Good afternoon. Thank you for joining us at the Morgan Stanley Technology, Media and Telecom Conference. My name is Elizabeth Porter. I'm an analyst on the US Software Equity Research team. I am very pleased to have with us today Wix's CFO, Lior, and Head of Strategic Finance, Gil. We are taking audience Q&A. At the end, some mics will go around. Lastly, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. With that, Lior, Gil, thank you so much for being with us today. Thank you for having us. Thanks. Awesome. Before we dive into the business, it could be great just to get your macro perspective on the demand backdrop. On one hand, you are on the positive side, kind of getting through this digestion of the COVID pull forward, but on the other side, the macro environment isn't as great as we'd all want it to be. You know, what does demand build for new and existing customers between those two crosswinds? You know, what's your outlook for 2023? Yeah. Well, we can actually talk about it just about this question for one hour, right? Yeah. I think that first of all, we see stability. Okay. Meaning that it's not getting worse, but it's also not getting better. Meaning we saw the softness in term of the demand for, you know, for the overall internet, which has an effect also on GPV, but also in term of the overall, you know, traffic over the internet. This is from one end. We see the stability. You know, for the guidance, we actually assume that that will be the case. You know, it just continue as it is, you know. You know, it's very difficult to try to predict, and we don't want even to start to do that, to start to predict what will be, you know, the macro effect, you know, over the business. I think that something that is really, you know, important to mention, that from one hand, we see the stability, on the other hand, if you look at the two separate segment of our business. From one hand, we have the first-time creators, which obviously, you know, is affected by the overall microenvironment, but on the other end, we have the Partners business. Even in 2022, the growth was 29%. It means that from one hand, we see the macro effect, but on the other end, we are taking much more market share. For the Partners business, it's already almost 30% of our, you know, overall revenue. I believe that this is something that will, you know, continue the next few years regardless of the macro effect. This is what's so nice about it. When you have those two segments, you have the Partners, which is growing really fast, hyper-growth business, and mostly because we are taking a lot of market share. We also change them in terms of the mix of our customers. We see more kind of complicated websites with more complicated businesses built over Wix, so we see also increase in output even in this period. Those are kind of the things that we see, which obviously has an impact on the overall guidance that we provided. Great. While, you know, the macro is tough to control or can't control, you are driving initiatives around the things that are in your power- Yeah. -which is really around costs, p rotecting profitability. Back in May, you outlined a 10%-20% free cash flow CAGR against 20%+ revenue growth. Obviously, macro had a big impact on that top-line piece. You know, despite the top line coming in lower, you are still committed to that free cash flow guidance. Can you just talk to us about what underpins kind of your confidence in being able to control to hit that target, and what are some of the actions that you've taken to protect that free cash flow? Yeah. Remember that when we provided the KPIs, also to meet the Rule of 40 by 2025, it was back on May. We assumed that macro is going to recover. Obviously we were wrong about it, right? We said that we are committed to those KPIs. We are committed as a company, we are committed as a management. This is the target that we set, back on, you know, during the May of last year. Yes, we said we saw the weakness in the overall, you know, macro, and we had to react. We actually, if you remember, we initiated the $150 million of cost reduction. Obviously, when we saw that there is no improvement, it actually was getting worse since the last time that we initiated the $150 million, we initiated another cost reduction right now to get us to the same KPIs. Actually bringing us to a much better place in term of profitability. I want to spend a couple of minutes over it. When we assume on a lower growth scenario, still meeting the 2025 KPI of the Rule of 40, it means that we have to increase profitability. How we did it? We did it in term of, you know, getting much more efficient of how we run the business, implementing a lot of technological, you know, improvements, for example, in care. You know, how we approach care. A lot of AI that, you know, agents understand before they actually spoke with the customer, what is the problem, for example. We did a lot of improvement, a lot of efficiency, and we cut the cost and part of it was also because of lower demand. You have less demand, you need less marketing, you need less care. We did a lot of improvements in terms of the hosting capabilities. Again, taking down hosting expenses by $10s of millions. I think that the benefit of doing that. It's actually when macro become better, hopefully, in the next couple of years, the company is much more efficient and we increase profitability quite a bit into a point where 2025, it's not just meeting the Rule of 40, but also the company, I think, you know, it was not even in part of, you know, in the initial, you know, plan, become profitable on a GAAP basis. We are already profitable this year on a non-GAAP basis. We expanded the margins quite a bit. A great example for that is the gross margin for Creative Subscriptions, getting to 80% already this year. It was planned to be only on 2025. Yes, we can control what we can control and basically, you know, taking the costs down in order to meet the new demand and also to meet the macro environment. On some of those costs that you highlighted around care, doing some greater efficiency and hosting. I wanted to double-click on marketing, because that was an area where, you know, I