Chit Chat Stocks - Arch Capital Episode: Why We Own Wix (Ticker: WIX)

Episode Date: January 3, 2023

This is our monthly Arch Capital episode. About once a month we will publish an episode that covers a company in the Arch Capital Investors Fund. These episodes will be modeled after our Not So Deep Dive episodes and will also be available on YouTube. Wix operates a cloud-based platform that enables anyone to create a website. The company was founded in Tel Aviv, Israel in 2006. Brett and Ryan dive through Wix and outline the investment thesis for why we own the company in our Arch Capital limited partnership. ****************************** What is Arch Capital? Arch Capital is a concentrated, long-only equity fund aiming to compound capital at an above-market rate. Arch managers are perpetual learners with a long-term focus that strive to build wealth with our partners through intelligent capital allocation. Learn more here: https://www.archcapitalfund.com/ ****************************** This episode is sponsored by Stratosphere.io, a web-based terminal for financial data, KPIs, and more. Try it out for FREE or use code “CCM” for 15% off any paid plan. Sign up here: https://www.stratosphere.io/ ****************************** Timestamps Company Background | (4:29) Product Suite | (24:33) Competitive Landscape | (38:57) Valuation | (52:28) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. This is the Tuesday Not-So-Deep-Dive episode on Chit Chat Money. And today, we are doing our special end of the month slash beginning of the month slash end of our current

company theme for the Not-So-Deep-Dive episodes where we go through what we're calling an Arch Capital episode. And the reason we are calling it an Arch Capital episode is that is the investment fund that Ryan and I run and started a couple of years back. So the way we like to relate the Not So Deep Dives to these Arch Capital episodes is it'll go through a similar format, but the company, at least for the time being, or the topic we're covering is going to be either related to a company that we own, which is what we're doing today. We're going to be covering Wix.com, a website builder that we own, similar to, say a Squarespace or a BigCommerce,

and we're going to go through why we own it versus the other ones. We also could cover something that we didn't buy that we really covered closely. We could cover something that we sold. We could cover something else entirely that is just related to something we've been looking at

for the professional fund we run. If you're interested in the fund and getting any of our distribution, any of our free resources, that'll be in the show notes. And the only other disclosure here is that none of these shows are not investment advice. It should just be considered a discussion

about the company that we're interested in. This is a company that we could easily sell. In the future, you should not take this as any sort of recommendation to buy. In fact, there are a few things that concern us about Wix that we've been looking at that have concerned us over the last few quarters. But we'll get into that, I guess, in future parts of the show.

Before we get into Wix, and before we start the episode, I want to say this show is powered by Stratosphere.io, our favorite web-based terminal for fundamental research, company-specific KPIs, and more. It has a beautiful, fast, and clean interface that allows us to easily get up to speed on a company like Wix, which will be using Stratosphere for any sort of screen sharings, any sort of data we're going to be using on this episode. It's going to be powered by Stratosphere.io. Ryan, what is one of your favorite parts of the Stratosphere platform as you've been exploring it over the last few weeks? Yeah, it's gotten to the point now where I actually use the platform every day. and I'm finding new tidbits about the platform every time I use it because I'm just now getting acclimated to it.

But one part that I found pretty interesting is the insider transactions. If you click on a company, click on investors, it shows who the big owners are and then it shows what some of the insiders, the executives have been doing, whether they've been selling. And it's like a really succinct page

where it shows how much they still own, how much they sold, how much they bought potentially. Um, I can't, I can't think of any other place where it's all in one spot like that. So, uh, that was kind of nice to see. It's all right. Get started today for free at stratosphere.io and start utilizing the powerful free research terminal.

Again, that is stratosphere.io. The link is in the show notes. And again, we're going to get started on Wix here. If you want to watch this at all, the video will be up on YouTube or Spotify. either platform will have the video and we're going to do a bit of screen sharing here with some of the charts and stuff like that so if you want that uh you can do that as well um and maybe help you out and if you also want any sort of the visualizations we'll be using or any sort of the tables which again is not crucial to listening to the episode uh you can

subscribe to the free newsletter as well to get those charts um and the show notes all right ryan let's get into wix who is up first i think it's me so you're you're turned uh you got to ask me the question here on the fake interview as that we do yeah and uh and this is still kind of we're working on the format but basically we wanted to have it be similar to the not so deep dives where we discuss at least the basics at the start so for anyone that doesn't know wix what do they do how do they make money what are their costs yep wix is a software as a service or shortened as sas we'll call it sas content management system which is shortened to cms provider so they are a SaaS CMS provider. CMS just means a development platform for website creation or any sort of,

I guess, internet presence. It's not strictly for websites, but in Wix's case, the majority of it is for websites. And then SaaS just means having a vertically integrated solution. I guess in this case, SaaS can be a bit broader where the platform, in this case, Wix does the hosting, security, domain name, performance, all the things you would need for the website through a single product or subscription. There are traditional CMS providers that include WordPress, Magento, and Joomla. SaaS CMS providers include someone like Wix, Shopify, Squarespace, and then some of the WordPress world. WordPress is very broad. And again, we'll talk about how they have the majority market share here. They have their fingers in a lot of

