AI has been selected by Collins Dictionary as their word of the year. Whether you know it or not, AI (and not just the word) is now everywhere. It’s in your internet browser, it’s in your phone, it is at play in the information you receive daily, probably both in the technology that delivers the information, as well as the curation and production of that information.
And whether you think AI is the end of the world or the savior, or something in between, as an investor it will be increasingly important to learn how companies you invest in are using AI for a competitive advantage. Two internet companies taking full advantage of the AI boom are Wix.com (WIX) and Perion Network (PERI).
Wix is a website creation company that took advantage of the work from home boom during the pandemic, and is now taking advantage of the “I need a second job to pay the bills because of inflation” boom. The company tailors to both mom and pop small businesses, as well as enterprise clients, and in particular agencies that build websites for others.
And, more and more, revenue is being driven by ease of use, which is being driven by AI. For example, in building a website today anyone can type a description in plain English of what they want on the site, and the AI driven software will literally generate the code necessary for the build. (Which, if you are a coder, you can then tweak to your heart's desire…or, ask the program to rewrite the code to your specifications.)
In their latest earnings release Wix CEO Avishai Abrahami commented, “It has been an incredible past six months at Wix on many fronts as we generated accelerating profitable growth…Q2 again performed above expectations and exceeded our revenue growth and FCF margin guides.”
And addressing their AI platform, “Wix Studio revolutionizes the way professionals build and manage projects at scale by combining AI-powered features, the latest design and development capabilities and seamless workflows for multi-site management to help freelancers and agencies complete projects with greater quality and velocity and scale their business faster.”
And the ease that AI adds to building websites is showing up in the Wix financials. In its latest quarter revenue was up 13% YoY. And its “Partners” program, which is laser focused on agencies that use Wix for their clients (and which relies heavily on AI tools) saw revenue increase 36% YoY.
And Wix hasn’t only been focused on AI, but on running the company more efficiently, resulting in exceptional FCF (Free Cash Flow) margins…which is FCF/revenue…of 13% in the latest quarter. And gross margins were no slacker, coming in at 68% (non-GAAP subscriptions had 83% gross margins…you have to love a software business that can have dollars drop straight to the bottom line by taking out costs).
Wix rates an overall B in our POWR Ratings, coming in with a combined overall rating of 85.19%. Unsurprisingly its highest component ranking is in Growth, where it clocks in at almost 97%.
Another company worth mentioning in the AI advantage vein is Perion Network (PERI). Perion is an advertising technology company that uses AI to connect buyers and sellers, or in the advertising game, advertisers and publishers.
Perion’s new AI ad matching technology, called “SORT” recently won “Best Cookieless ID Technology'' at the Digiday Technology awards based on a real life campaign the company ran for Mercedes Benz (MBGAF). Highlighting not only the return on investment Mercedes received from the campaign, but the high level of user privacy provided by the software. Something that is more and more in the spotlight as AI continues to grow.
Perion trades at a PE of just 12, at only 1.9 times sales, and has operating margins of over 17%. The company is trading in the low end of a range it has been in throughout 2023, and at around $28 is just above support in the $25 area.
Perion’s highest POWR Rating component Value where it ranks just under the top 95% of the stocks that we track.
As AI rapidly grows into a competitive advantage for those companies that can utilize the technology in their product offerings, it is incumbent upon investors to identify some of the early “winners” in the AI game. Wix and Perion look well suited to score early points with their innovative offerings that are already driving profits to the bottom line.
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WIX shares were trading at $89.58 per share on Tuesday afternoon, up $2.85 (+3.29%). Year-to-date, WIX has gained 16.60%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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