think the pullback was, you know, even more outsized. You highlighted a marketing shift and a reduction in acquisition marketing spend by about 50%. Yes. The web building space is pretty competitive and does get impacted by marketing spend. What's the risk that lower marketing spend could negatively impact the top of funnel? Look, we were testing it for a few quarters now. Yep. It's not something that we did in one day. It's kind of remarkable story because I think that, it's not just it surprised us, but it just showed the benefit or the strength of our brand. Let me take you back to, before the, you know, before COVID. Before COVID, you know, we were growing, we are investing money in marketing, we're investing money in our brand. During COVID, it was exploded. Huge demand. We also, you know, as a reaction to that, we also invested a lot in marketing in order to answer the demand. What's happened is that during COVID, the strength of the brand become an amazingly increased. I mean, think randomly 10 people asking them about Wix or Zoom. Before COVID and after COVID, meaning that we are getting much more audience that traditionally they wouldn't, you know with Wix. During the COVID, the strength of the brand increased significantly compared to the, you know, prior to that. During the spring when, you know, the post-pandemic, you know, obviously the period started, and it was back on April, May, we started testing it to try to understand, okay, we ran through the COVID, but what is the effect on the brand? Do we still need to invest the same amount of acquisition? Because, you know, the brand we understood that the brand is much, much better. We started to lower acquisition. We see that there is no significant impact on the cohort value. I think that, you know, the answer is great. We did an amazing job of creating the best brand in the world for creating website. When people actually want to build a website, they are looking for Wix. This is why it allow you to take down marketing while getting the benefit of a great brand, and you see more, you know, traffic coming from organic sources. It was already started back on the Q3 when we lowered the marketing expenses. In the Q4, we understood that this is something that it's gonna last, we believe for a very long term, because we didn't see any effect for testing it for approximately, six months. We believe that it's something that it's sustainable, it's going to last, and I do believe that it's also part of the guidance. We have a lot of, we feel very comfortable about the new approach. Because when you strengthen the brand, and when you have a very strong brand, it's not something that is going to disappear the day after. It doesn't mean that we need to stop investing in our brand, obviously. This is one. With regard to the care, again, it's not something that we did in day one. We simply make the overall care process much more efficient. We did tested it. We implemented a lot of changes in term of the processes, and our people and our agents are, you know, dealing with customers. We didn't see any change in term of customer satisfaction. We believe that it's something that is still sustainable and will continue also for the next few years. Great. Then on the B2B side, you know, now that that's been a newer channel for you guys, does that do anything structurally to allow you to not have to do as much acquisition marketing spend now that you have a new kind of pipeline from your B2B partnerships? Second, you know, what does the overall pipeline for B2B look like? Let's start with the first part. Yes, this is exactly the, you know, where you see that Partners is growing. This is why, you know, I always said before that the Partners business is much more profitable from the Self Creators because it has its compounding effect. When you have a Partner that is part of the funnel, it keep on building website for his customers. You don't need to acquire all the time a new one and a new one because you already have a Partner, just keep on building for these customers. It has its compounding effect where I believe that it will continue. You're right. I mean, if you take, you know, a B2B partnerships like, you know, LegalZoom and Vistaprint and NTT, I believe that we will see them in Yale, in the UK, which is doing amazingly well. I believe that it will continue. In term of the pipeline, look, I cannot obviously, you know, disclose the size of the pipeline, but we see a lot of- Think about and go back to the brand again. Everyone that providing any kind of service to small businesses, you can be an online, you can be an online to our service provider, you can be a gateway, you can be a bank, you can be a carrier. The fact is that when you're dealing with small business, in the past, you used to provide those kind of services like, you know, website builder, you know, from a very, let me, you know, be gentle about it, not that good platform. What happen when you do that, you are creating a customer that is really not happy. Then you see churn because the customer is not happy, you are not going to see a lot of business from him. Today, those service providers, they are proud to say, "We are providing you with Wix." This is part of the strength of the brand. We see a lot of, you know, in terms of the funnel and the pipeline that we have, many kind of potential big B2B partnerships that we are working on. I believe that this is, yeah, this is one of the places where we believe that it's gonna be one of our growth drivers. These B2B partnerships are gonna be able to bring more people into Wix via their own kind of platforms of service, Vistaprint or LegalZoom, and then you also have your core kind of traditional DIY creator. And Partners, which is- Partners. -not just the B2B. I think that the bigger part of the Partners is not actually the B2B. It's actually those Partners like web- The professionals. -designers, the professionals, the agencies that use Wix to build websites for others. Most of the growth in 2022 actually was because of that. Gotcha. Actually going back to that 2022, you know, growth, when we just look at the premium subscription side it grew about 2% relative to a CAGR of