It's the open source platform. So they have a lot of different ways people do that. And then just as a reference for the industry, as we'll be talking about the dynamics of the website building industry, 10% of the active websites right now are built with SaaS CMS providers. If we go through how Wix makes money, there are two major ways that are important for investors. First are subscription solutions for its website building software. The first one, or excuse me, these are billed either monthly, annually, or on a multi-year basis. So it's a recurring revenue subscription service. Users pay for access to Wix's website building tools, domain names, and having a custom website. Like every other website builder, they allow you to

make those free ones where you can design stuff without the good domain. But then if you want to have a professional website with your own domain, you have to pay for it. The creative subscriptions, And this is important as we compare them to someone like Shopify. Creative subscriptions are the majority of Wix's business today, and they did about $1.07 billion in ARR last quarter. ARR is just annual recurring revenue. Now, the second way they make money are business solutions. This includes a large chunk of Google Workspace revenue from revenue share agreements. However, those are very low margin and not really relevant to shareholders over the long run. Again, you should probably look at that. I think on the 2021 numbers, it was about half

of that revenue. But luckily, they have broken out transaction revenue. And the most important thing for long-term growth for the business solutions, I guess, achieving profitability, expanding gross margins, all that good stuff, is Wix's payments revenue, which is driven by a take rate on dollars spent through its eCommerce platforms, or not platforms, through its eCommerce websites, through bookings for fitness, restaurants, whatever, and then other payment solutions. They even have a point of sale provider, just like GoDaddy, just like Shopify. Transaction revenue was a lot smaller than subscription revenue. Last quarter was $36 million. So if you annualize that, we're looking at what? $144 million. So a lot smaller, about 10

times, only 10% of the size, or maybe 15% of the size of the creative subscription business, but growing a little bit quicker. Ryan, anything to add here before going to their major costs? Yeah, it's just worth noting that the business solution segment will always be lower. Well, as far as I can tell,

it'll always be lower gross margin than the subscription business. So don't expect crazy like margin expansion there, but the payments segment should require little costs as it scales because it's just implemented

by the users. So ideally, that should be cash flow positive and grow quicker than actual website growth on Wix. That is correct. Yeah. And over time, as we've seen, Shopify grow with their payments. That's the best example. Or even some of these other businesses, when someone starts an eCommerce business or any sort of website that they're trying to sell things, and more than just the website design, it takes multiple years for them to expand out and grow their business. So you grow along with them. The lifetime value is larger, but it takes a bit more time for that wheel to start spinning. And I guess that is a good segue to my major cost centers for Wix.

Again, we really like to give context for the listeners on these of how they make money and what are their costs, because that's very important. I think underrated. If you look at their annual report, every company on their annual report is required to say what they classify as their cost of revenue, research and development, and their marketing and general administrative expenses. I think it's very important to look at that just because sometimes, again, you have to know where the costs come from because then you can maybe identify where the margins are going to be. So I divided Wix into four major costs. They have their hosting, domain name, and customer care costs, which are included in the cost of revenue for creative

subscriptions. Since these are fairly minor, creative subscriptions had 76% gross margins last quarter and traditionally had closer to 80%, but they have invested a little bit more in customer care recently. So again, high margin, but probably will fluctuate maybe between 75% or higher. Second one are, like I mentioned before, the revenue share agreements with Google Workspace and then the payment processing fees, which are included in the cost of revenue for business solutions. Last quarter, business solutions had a low gross margin of 22%. Like Ryan mentioned, we are going to be looking for this to rise as the payment business, hopefully scales over the next few years. Our third cost center, I just put this as personnel

costs. We're going to talk because Wix has had, and again, they've had an activist investor talk about this. The company itself talked about this as an issue for them and something they're trying to rein in, which we'll be talking about later in this episode, are just generally personnel costs. This includes R&D employees, salespeople, and then the general and administrative staff, pretty standard stuff. You wouldn't see anything unique here compared to any other business. Wix expects these costs to gain some operating leverage over the next few years as revenue grows quicker than the overall headcount. I think we're going to be watching this line item extremely closely because it's really the key way they're going to start expanding their margins,

this one cost center. And then the fourth one is marketing costs. This is a large portion of Wix's business and is focused on cost per click, search, social media, pretty standard digital ads. And they really focus on a lifetime value to customer acquisition cost equation. Again, some listeners may roll their eyes when you look at that. And I think a lot of times when we look at an LTV equation from a company, we kind of roll our eyes as well because it's really hard to predict. However, for a website builder like Wix, they have a customer is really, really predictable, especially for the creative solutions. And then when you aggregate them all, they are extremely predictable because those trends on who needs a website,

who's going to churn, it doesn't really change much. And again, that growth and stuff changed a little bit during COVID. But again, we're going to get back to the normalization there. Especially after a certain period, it's very predictable. So if the website has stuck around for longer, I think it's longer than like eight months or longer than 12 months, the churn shrinks dramatically compared to new websites. Yep. And regardless of what the churn number is, it's predictable. And Wix is able to look at that and say, okay, we're going to get a return on this marketing spend as we attract these customers. And if we are seeing high returns, we're actually going to invest more and more and more. And this is how they've been able to gain market share over

time is they've operated pretty close to break even, but they're seeing return on this marketing spend. And they can predict what these customers are going to do. Again, this is what we like about the business. We're going to get into that in more detail. But to close out what they do, just to give a geographical reference, in 2021, 58% of Wix's revenue came from North America, and then 26% came from Europe. We had about a 10, I think. I didn't put it in here, but smaller, but slightly relevant numbers from APAC, Asia Pacific, and then a small, small amount from latin america that's pretty irrelevant so again you get a look at the north america and europe numbers when they branch those out all right let's move to the next segment

