Why Wix.com Stock Popped After Earnings

Low-code and no-code website-builder Wix.com (NASDAQ: WIX) stock soared 11.5% through 12:20 p.m. ET Tuesday after beating analyst sales and earnings forecasts this morning.

Heading into its Q2 report, analysts expected Wix to earn $1.16 per share on $556 million in revenue. Instead, Wix earned $1.59 per share on $563.1 million in revenue.

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Wix Q2 earnings

Wix grew its Q2 revenue 15% year over year, but bookings in the quarter grew only 12% -- which actually suggests business may be slowing down. Yet Wix insists that by leaning into artificial intelligence with its proprietary large language model "Base 1" (built on the Base44 platform), the Harmony LLM, and similar tools, it will be able to grow faster and expand profit margins.

"We expect our AI costs to decrease significantly going forward," says CEO Avishai Abrahami, aiming to expand non-GAAP gross profit margins from close to 0%... to 60% in the second half of this year.

Speaking of margins and profits, however, it's worth pointing out: The $1.59 per share that Wix earned was not GAAP net profit -- earnings calculated under generally accepted accounting principles (GAAP). It was only non-GAAP, pro forma profit.

GAAP results actually showed a net loss of $1.78 per share.

Is this bad or good for Wix?

That's a rather disappointing number.

That said, Wix's free cash flow was strong despite the GAAP loss, with Wix reporting positive free cash flow of $52.6 million for the quarter. This brings trailing-12-month FCF to $411 million, and on a $2.3 billion market capitalization, that's actually quite a cheap valuation for -- less than 6x FCF.

While I'd prefer to see GAAP earnings turn positive as well, 6x FCF for a stock growing sales at even 12% sounds like a bargain to me.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Wix.com. The Motley Fool has a disclosure policy.