about 15% over the last two years. How much was impacted by just churn versus just lower top of funnel? How should we think about a normalized rate as just the macro environment begins to recover? Yeah. I think obviously during COVID, we had huge growth in subscriptions, right? We had tons of traffic, many people coming to Wix and subscribing very quickly. We had talked about a couple quarters ago how we felt like demand kind of has reverted back to pre-COVID levels, 2019. In fact, in 2022, growth subscription additions were higher than 2019. So we are, you know, seeing exactly what we had suggested. Obviously, you know, growth was a little bit slower as the year went on just from kind of demand and top of funnel being weaker, but we still had good gross adds in 2022. What really hurt the subscriptions growth and the net additions was this churn number from these COVID cohorts, from the years 2020 and 2021. It wasn't a churn percentage that increased. In fact, churn percentage has come down. You're taking a percentage of a much bigger number. So that really hurt the net additions to subscriptions in 2022. I think, you know, that churn effect from those large cohorts is probably gonna be with us again here in 2023, though less than it was in 2022. As these cohorts mature and start to flatten out, the effect of it will start to diminish. I think what's more important, though, is, and what we focus on far more than just looking at subscriptions, is the cohort value. Lior's kind of referred to it. It's the combination of subscriptions and pricing and revenue per sub, right? We have a lot of ways to drive revenue per sub, and we're seeing growth out of that. We've seen revenue per sub in the last three years rise 29%. You know, last year it was a higher growth rate than the premium subscriptions number, and our cohort value was higher than the subscriptions number. As long as we're continuing to improve the monetization of our subscriptions, which we are, you know, we feel pretty comfortable the direction that the subscriptions growth is headed. One of those ways to drive more revenue per subscription is getting them to do commerce and payments. Yeah. When I think about the gross payment volume through Wix's, you know, ecosystem, including, you know, Wix Payments and also some third-party providers, it grew about 7% year-over-year to just over $10 billion in 2022. From the Wix Payments side, like that's actually growing faster as the blended take rate improves. You know, my question is: Where are we just in the expansion of take rates, and how much more room for improvement is there? Yeah. We are seeing improvements in take rate too. This is another, you know, topic around looking at mix. We are getting adoption of Wix Payments increasing. About 80% of new commerce users that are choosing payments, where payments is available for them, are choosing Wix. That's driving up take rate overall as we just layer in more Wix Payments payment volume into the entire mix. The other thing we're doing is we're expanding the product. We announced today a new collaboration we have with Stripe around a Tap to Pay capability with an iPhone. That just is another, you know, small example of a way we're improving the product, that helps adoption, and we're expanding Wix Payments through other countries, so that, again, the eligible number of users can increase. All these things are increasing. We've increased the take rate on Wix Payments 20 basis points over the last couple of years. You know, we certainly have more we can do to improve that, and we intend to. Obviously, you know, hopefully we see some recovery in commerce and GPV in the future as well. We'll be positioned well to take advantage. Great. I wanted to touch on a little bit more for the financials and the initial guidance for revenue growth in 2023 of about 10% implies, you know, a bit of an acceleration from the Q4 run rate of about 8% growth constant currency. Can you walk through just some of the assumptions embedded in guidance? What are some of the puts and takes? Do we need to assume an improvement in macro to get to that faster growth? No, absolutely not. You know, as I mentioned before, I've already learned my lesson by the way when all this crisis started. I assume that it will simply continue and be stable as we see in the Q1. We didn't assume any improvement, but neither also the opposite. Meaning that if macro is going to become much, much worse, obviously it's gonna have impact. The same goes for the FX. Revenue is very stable. I want to give you know, just, you know, as example. In the end of the day, we are subscription business. It's really easy to predict the revenue. What can be kind of volatile is the, for example, GPV. For every $1 billion of GPV, we are getting about $30 million of revenue, right? You know, GPV is very sensitive to the macro environment. Obviously we provided we took some assumptions over there, but it's kind of very consistent of what we see right now, no major improvement. On the other end, remember that the way that we do the, you know, the provided guidance, we internally build it for those two separate segments. Yeah. The Self Creators and the Partners. For the Partners, we do see that we're taking market share, we assume that this is something that will continue, not necessarily be in a way much, much better, but continue as it is. Remember that even in 2022, the growth of Partners was about 29% in terms of the revenue, taking much more market share. We assume that it will still continue. We feel very comfortable about it. Overall, you know, I believe that the guidance is very consistent with what we see right now. Nothing more than that. Yeah. Then on the average revenue per subscription, kind of you've spoken about that as being a big driver. In the most recent year, it grew about 4% year-over-year, and partially related to that GPV volatility that you spoke to. How should investors think about the trajectory of Average Revenue Per Subscription going forward? Can we get back to that double-digit growth, and what would be the main drivers? Look, I think obviously you mentioned GPV affected- Yep. ARPS. I think, you know, once we, you know, can