which is going to be the history and important context for the investment ryan why don't you tell the listeners about that yeah just for like founding the story if people care about that wix was founded in 2006 by three israeli developers their names were abishai abraham Abrahami Nadav Abrahami and Jira Kaplan um as far as I can tell all the founding members still appear to work at the business um Avishai Abrahami is still the CEO and then Nadav is like some vice president role and then Jira Kaplan which I was kind of reading into his background he's the CTO apparently he's a really like just an incredible developer apparently and that's kind of why they needed him as a founder um but anyway he's he's a CTO so they're all still there

which I like to see that. I like to see that they're committed to the company. It's not the biggest green flag in the world, but just nice to see. The other thing is the initial genesis for the idea seems to be they came to the exact same realization as every other SaaS CMS company that we've looked at like Squarespace and Shopify. And I think BigCommerce was even around this time as well, um, where they tried building their own website and realized that it was really difficult and that they could find, they could build a solution so that non-tech savvy people can build one really easily. Um, and it seems like everyone kind of came across this epiphany at like the exact same

time, like the 2000, early, early 2000s to 2006 timeframe. Um, and so the three of them started to assemble their own website builder. um avishai had been had he'd had startup success prior to starting wix and so and all of them kind of had big tech backgrounds where they'd had success in kind of a past life and so i think they quickly raised venture capital probably from existing relationships immediately um and by some prominent vc firms and then by 2010 they had already reached three and a half million so there's pretty strong product market for it right from the jump um and then since then the platform has kind of undergone a lot of changes and iterations.

There's been a lot of like just tweaks to the existing platform, but there's also been some more, like some changes in company strategy. So one thing that they've really gone after, I think over the last probably six or seven years has been this vertical specific platform offerings where it's like Wix for fitness,

Wix for photographers, Wix for restaurants, Wix for hotels. I think that's been really successful marketing-wise. It just gives, I think, if you feel like you're in that category, it gives you a very purpose-built solution or a custom-built solution for your industry. And it makes you feel like that's the solution you have to go with. And so I think that's been pretty successful. And then the other one is business solutions.

They've been both building and buying different offerings within the segment, a lot more buying lately, or at least during COVID. um but business solutions kind of became a an actual reporting segment of the business in q1 of 2018 so that's when they started really breaking this out and kind of starting it's still not a huge part of the business but investing more heavily into it and then um they launched editor x which brett will talk about here in a little bit which is their partner platform and we actually think it's i think it has really big implications for the business at large um at least competitive wise or competition wise. And we'll talk about that in a sec, but that's just, you know, if you're a company and you want to establish your internet presence, let's say you're an

investment fund and you want to build a website and you don't really know how to do that. You never worked with any sort of website building technology. Maybe you'll hire a partner or a website building agency. A lot of companies do that. And those agencies have their own system that they build on, this Editor X is designed for those end customers. And then as for more recent history, just in terms of where we're at now, why the investment is where it is, right as Wix was beginning to hit their stride profitability-wise, and let me just share my screen to show the profitability, and I'll explain it too, because I'm sure Some people listen to the podcast and get irritated that we're sharing visuals.

But if you are looking, you can kind of see what happened to operating cash flow at the peak in late 2019. So the business was really starting to hit its stride profitability-wise. I think it reached, I want to say, 17% total operating cash flow margins in late 2019. I think it was like Q3 2019. um however right as that happened um they covet hit and they saw a big boost in new website formation so they were actually beneficiaries of this initially but you could almost say they they fell forward over their skis i think because in response the company really began to invest

heavily into a number of a number of different line items so uh they increased their customer support. They quickly began buying new business solutions offerings to kind of help their users function online. So I mean, they have a lot of restaurants that build with Wix websites and they needed online ordering functionality. And so they bought, I believe the company was EasyTab. They may have bought another restaurant solution business as well. So they started acquiring them. I think that probably led to an extra increase in the cost of revenue within the business solution segment also, just adding all those employees. And you just really saw the cost rise in that segment. The other one, they were right in their heart of their new headquarters

build out, which they're building, I believe in Tel Aviv. I think they just actually finished that. So the employees are moving in. And then they were right at the peak of launch for EditorX, which was their partner platform. So on top of all that, they saw tons of cost increases, but then, and this is kind of reading through the tea leaves, but there was also increased marketing expenses because they were starting to see really good ROIs. However, that quickly changed in 2021. And I think they'd be the first one to say. Late 2021. Yeah. Early 2022. Yeah. Yeah. I mean, they'd probably be the first ones to say that they kind of misread it and And I think Shopify went through a similar situation where they overhired during this

time and miscalculated where the trends were going. But as of Q1 2021, annual growth in active websites on the internet was 5%. So active websites were going to 5%. A year later, so Q1 2022, that number dropped to just 0.8%. So this resulted in a poor cost structure and profitability really shrank, which at the time when revenue was growing really quickly and they were seeing tons of top of the funnel growth, it wasn't that big of a deal. But when that shrank, shareholders kind of hammered them for it. And management recognized this. I believe they either just completed or they announced plans

for a layoff. They mentioned a number of smaller cost-cutting measures as well. and then management has telegraphed basically what they want cashflow margins to be. They expect it, I believe, to be 5% this year. They said that DIY, so the do-it-yourself segment where you just go in, you make a website yourself, is still as profitable as the business was at peak profitability, but all these other investments have really hindered profitability. So as those scale, which they think it should over the next three years, they expect free cashflow margins to reach 20% by 2025. And then I guess just in terms of, they do issue a lot of

stock-based compensation. However, they've been buying back a ton and they're actually really well-capitalized, more than a billion dollars in cash, raised a lot from convertible notes. So I think share count should stay relatively flat over the next few years. That's my assumption. I'll talk about that in the valuation segment, but that's just kind of historical context. Yeah, Brett, anything to add? Yeah, let me, since I think this is really important for the, I guess, our thesis, and I think it's an important data point for other investors to consider as they try to evaluate, okay, what would the growth of this business be going forward?

