NASDAQ: WIX

Introduction:

“Wix.com is a cloud-based web development platform  that was first developed and popularized by the Israeli company also called Wix. It allows users to create HTML5 websites and mobile sites through the use of online drag and drop tools.” Wix is a dominant force in the industry and claims approximately 90 million users on the company site.

Recommendation:

• Recommendation: Long WIX (Current Price: $62.25) (Target Price: $80.00)
• DCF Fair Value: $249.40
• Horizon: 2 years (half the time since it has IPO’d). This horizon is chosen due to the low possibility of Wix maintaining its high revenue growth rate of ~40% in the long run.
• Reasonings: Incredibly strong revenue growths, coupled with recent acquisitions and increasing market shares make WIX an attractive long. Market for websites on internet increases, marking potential for WIX to grow with the market.
• Further Recommendations: Monitor WIX’s growth rate to adjust DCF accordingly. WIX many not be able to sustain such high growth rates. The current DCF fair value is very high compared to its current price due to Wix’s growth rates since its inception.

Products:

Wix.com offers the following variety of versions (in order of price):

• Free version: wix domain, a free service
• Connect Domain plan: allows web
  Development on a custom domain and
  more Wix.com services
• Combo Plan: more services, no ads
• Unlimited Plan: more services
• eCommerce Plan: more services and
  online store
• VIP Plan: Enhanced Wix support.

Competitors:

Wix faces a wide range of competitors in the web-development space, each with a varying degree of user-friendliness: Of the competitors in this current market, only one (GDDY) is publicly listed.

• Squarespace: web-development and content management system (privately funded).
• Weebly: web hosting and web development service featuring a drag-and-drop interface similar to Wix.com (privately funded).
• GoDaddy: web-hosting service, which registers domains (NYSE:GDDY).
• WordPress: free & open-source content Management system.

Acquisitions:

Wix.com has an extensive repertoire of acquisitions to expand its product:

• Appixia, a developer of a platform for building “mCommerce” apps, was acquired in March 2014.
• OpenRest, a provider of online ordering and mobile solutions for restaurants, was acquired in October 2014.
• Moment.me, a service building mobile websites for events and another marketing tool for social lead generation, was acquired in April 2015.
• Flok , a provider of customer loyalty programs tools, was acquired in January 2017.
• DeviantArt, an online community for art/design creators and enthusiasts, was acquired in February 2017. DeviantArt is the largest online art gallery and community. Wix now has access to its entire database.

Market Share 

• Wix.com is a big force in the web-development arena, but still needs to position itself strategically to capture a greater market share.
• As we see, Wix captures a greater share of the market than weebly or GoDaddy, but is being beat by Squarespace and WordPress (not shown; ~27.6%).
• There is an extensive share of sites which do not use a CMS or web-dev platform at all (~53.1%).

Revenue and Cost Sources

• According to Wix.com’s 20-F filing, the primary way in which Wix generates it revenue is through customer subscription to its paid services.
• Costs are primarily associated with costs of revenue, research and development, as well as advertising and marketing.
• Wix.com expects to continue increasing costs associated with revenue generation, advertising and R&D.  They will do so with an eye for long-term growth and ROI.
• Specifically, we expect Wix.com to continue making aggressive acquisitions to capture market share

Comparison with direct publicly listed competitor (GDDY)

Wix’s revenue growth rate at the end of Dec 15 was 43.5%

GoDaddy’s revenue growth rate at the end of Dec 15 was 15.9%

Historically, Wix’s revenue growth rate has always been more than double GoDaddy’s revenue growth rate. This incredible growth is reflected in the rapid increase in stock price.

GoDaddy’s DCF fair value is at $92, due to this lower growth rate.

Investment Risk

• Poor quantitative numbers (EBIT, Profits, Net Income, Operating Income are negative)
• Uncertainty as to the future growth rate of new internet sites.
• DCF value is only high right now because of past high revenue growth rates. Growth may decrease drastically over the next years. Historical performance is not an indication of future performance.
• Possible increased penetration into the market by GoDaddy

Key Figures:

• P/E Ratio: NA
• PEG Ratio: NA
• PB Ratio: NA
• Dividend Yield: $0.00
• Dividend Payout Ratio: $0.00
• Return on Tangible Assets: -12.00%
• Return on Tangible Equity: 0.00%
• Current Ratio: 0.96
• Quick Ratio: 0.96
• Debt to Equity: 0.00
• Interest Coverage Ratio: No Debt
• Asset Turnover: 0.42
• Inventory Turnover: 0.00

NASDAQ: GRMN

Introduction:

Garmin designs and builds GPS navigation and communication devices for automobiles, planes, and boats. They began making sports watches in 2003, and recently in the last few years have been designing a line of smartwatches and fitness trackers comparable to Apple Watches and Fitbit, but are more specialized and targeted towards more serious athletes, allowing them to occupy a good position in a niche market.

Recommendation:

Based on qualitative and quantitative analysis (DCF), we recommend Garmin as a buy and hold for 2 years, or until the equity price reaches $62 per share. Several of the highlights of our reasoning include the following.

• Garmin has diversified its product offerings in light of its declining GPS unit division and has proven that it can become an industry leader in other markets, competing with Apple and Fitbit in the wearables sector.
• Garmin has experienced considerable market share growth in wearables due to its specialized designs for specific activities (swimming, running, etc.).
• Valuation analysis using a conservative DCF model suggests that Garmin is undervalued.