Wix.com ( $WIX ) is a stock that came up on my radar late last year, and I made it one of my Top 5 favorite stocks for 2017. At the time the stock traded at $44.55 and I called for it to move over $69.50 in 2017 with a possibility of eclipsing $100 if the company continued to beat estimates and raise guidance - something they had done the previous 5 earnings reports. At the time there was no chatter around the stock on social media besides mostly, you guessed it, me:
And only a few bearish pieces on Seeking Alpha. Sure enough, the stock started rising to start the year and really took off after they announced their 4th quarter results and gave guidance. I wrote about it here :
On April 5th the stock hit $79.05, a move of $34.75 or a 78% gain since the start of the year. That put Wix.com ( $WIX ) up 270% over 2 years - it was only a matter of time before someone saw an opportunity. If you have traded these markets long enough you know most momentum stocks come under attack by a short seller at some point in their lifetime. Netflix( $NFLX ) , Saleforce.com ( $CRM ), LinkedIn, Tesla ( $TSLA ), Zillow ( $Z ), and Intuitive Surgical ( $ISRG ) are some great examples. Seems Wix.com ( $WIX ) is no different. Yesterday, Spruce Point Capital management put out a short piece on Wix.com ( $WIX ), claiming it is a 'Techonology Unicorn With 50-60% Downside Risk'. You can read the piece here : https://seekingalpha.com/article/4063366-forensic-analysis-wix-technology-unicorn-50minus-60-percent-downside-risk . If you are interested in Wix.com ( $WIX ), long Wix.com ( $WIX ), short Wix.com ( $WIX ), or just curious, I recommend you read it.. If it sways your opinion, then you probably shouldn't have been long to begin with.
Like a great fiction writer, short sellers need to spin an amazing tale of: shady financial shenanigans, plateauing growth, a shoddy product, horrible customer service, dilution warnings, questionable leadership, and any other data point that would cause even the most stalwart of bulls to close their position. And the piece from Spruce Point Capital did exactly that. It even had me doing some follow-up. I am not writing this today to refute their concerns, nor am I going to layout my bull case(if you are in our chatroom you can hear my rants everyday). I just want to make a few points on why I think the piece, though thorough, does nothing to my opinion on the name. And then give some quick color on the Spruce Point Capital bear pieces before Wix.com ( $WIX ), which show a non-fiction performance.
Best of Breed, in a Hot Sector
When I first stumbled upon Wix.com ( $WIX ) I immediately signed up for their premium service and created a website. I think the big miss many have with Wix.com ( $WIX ) is they do not understand what it takes to buy a domain, get it hosted, create the site, then design it... not to mention maintaining it. Back in the day, having a web presence with a site that looked professional cost you thousands. Wix.com ( $WIX ) is changing that. The days of your local restaurants page defaulting to a Yelp menu will be over soon. Hair Salon? Local CrossFit? Doctor? Veterinarian? My point is, there is still a huge opportunity for small businesses to create their web presence and this is why you see Wix.com ( $WIX ) set to grow over 6 million subscribers in Q1. I won't even mention the international component(there is an app for that).
When it comes to the Best of Breed argument, I use an analogy: GoDaddy and Web.com are like a steakhouse that has mashed potatoes as the main course while steak is the side dish. They get you to buy a domain, they host your site, then offer you archaic tools as you try to create a professional online presence. Wix.com ( $WIX) is the opposite and I could go on and on about the ease of use, ADI, App store(a blog post for another day).
A Wix.com ( $WIX ) site has limitless possibilities. It can be Opentable, Constant Contact, Shutterstock, Shopify, Priceline, Mindbody, and much, much more.
I will lay out my bull case on Wix.com ( $WIX ) in the coming weeks. For now, I will leave it at that.
Spruce Point Capital
If making money on short piece was as easy as reading a great story, then everyone would be doing very well. Unfortunately a great short narrative does not usually equate to profits. I think it is fair to bring up the last 5 short pieces Spruce Point Capital has shared with the investment community as a point of reference when it comes to their new short on Wix.com ( $WIX ). All 5 saw a few days of selling before recovering and are now up 10.2% on average :
— Option Millionaires (@OMillionaires) April 19, 2017
Would have loved to discuss with Spruce Point Capital but they blocked me on twitter.
Spruce Point Capital also started making some false accusation on Twitter today, using Q4 data to insinuate the company was hiring(Flok wasn't acquired until Q1 2017):
— Option Millionaires (@OMillionaires) April 20, 2017
And then using the registered user numbers they said were 'meaningless to evaluate a business' to do just that, evaluate the business... go figure:
— Option Millionaires (@OMillionaires) April 20, 2017
At the end of the day just think pieces like this will only add exposure to a stock that is still somewhat undiscovered and under the radar. I do not think much is needed for the company to grow above 40% for at least the next 2-3 quarters, as crazy as that sounds. Another quarter or two of beats and raised guidance and the stock trades north of $100. Will give more detail on how I get to that number in a future post... for now, I let the bears do the talking.