Let me just share my screen from a good chart they had highlighting COVID growth or pre-COVID growth, COVID growth, and then post-COVID growth for website builders. How do I do it? I want to do it without the tabs on here, but whatever. I don't know how to do it. Make sure you describe it though. Yeah. So if we look at this, they did a nice thing at their investor day. They have an investor day presentation. And over the last 10 years, active websites on the internet have grown by 1.3% annually. And there's some reasons that Ryan and I think we'll get into why SaaS CMS is growing quicker. But if you look at Q1 2019, the annual growth of active websites was about 2.1%. So actually a little bit faster than the 10-year average. But then during COVID,

if you look at Q1 2020 and Q1 2021, that accelerated the growth, as we all expected, right? The e-commerce stuff, everyone needed to be online, all the remote work things, to 4.5% year-over-year and 5% year-over-year. However, in Q1 2022, that decelerated below the long-term average to 0.8%. And that affected everyone in the industry. It's affected Wix, slowed down their growth. It's affected Shopify. It's affected everyone.

Part of our thesis is that we're just going to return to the long-term average of in between 1% and 2%. And as the SaaS CMS providers steal market share from the traditional legacy players, Wix, Squarespace, Shopify, well, I guess specifically Wix in this case, is going to grow at the annual websites probably in the 5% to 10% range, at least for the next few years. And then with pricing power stuff, and then all the other value adds they're providing like payments, all that good stuff that we're going to discuss in the product segment next, they can grow the revenue at 10% to 15% or higher over time. All right. Yeah, I agree. Do you want to talk through just the product suite? So what they actually offer and who they're kind of targeted towards?

Yeah. So if you're looking at Wix at first glance, you're going to see dozens and dozens of individual products. And at first, it's hard to parse out, okay, what's important, what I need to learn about. But after looking at this company for multiple years, I think there are really five important categories right now. One is the do-it-yourself website creation. This is the legacy stuff. This is the thing they started out and really built out over the last few years. And that's what Ryan said when he mentioned legacy. This is the segment that's already profitable. And this is going to be within the creative subscriptions as well. So these are for, say, individuals and small businesses looking to build a website presence

in a cost-affordable manner by themselves. So they don't have software development expertise. They don't want to pay, say, I don't know what it would be, $10,000, let's say, for professional development. They want to do it for themselves for, say, less than 500 bucks. And Wix will let them do it for them. They have these pre-designed templates. And yes, it's not going to be customized very well. But for a lot of people, for example, us, we're looking for a cost-effective banner for our investment fund website, which I guess is funny. Because if you go to the website that we did, we think it looks fine. It's not crazy complicated, but it was built on Wix and we really like it. The second category is going to be Editor X,

Professional Development and Partners Website Development. I'll talk about that in the next section because it's very important as they expand beyond this DIY segment. The third important category of products are going to be what I'll call e-commerce websites. So this is their competitor to Shopify. Obviously, they're not as big as Shopify within this category. They're the second player. I guess there's Wix, Squarespace is in here, even WordPress, I guess a bit, GoDaddy. They're all second fiddle to Shopify. But these websites do the same thing. They allow individuals and businesses to sell items online, process payments, and then do order fulfillment by connecting to third-party platforms

like fulfillment by Amazon. So unlike, say, a Shopify who's trying to be a little bit more vertically integrated, Wix just does the website building and then Wix payments. And then a lot of times you're connecting to other third-party stuff. Now, my fourth category will be the vertical specific solutions. I think this is an important one to include because they've invested a lot in this over the last few years, like Ryan mentioned. This would be like restaurant stuff, fitness stuff, hotels, and more. So the products within this category allow, say, a small business, if you are a fitness person, to do bookings, reservations, subscriptions, run your business, not just build your website through the Wix platform. And then it's supposedly going to...

And there's some good testimonials, the reviews are good, that it'll help improve the customer experience. I think the key here from an investment perspective is they're relying on more and more of their business on Wix products. And that can increase the customer experience and then increase the value provided to the business, which will hopefully increase their ability to raise prices. Yeah. The other thing with having that vertical specific strategy, when you look at the sass cms pool and i'm going to talk about this briefly in the competition section most of the functionality is is similar across platforms so you know if you really really wanted to build an e-commerce website on weebly or on squarespace you could do it but it would

just be easier to get there using shopify so it's like the big differentiator is how easy can you make it for someone for a business of any type to build a website and actually become a pain subscriber. I would say that Wix makes it because the vertical specific solution, I think it applies their platform applies to the widest array of businesses. So I think it fits really well for hotels. I think it fits really well for restaurants. I think it fits really well for the fitness businesses or yoga studios, stuff like that. Whereas Squarespace, I think Squarespace wins in stuff like where you're trying to show off a portfolio, where you're trying to really care about how the website looks as opposed to just pure functionality. Shopify, I think,

clearly wins in e-commerce, but not every business is setting up a website just to sell stuff online. So that's where I think it helps. I think they have the most horizontal applications, I guess, if that's the best way to describe it. No, they're more, okay, no, it's the most horizontal across various vertical solutions. So they'll have, if you get what I mean, like, you know, they'll have a vertical solution. They apply to the most industries. That's right. Yeah, yeah, exactly.

