Shares of website building platform Wix.com (WIX 14.16%) jumped on Wednesday after the Israeli company reported financial results for the third quarter of 2024. As of 10:50 a.m. ET, Wix stock was up nearly 14% and topped $200 per share for the first time since late 2021.
Wix had a beat-and-raise quarter
In Q3, Wix generated more revenue than analysts had expected as well as higher profits. It turns out that the company’s generative artificial intelligence (AI) is helping onboard more customers to create websites and adopt other software products.
With adoption of its products rising, Wix’s management took the opportunity to raise its full-year guidance for multiple metrics after just raising them in the previous quarter. The company previously expected full-year revenue growth of 13% to 14% but now expects 14% to 15% growth. And it also expects a free-cash-flow margin of 27% to 28%, up from its previous guidance of a 26% to 27% margin.
In short, it was what investors call a “beat-and-raise” quarter for Wix. And when this happens, stocks normally perform well, as evidenced by the rise in Wix stock today.
Wix is balancing growth and profits
Investors in software companies such as Wix often focus on something called the “rule of 40.” It’s a way to balance expectations for top-line growth and free-cash-flow generation. Investors want to see the growth rate and the margin add up to at least 40 because that indicates a good balance of growth and profits.
Wix is on pace to hit the Rule of 40 in 2024 — a full-year growth rate of 14% to 15% and a margin of 27% to 28% adds up to at least 41. But more importantly, Wix is hitting its target a year earlier than expected, which contributed to today’s excitement.
Jon Quast has positions in Wix.com. The Motley Fool has positions in and recommends Wix.com. The Motley Fool has a disclosure policy.