Wix's underappreciated moats
Why I (Siem) like Wix and will add the drag-and-drop website builder to the TDI-watchlist
If there is one key takeaway, it's this: Wix’s edge lies in its user-friendly, all-in-one platform that allows users to easily create, customize, and manage websites without coding. By offering a seamless experience through its ecosystem of tools. A bit like iOS (though not as strong), Wix has built what we call an "ecosystem moat." If they succeed in strengthening their current moats, Wix could be a long-term winner. If they fall short… well, we know what that means.
About Wix.com
Wix.com was founded in 2006 by Israeli entrepreneurs Avishai Abrahami, Nadav Abrahami, and Giora Kaplan, who aimed to create a straightforward way for people to build their own websites without needing technical expertise.
Few companies have a revenue model as straightforward as Wix.com. Wix generates revenue in two primary ways:
Creative Subscriptions ($1.15 billion FY23, or 74% of revenue)
Business Solutions ($410 million FY23, or 26% of revenue)
Wix.com has become a popular choice for website building, competing with platforms like WordPress, Shopify, and Squarespace. But what gives Wix its unique edge? Three main moats keep users on Wix and set it apart in the market. Here’s a look at these advantages and why they matter for Wix’s long-term success.
Moat 1 - Switching costs
Wix excels at keeping users on its platform through switching costs. Barriers that make it challenging for users to move to a competitor. For a Wix user, these costs include the time and energy invested in customizing a site, being used to the simplicity and tools, or financial cost.
Additionally, Wix integrates tools like email, CRM, and business apps within its ecosystem. For example, if a business owner uses Wix’s email and customer management tools, switching would mean finding and configuring new tools elsewhere. This convenience of an all-in-one solution reinforces users’ commitment to Wix, as moving would involve recreating these configurations on a new platform.
And we can tell you, it’s a pain…
Moat 2 - Economies of scale
With over 190 million users, Wix benefits significantly from economies of scale. This advantage is evident in several ways:
Low cost per user: Wix can spread its fixed costs across a vast user base, reducing the average cost per user.
Increased investment capacity: Lower costs allow Wix to invest more in innovation, improving the user experience, and expanding into new markets, strengthening its competitive position.
Competitive pricing: Lower costs enable Wix to maintain competitive pricing without compromising quality, making it tougher for new players to enter and for existing competitors to keep up (see Table 5).
Enhanced product development: A large user base provides valuable feedback, enabling Wix to quickly respond to market needs and continuously improve its services, leading to higher customer satisfaction and loyalty.
Moat 3 - Network effects
Although Wix isn’t a traditional social network, it benefits from a network effect through its app marketplace, where developers create apps that add to Wix’s functionality. The more developers build for Wix, the more users can customize their sites with additional features.
A growing app store attracts more users, while a larger user base attracts more developers, creating a positive feedback loop that strengthens the platform. More users and paid apps generate additional revenue, which Wix reinvests to offer new tools and features, ensuring the platform stays relevant and attractive. With the purpose of keeping customers locked in, satisfied and converting new (free) users.
Our conclusion on Wix
Wix is a company with an innovative and flexible platform used globally for building websites. Its freemium revenue model is simple yet effective, allowing free users to upgrade to premium subscriptions and benefit from additional business solutions like e-commerce, payment services, and marketing tools.
The global demand for online presence provides strong tailwinds for Wix’s growth, particularly in markets like Asia and Europe. In North America, growth will likely rely more on price increases and revenue from new solutions.
However, the market in which Wix operates is highly competitive, with strong rivals such as WordPress, Shopify, and Squarespace, leading to pricing pressure and the constant need for innovation. Despite the economies of scale and network effects Wix benefits from, low margins and high customer acquisition costs present challenges for capital allocation. Furthermore, Wix’s current valuation is high.
For me, the valuation is currently too elevated, resulting in a low margin of safety to add Wix to my portfolio.
I will, however, add Wix.com to our watchlist, for the following reasons:
The company is within my circle of competence.
They operate in a growth market.
The management, financials, and moat are appealing.
Founder-led with a lot of skin in the game.
With an NRR of 105%, Wix shows me they have a good product and service.
At present, the opportunities outweigh the risks.
Thanks for reading. We’ll see you in the next one!