And the most industries for the small businesses that will want to build websites that aren't going for a big custom solution, like say a Starbucks would be, you know, Starbucks isn't going to Wix. And the last product I have here, which is, this is small. It's not really important for the long-term thesis, but it's nice to have. So these include email marketing or it's ancillary tools. So email marketing, domains, social media, advertising, SEO tools as Wix. And again, this isn't the most important thing. Editor X is going to be more important. Ecommerce is going to be more important. But as they steadily build out these more tools for paying subscribers, it should translate into the ability to raise

prices over time as they provide more value to them. And also, it makes their product suite more comprehensive and more on par with all the things you can do with an open source platform like WordPress. It'll slowly get better over time. And the one big reason why someone would go to WordPress is that, yes, it's going to be a jumbled mess, but it's going to have a vast variety of products. And in, say, five to 10 years ago, Wix did not have that. They were for these really specific solutions like building a simple website for an investment fund or a simple website for an artist trying to produce stuff online. Now they can do all the complex stuff like, say, a WordPress you know user would do but without the complicated jumbled mess that is open source where it's really

really difficult if you're not a wordpress professional and that leads into the next part um i'm just going to ask the question to myself you know we're talking editor x we talked about the uh how it's important to our thesis um and let me just go into why we think it can help drive more websites to run on Wix, which is really the core reason that Wix would grow its revenue over time is they get more subscribers. So as Ryan mentioned, in early 2020, Wix launched a product called Editor X. Editor X is an advanced development platform for designers and web professionals. So again, that's different than the DIY segment like us. This is someone who is looking for someone else to build a website. So Wix's customers are the development

agencies, in this case, the web professionals that are looking to find customers themselves who want to build a website. Now, with Editor X, I mean, simply, it's going to help Wix expand beyond its core DIY customer. And there are also a few other reasons, and Ryan will get into it as well, why Editor X can be beneficial to Wix that are not intuitive at first glance. So the first one is obvious. This one is intuitive, is that Wix has tools that will be attractive to professional web developers and more advanced designers now. So previously, These customers were served by other platforms like WordPress, or maybe a few others I'm missing. I'm going to use WordPress kind of as a standard. There's not just WordPress, but again, that's the majority of the market share. Now with Editor X,

Wix can come in with a vertically integrated solution that isn't a jumbled together mess from a bunch of open source solutions. And they can offer a quality product for these web developers, more advanced designers, stuff like that who want the custom solutions. They want something better. They're willing to pay up.

So that part's obvious. And they've grown a lot of market share there. The second important part is that it connects within the e-commerce and business solutions revenue growth. So many businesses, they're looking for a professional web development, but they're also probably a business that wants to sell products online. They just want the website process to be a lot better than the DIY stuff from Wix, Shopify, Squarespace, whoever, because that DIY stuff can be great for a lot of people, especially a small business selling online, but they all look the same. right? There's no differentiation. So you get these custom solutions. They can be a better value proposition for the customers with more money. They're looking for professional design.

So you have the Editor X stuff. You have the creative solutions. And I think it's going to work in conjunction with the eCommerce stuff they've built over the last few years. And again, it's going to all drive revenue to Wix. The third part... Excuse me. I held up two figures. The third reason is that Editor X improves the value proposition when Wix offers partnerships to companies like Vistaprint and LegalZoom. This also includes all the products like the ancillary stuff and the e-commerce and payments as well.

So over the last couple of years, they've launched two big partnerships with other companies within the small business software space. One is Vistaprint. I guess it's not just software, but companies that offer things to small businesses. There's Vistaprint, which does...

What is that? Like online, making car business cards and posters and stuff like that for your business. and then shirts stuff like that shirts yeah i think it's like easily printing stuff on it's like all your marketing needs if you're a business printed marketing needs it's a good way and then legal zoom which is helping you easily set up your business they have a partnership with them where if those customers want to build a website they are going to do so through wix now which is a great funnel for wix to acquire new subscribers the reason that wix was likely chosen

over someone else. One, they're not going to choose an open source thing like WordPress. I mean, that's just not... There's no executive team there. But Wix can give them the most comprehensive product offering now compared to an other upstart, say, SaaS CMS provider. There's the economies of scale here with you have the DIY segment, you have the eCommerce segment, you have now the Editor X segment. And these partners, again, can be a great way to drive new subscribers over to Wix, which is really what we're looking for. That's the key KPI is more subscribers, paying subscribers on the Wix platform. Now to wrap up the segment, Editor X is barely a few years old. I think we'd be closing out on year three

in a couple of months here. And we're going to be watching it as a key driver of growth for Wix over the next three to five years and beyond. It's so far done extremely well and driven the majority growth over the last year or so. If we look at partners revenue growth, which was 24% year-over-year last quarter, and now 25% of overall sales. So again, partners revenue is going to be stuff from Editor X, and partners revenue is going to be things like Vistaprint, LegalZoom, and those professional development agencies where it's outside that DIY segment. Again, it's growing 24% year-over-year, and it's now 25% of overall sales. Another thing we're going to be watching is Wix's market share versus WordPress.

