Bank of America downgraded Wix.com to Underperform from Buy on Nov. 10, cutting its price target to $68 from $75 as concerns about slowing partner sales and higher marketing costs overshadowed rapid growth at the company’s AI app-building business.
Wix provides website-building and online business tools for individuals, small businesses, and professional designers. It also owns Base44, a platform that uses artificial intelligence to turn written instructions into working applications.
Wix’s third-quarter results showed revenue rising 13% from a year earlier to $570.2 million, above Wall Street’s expectation of roughly $566 million. But growth in its Partners business slowed to 11% from 17% in the previous quarter.
In a note shared with TheStreet, BofA analyst Michael McGovern said Base44’s strong growth was masking weakness in Wix’s established business. The bank also lowered its earnings forecasts as Wix increased spending to attract users to its AI products.
Wix (WIX) shares declined 4.59% to $66.55 in afternoon trading on Nov. 10.
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Why Wix’s partner slowdown worries BofA
Wix generated $212.4 million in Partners revenue during the third quarter, slightly below analysts’ expectations of $214.1 million.
Partners include web-design agencies, freelancers who build websites for clients, and businesses that resell Wix products. The category includes revenue from several Wix services, including Base44.
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BofA believes competition from AI website-building and coding tools could weigh on Wix’s traditional business.
These tools allow users to describe a website or application in plain language and have software generate much of the design and code. They could reduce demand for some professional web-development services, although the extent of the impact on Wix remains uncertain.
BofA estimates that annual recurring revenue growth in Wix’s core business could be as low as 3% to 4%. Wix has not separately reported the number.
Wix’s third-quarter bookings rose 11% to $573 million, compared with 13% revenue growth. Bookings include changes in deferred revenue and unbilled contractual obligations, capturing some customer commitments before they are recognized as revenue.
The company expects booking growth to continue trailing revenue growth in the fourth quarter because of weakness in its Partners business. Management also forecast low-double-digit revenue growth, below the third quarter’s 13% pace.
Wix is responding with new tools for professional designers and agencies.
On Nov. 2, the company introduced Studio Two, an AI-powered editor that combines website generation, visual editing, and coding tools. The product is gradually rolling out to users.
Wix also offers Headless, which allows websites built with other tools to use Wix’s payment, booking, and other business services.
BofA sees stronger adoption of Headless as one possible way to stabilize the Partners’ business. Whether Studio Two and Headless can help reverse the slowdown remains to be seen.
Wix’s Studio Two is an AI-powered editor that combines website generation, visual editing, and coding tools.
Base44’s rapid growth comes with higher costs
Wix’s AI app-building business is growing quickly, but the company’s latest results also show the cost of attracting new users.
The data below illustrates the trade-off:
- Base44 annual recurring revenue: Nearly $250 million as of Nov. 10
- Base44 non-GAAP gross margin: 58% in the third quarter, up from near zero in the first quarter
- Wix-wide selling and marketing expenses: $193.2 million in the third quarter, up from $137.4 million a year earlier
Wix said its earliest Base44 subscribers renewed at rates above management’s initial expectations after their first year. Renewal rates have also improved among more recent groups of users.
The company attributed Base44’s gross-margin improvement largely to Base 1, its proprietary AI model, which has lowered the computing costs of generating and running applications.
Wix expects Base44’s non-GAAP gross margin to exceed 60% by the end of 2026. However, Wix is reinvesting much of the benefit from lower AI costs into marketing.
The company reduced its full-year 2026 free-cash-flow margin outlook to about 16% from the high teens. Management said the reduction was primarily due to faster spending on Base44 marketing.
BofA is concerned that sustained marketing investment could limit how much of Base44’s revenue growth turns into higher profits, particularly as competition from other AI coding platforms increases.
The bank lowered its 2027 EBITDA estimate for Wix to $370 million from $438 million. It also reduced the valuation multiple applied to the forecast, contributing to its lower $68 price target.
BofA also mentioned that its downgrade could prove too pessimistic if Base44 retains subscribers through future renewal cycles and improves profitability faster than expected.
Wix expects further improvements in Base44’s margins, but plans to continue investing heavily in user acquisition.
Investors should watch whether Partners bookings begin to stabilize and whether the AI business can sustain growth as marketing spending continues.
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