friday, up by almost 30% from its lowest point this year. 

Wix business has been growing

Wix.com is an Israeli company that provides software that enables small and large businesses to build and manage their websites easily. 

It exists in a highly competitive industry, where companies like Block, GoDaddy, Shopify, WordPress, and Squarespace have a large market share. Block, formerly known as Square, is involved in the business through Weebly, which it acquired for $250 million. 

Wix’s business has done well over the years, with its annual revenue rising from $984 million in 2020 to over $1.76 billion last year. This growth happened as more companies moved to its platform, with the total registered users jumping to over 282 million.

Wix makes money in several ways. The most direct one is where it charges customers a monthly subscription for using its premium service. As a firm using the freemium model. Wix also makes some cash from advertising. 

The company also charges its customers for domain and hosting services and other solutions that make their business easier. 

The most recent financial results showed that Wix had bookings of $465 million in the fourth quarter, a 18% annual increase. Its revenue jumped by 14% to $460 million, a good number for a company that has been in business for years.

Most of this revenue or $329 million, came from its creative subscriptions business, while the rest came from its business solutions. Partner's revenue rose by 29% to $168 million. 

Read more: Wix stock price outlook after Squarespace’s acquisition

First quarter earnings ahead

The next important catalyst for Wix's stock price is its first-quarter finances, which will provide more information about the business.

Analysts expect the numbers to show that its quarterly revenue rose by 12.4% to $471 million. Its earnings per share is expected to be $1.66, up from $1.29 in the same period last year. 

The expectation is that its annual revenue will grow by 13% this year to $2 billion, followed by $2.25 billion next year. 

Wix has always been conservative when issuing its guidance, raising the possibility that it will do better than expected as it has done in the past few years.

The challenge, however, is whether the company can attract many more big companies to its platform since many of them already have their website builder. 

Also, there are concerns about whether its artificial intelligence (AI) investments will pay off financially. Some of its AI tools are its AI website builder, text creator, image creator and editor, and logo maker. 

The other concern is that the company is overvalued as it has a forward price-to-earnings ratio of 52, higher than the sector median of 28. This valuation is also higher than that of other top companies like Amazon and Microsoft. 

The best approach for valuing a SaaS company like Wx is known as the rule-of-40, which looks at its growth and margins. Wix has a forward growth estimate of about 13% and a net profit and FCF margin of 7.45% and 7.86%. Adding these numbers mean that the rule of 40 figure comes short of 40 by far.

Wix stock price analysis

Wix stock price chart | Source: TradingView

The daily chart shows that the Wix share price pulled back to $182.75, a key level since this was along the 50-day moving average. 

The Relative Strength Index (RSI) and the MACD indicators have continued rising. There are two potential scenarios for the stock moving into earnings. It may resume the upward trend or fall to $168. A drop to $168 will be a bullish one as it will be a sign of a break-and-retest pattern.

Read more: Here’s why the Wix stock price surged and what to expect in 2025