I don't know if you want to pull up that thing as a shared screen, Ryan, while I'm talking about this. But WordPress, as we have talked about a lot in this podcast, still has the majority of market share in CMS. And if Editor X is successful, we think it can help steal market share from them over time. And if you look at this chart, there's actually a lot of runway to go. Yeah, do you want to zoom in there? WordPress, say in 2011, it's had pretty consistent market share and it's actually grown, where WordPress had 55% market share in 2011. And now in 2022, the end of 2022, they have about 64%. But if you look at someone like Wix, Squarespace, and Shopify, they've gone from basically 0% market share in 2011. And then Wix hit 3.6%

end of 2022, we think Editor X, and again, they're already showing great progress here because the partner's revenue growth is outpacing other revenue growth, that 3.6% market share of CMS can turn into 7%, can turn into 10% over the next three... Well, 10% probably won't happen within five years. But yeah, I think that makes sense. Well, it could. I guess it could. But yeah, I think that's a comprehensive overview there. And Ryan, anything to add? Well, it's just also worth bearing in mind that if you're reading the chart or you're trying to listen to Brett, those are share of active websites. So their share of new websites is substantially higher.

I believe one in four websites built on a CMS is built with Wix. I believe I'm getting that stat right from their investor day. So it's kind of a lagging effect when you look at total active websites because they have a lion's share or they have a big chunk of new websites being built. It's just not as much as the total websites that are out there on the internet. So I think that chart's really helpful. It kind of shows the competitive landscape. I think it also probably shows how much e-commerce websites just shot up last year because Shopify's share has actually declined really quickly over the last year.

Yeah, it's normalized. It kind of went through a huge spike and kind of normalized back down. They're still the leader for second place versus WordPress right now, but Wix is catching up to them as is Squarespace. Yeah, let's talk, I guess, competitive landscape. um this is wrapping up the website builders industry overview that website builders theme and so you've already probably heard us talk about a lot of the competitors a lot of the big ones are like um just in terms of sass cms like so direct competitors you've got platforms like squarespace shopify i think weebly is one which is owned by square or block now um go daddy yeah go daddy

You can go listen to those shows if you want anything and big commerce, kind of, but go listen to those shows. There's more, each one is unique and you got to go listen to those episodes if you want the full rundown. Yeah, I would say Squarespace and Shopify are like the most clear, direct competitors. However, if you, and each platform, I already mentioned it, it has its kind of nuances. is. And if you're a specific business, so let's say you're an interior designer, Squarespace might be the best website to kind of put your portfolio up on. If you're just trying to sell new shoes or start some brand, Shopify is probably the solution. So each one has its own applications. However, if you ask Wix's management team, who's their primary

competitor? The answer would be WordPress. I mean, they're very clear about this in their marketing um they're very negative they uh they attack wordpress and wordpress uh developers and people companies associated with wordpress dude are not happy although i might have been stealing some of what you're about to say yeah i mean the thing is so wordpress is you already mentioned it it's a cms it's not sass it's open source so anyone can build for it however as a non-technical person, it feels like this hodgepodge of disparate solutions that are hard to set up and integrate. And some might say that the open ecosystem is a benefit to users, but from the do-it-yourself user like me, it's way more complex to build and manage and often takes way longer.

You have to, and this is probably why agencies love it, is you need like a partner or a freelancer to come in oftentimes and kind of help out. So you're paying for that. It's just so much easier to go with a SaaS solution and figure it out for yourself. And Wix kind of provides that. And so I think over time, we're going to see WordPress's share of active websites

continue to decline like it has this year. And I would say Wix is kind of the prime beneficiary since they apply to the most, They have the most applications in terms of business use cases, and I think a lot of that has to do with their vertical-specific solution. And then the other thing is part of the reason I think Wix has done better this year is because of that success. I mean, it clearly has done better because of the success of Editor X. A lot of WordPress websites are built by agencies. I remember reading the statistic, but I couldn't remember.

I couldn't find it, but I think it was like half of all WordPress websites are built by a freelancer or a partner or an agency. Giving those partners a new solution like Editor X is going to eat away at WordPress even quicker. So I like that. Right. And yeah, they have numbers in their investor day. We're not going to go through every number in their investor day.

But if you become more interested in Wix, the most important thing is to watch their investor day. Yes, investor days are biased towards the company. I think you just have to know that going in. But they do give a lot of good numbers on the industry as well. Yeah. And then just kind of why do we think it'll grow market share? As I mentioned... I'll share the screen while you talk so we can see this chart.

Yeah. I mean, for one, SaaS CMS is growing. So I think over the last decade, whether it's due to just better SaaS CMS offerings or general awareness, people are coming to the realization that I don't need to go to a company to build a website. I can build a website myself. And this chart really demonstrates that software-as-a-service CMS has been eating share quickly. It's grown. The number of active websites using SaaS CMS has grown by 36% a year over the last 10 years. That's faster than any other CMS segment. It's obviously faster than custom HTML. And so it just continues to kind of be the go-to solution. And then on top of it, I already mentioned this, but I think Wix applies to the most, it has the most applications. And something that's really good about Wix, I talked about getting over that hurdle, getting over the conversion hurdle if you're a user where it's like, this is kind of intimidating. I have a website that I kind of like, but it's not fully there. I don't know if I want to make

this public yet. Getting to, okay, I'm happy making this public requires, you have to give them something that they only have to tweak a little bit. And so Wix has, I think it's almost a thousand templates that have been iterated on because they have so many use cases already. So they've got 6 million premium subscribers. They can look at those and say, this is what that kind of a business would want for a website. And they can build one, offer it to new users, and then that new user only has to tweak it a little bit. And so they have a higher chance of converting. So I think over time, that scale kind of benefits them and kind of just gives them a deeper competitive advantage. to be completely honest though no I don't think any SaaS CMS business has like an extremely deep