see improvements in commerce, that will help. Obviously, we talked about the take rate improving, that will help. FX was a headwind, especially in the last quarter and a half or so of the year on ARPS, and that sure didn't help. I think, you know, as a lot of these things work themselves out, we'll continue to see improvements in ARPS. We do see really strong adoption of Business Solutions, and that's gonna continue. As we've said, we continue to see really good mix shift as Partners grows. Partners are higher ARPU, ARPS users. They are attaching Business Solutions. They use Business Solutions more. Some of our Business Solutions offerings are more transaction-based, and so that will help. I think as we just continue with the strategy around Partners and improving take rate, you know, we're gonna continue to see ARPS go up. On the Partners side, you mentioned that channel is going to be free cash flow positive by mid-2024, you know, which is a big improvement. You know, how much of it is kind of you don't have to do as much investment in that channel overall versus are you seeing anything better than your initial expectations in the types of products that they're building and the more expensive subscriptions? Well, it's both. Okay. When we started a few years ago, to build the Partners business, we invested a lot. This is what they call, you know, the fixed cost. You know, building the infrastructure, the care organization, you know, the hosting environment, the R&D obviously, the product and so on. We are done with it. The product is. Look, it's a software. You always need to invest more in R&D, but not at the same rate, meaning that I don't assume that we will increase headcount. Okay. -in order to do that. We're also, you know, kind of done with the build-out of the business. From now on, you're only going to see more growth, and most of the growth is going to be reflected in the bottom line in terms of the variable cost. We did even more than that. When we talk about, you know, the cost reduction that we've made, we also improved, based on, you know, the technology that we implemented, like AI, for example, for care. We took down also the fixed costs associated with Partners. The same goes for the infrastructure, for the hosting, and for the overall overhead of the company, which has an impact on Partners. Definitely, you know, in the future, we are going to see Partners growing, continue to grow in a double-digit number. Also we are not going to see the associated increase in cost. This is why, you know, we are going to see these businesses getting profitable much faster, in the long term gonna be more profitable than the Self Creators. Where we see that it's actually doing better, I think that, getting to 29% in a year like 2022, should talk, you know, just, you know, understand the differences, because it means that in a regular year, the growth should have been much more than that obviously, because Partners also are impacted by the macro environment. We see the shift in, you know, Gil referred to that, in term of the customers. We see, you know, customers and we see agencies build to their customer much more complicated website. We have, you know, started to see customers that's paying $10,000 of dollars and $100,000 of dollars per site. This is a huge change for us, and I believe that this is something that will continue because as the product is actually evolving to be the best product in the market. We're also investing in brand, building the brand and increasing the changing the perception about Wix. Wix is not just easy, it's not just do it yourself, but it's also super professional. The fact that we see that we are taking a lot of market share from, you know, companies like WordPress, Drupal, and Joomla, and so on. We feel very comfortable about what we've achieved and the fact that it was already done, we don't need to invest a lot more except of, and this is what I also mentioned in the H2 of the year, investing more in the brand of Partners. Besides that, we are already there, and we are going to see, you know, most of the leverage coming actually from Partners. Great. We only have about two minutes left. I wanna make sure if there's any investor questions, we get a chance to address those. I wanted to ask on price increases, is that you rolled those out, but you never really got the benefit in the back half of 2022 because of the FX headwinds. That should still be a tailwind for as we get to the H1 of 2023. How should investors think about either the magnitude of benefit and then, you know, just more broadly, your approach to price increases and, you know, how often this is a lever that you guys. Yeah. -have the opportunity to use? Look, we always test even as we talk. Yep. There's a few testing on pricing with Wix. It's actually thousands of A/B tests every year. For different products, for different capabilities, for different markets. We will continue to test it. Remember that the last price increase, what we did, let's assume that you are increasing the pricing by 15%. It doesn't mean that you're going to see the benefit of 15%. Right. You're also losing a lower intent customers. The overall benefit of doing price increase is getting a higher value of the quote, and this is exactly what we are doing. We are going to see some of the value of it on 2023, which already build out into the guidance. Most of the growth is actually going to come from, you know, for the expansion of taking more market share on Partners. Sure, you know, in the future, we might see more price increases, based on A/B testing that we are doing. Remember that we are providing much more content right now to our customers. Some of it is going to be in a place where you are not actually increasing pricing, but providing different packages, for example- Yep. -with much more content and services. This is also a case that we might see in the future that actually because of the mix and the change of our customers and so on. I believe that will be also a great way to increase the output, you know, for the next coming years. Great. That actually brings us up on our time today. Thank you so much- Thank you. -for, sharing the insights. Thank you.