competitive advantage a lot of the functionality is offered across platforms so yeah I think some of the bull case or say kind of our thesis and why we think it's solid and predictable is one the continued growth of SaaS CMS that's the most

important thing to us that's going to benefit Wix it's going to benefit Squarespace it's going to benefit Shopify and others second is the switching costs once you start on a website builder there is a lot of friction there's a reason wordpress is still around and we think it's going to be a multi-decade thing where they finally become irrelevant and then third there are small amounts of economies of scale as ryan kind of just described there as this is not just a single commodity that a team of 10 developers can build overnight wix has a thousand r&d people that are going to continue to build all these products

and then go more niche, more niche, more niche over time where you can offer that for all the different types of customers and separate yourself from even someone

like Squarespace who doesn't have nearly as comprehensive of a product offering. I think that's enough on the platform. Let's talk management team. What do we think about them?

What are our concerns? Yeah, so I think if you're listening to this and then the next section after this is going to be valuation. If we did valuation first, you'd think, wow, this is such an easy buy. Boom. What am I missing here? Well, what you're missing is the management team. And I think this is probably the one where we have the most concerns about. We'll talk about this in this section and

also in the risk section as we wrap up. We always like to rein ourselves in with the last question. So Wix is based in Israel. They have a long tenure management team, like Brian mentioned. This includes the founder and CEO, Avishai Abrahami, who has been with the company forever and has led the company for the whole existence. We think it is great that the executive team has stuck around for the company with the same company for so long. I really am impressed that I believe with all their executive team has been there since 2010. And that's when the company was a lot smaller. So they've really grown along with the company and all that good stuff. And I think it shows that they really care about long-term growth. And we'll talk about whether they care

about long-term growth and profitability, maybe a little bit less than long-term growth in subscribers. But I think focusing on long-term growth in subscribers is a great North Star. And they also don't really care about hitting quarterly earnings results. They've had some earnings results

that they definitely could have, wouldn't you say, massaged over the last few years, Ryan? And maybe the stock would have performed slightly better in the near term, but they don't really care about that, which I think is great. Yeah, it stresses us out a bit more

as shareholders, but they don't, They just kind of tell it how it is. And I think that's a bit of the Israeli culture as well. They also just built out a sizable headquarters in Israel, which I think is important to note. First, I guess we talked about how that impacted kind of the cash flow stuff in the near term, but it shows their long-term ambitions to be one of the key technology companies of that region. Now, if we go to capital allocation, it's been mixed. They have a great track record of spending on marketing to get good ROIs on that marketing

spend. And they've built a fantastic long-term growth engine that's really predictable. If I look at their revenue per share, it's up over 1,000%. It's actually up over... It's up 1,100% over the last 10 years, which is highly impressive. And they made some great product decisions. Embracing eCommerce, they didn't need to do that. They definitely did that at the right moment. They're embracing Editor X, which I think is very smart. And then these partner solutions are also extremely smart as well. We've seen that from, it's not just our opinion that they're smart. The Partners for Revenue Growth really shows that. However, however, however, they have a loose policy with stock-based compensation. They have a loose policy with acquisitions that

Ryan discussed earlier, and they have a buyback framework that just seems to be a bit of hand-wavy to public markets. There was a red flag we saw, which is a concern one of the board members tweeted out, not necessarily pumping the stock, but maybe could have been read into trying to pump the stock where they announced a small buyback of $200 million in late 2021. And then he, I don't want to quote him, but he basically said something around the lines of, think we're not confident in the stock, kind of a rhetorical question. And the stock is down, probably cut in half since then, something like that. Pretty embarrassing, honestly, but.

Yeah. As a board member, yeah, it's not a reason to sell. But again, this is why we see some things with management that they might not be focused on the right things. Recently, though, they outlined a $500 million free cash flow target to hit by 2025. But clearly, once we go into the valuation in the next section, the market does not believe they will hit that number given the current stock prices. And I guess there are no numbers or quantitative measurements that we can go on to back up this claim, but both Ryan and I are nervous about Wix's executive team and what their true North Star is, like I mentioned. Is it actually long-term growth and free cash flow per share, or is it just to become as large of a company as possible with the aim of appeasing public market investors, whatever they want? Now, I mentioned that they don't really do that. And I might sound like I'm contradicting myself, but I think they have the things they're focused on, right? And they don't really care about that other stuff. Or I'm kind of reading into it as they might not care as much about profitability as they may be put on to Wall Street. um i think that makes sense there's a bit of a nuance here so there's just a feeling within us and some of their actions the way they've said things the way they've uh given out always kind of a long-term goal uh you know we have the same concerns with spotify i think we covered them in an arch capital episode a couple months ago so you know some of their actions is just the big question it gives us a little bit of a pause can is this a management team that we can

trust with our capital because the business looks solid and as ryan i'm going to next the valuation looks solid but that needs to connect with the management team as well and if that one you know leg of the stool is broken then the investment's not going to work but ryan anything to add on that uh and if not go into the valuation no i would say maybe just the last two years have maybe been a bit of a shell shock to management and has forced them to reconsider what their North Star is. So clearly, they were focused on growing websites as quick as they could, growing employees and trying to grow influence, I guess.

And then when the stock dropped by 80%, I think it was time for them to reel in expectations and say, oh, you know what, maybe caring about free cash flow per share should be the focus. And you see that just, I mean, they laid out, they said, and it might've just been unfortunate timing, but they went back to basically break even free cash flow. And now they're saying, we expect to get back to 20%. If the stock were still trading where it was, I question whether the focus would be get back to 20% free cash flow, but that's their current focus. And I think maybe this precipitous decline in the stock price is a good thing for the business long-term, even though it might not feel like it for shareholders right now.

But let's talk valuation. I'm talking about a lot of numbers here. So feel free to... This is a good time to plug the newsletter. Yeah, exactly. Newsletter is perfect for valuation and numbers talk. Yeah. Yeah. So let's just go through some quick numbers. As of the last quarterly report, They had 58.3 million shares outstanding. Just a side note, that's come down a little bit thanks to their buyback. But the current price of the stock is $76.50. That puts the market cap at 4.46 billion, so just under four and a half. Wix today has just over $1.2 billion in cash and short-term marketable securities with $930 million in, let's call it debt. It's total

convertible notes. I forgot to look at the price on those, but either way, I'm going to include it debt. It might come in as dilution, but if it comes in as dilution, shareholders are going to be fine anyways. So that puts the enterprise value at 4.2 billion. That's probably the figure to remember here, 4.17 technically. And then for context, I know we've talked about this briefly, Wix is generally... Oh, sorry, Brett. Yeah. Yeah. So I don't know if you want to add in their long-term marketable securities that can bring in the enterprise value down. It depends if you want, but that'll bring it down to about $3.9 billion. Either way,

it's around $4 billion for the enterprise value, give or take, at this current price. This is maybe something worth mentioning, too. Yeah, they do make VC-like bets, which I don't think they've made a whole lot lately, but one big investment. Maybe they

should lately, but yeah. That's another concern with management that I think I forgot is that VC stuff. Yeah, you keep talking about that. I believe A big chunk of the long-term marketable securities is a stake that they have in monday.com, which is actually, I think it's worth following their reports as well. Avishai Ibrahimi, and this is going to be a bit of a red flag, I believe owns more monday.com than he does Wix. He's a big investor there.

He's on the board. It's another Israeli-based business, so I think they have some connections. Well, the connection was Wix invested in them. Yeah. And I think just being probably within the same competitive market for tech talent is probably... I think there's less global tech players than there is, say, in Silicon Valley. So they know each other fairly well, and there's a big investment in them, and management is on their board. So it's worth looking at that business if you're looking at Wix. Anyway, for context, over the last 12 months, Wix has generated just under $1.5 billion in total bookings. The lion's share of that, 76%, comes from its recurring subscriptions business. And so for our investment to reap attractive returns, there are a couple of assumptions that we're making for the business over the next four years. And I'm just jotting these down. Like I said, it's easier to look at this on paper. but and you you tell me these are my assumptions brett well i'd say yeah i mean i'd say these are generally conservative like we we definitely see a scenario where there could be some upside on

these numbers but there's also it's pretty realistic as well it's not ultra conservative yeah so i guess my first assumption is premium subscribers or premium subscriptions grows at 10% per year. If Editor X really continues to have success, that's going to be probably faster. For reference, subscriptions have grown at 17.5% over the last five years. It's come down quickly this year with less new website formation, but I think they can achieve that over the next four. Revenue per subscriber, I expect that to continue to grow by at least 3% each year. I think they've been raising prices a little quicker lately. I think they can continue to do that. We've talked about how hard it is to switch once you've built a website on a CMS or a SaaS CMS provider.

They're going to continue to do that. Other assumptions, business solutions revenue, I think will grow by at least 15% in management's investor day forecast. They said, I think it was like 25 to 40%. This one's a little harder to predict. I agree. Yeah. But I assume the payments business will grow faster than the actual website growth for Wix. So that should probably be a buoy. And I also assume that it's cashflow positive, that it's not hurting cashflow for the business at all by year four. And then other things, free cashflow margins. I expect that they'll hit 20% within four years.

Management expects that it'll reach around 20% by 2025. They've been, you know, this is something that we have to hold them to. And it's probably our primary concern is whether or not they get there. So this is the big one, but I really do think the core business has really strong economics.

And if the last couple of years have been sort of the realization moment for them where they can't just spend as much as they want, I think it's very easy for them to get back to that figure. And then the last thing

is just no change in share count, which has shown a willingness to repurchase lots of shares, sometimes at prices that didn't end up working out as well. I wouldn't say lots of shares, but they have shown a willingness to repurchase

with a decent framework, I think. Decent, not a great framework, but, you know. half a billion dollars, I think half a billion that they've pledged to buy back over the last year and a half. And we're kind of recording at a weird time because the Q4, they could have repurchased $300 million worth for which versus their market cap could have been sizable, but we won't know that until they report in a month or so. Right. Either way, I'm not expecting a change in share count. So I'm expecting that to stay flat.

So if our assumptions are correct, by 2026, Wix would be generating $2.3 billion in revenue and at least $460 million in free cashflow. That's just kind of how the math shakes out. If the market values Wix at 15 times free cashflow, which I think if the business has proven its economics and it's growing at that rate, it'll probably be higher, but I just want to be conservative. Wix would have a market cap of roughly $7 billion. That's 60% higher than today's prices. So there is upside, assuming they hit those metrics and assuming that the valuation is anything above 15 times. I also take comfort in the fact that they are the beneficiaries of a trend, of a shift towards SaaS CMS.

So I think they are going to grow. It's just a matter of how fast they'll grow. It's not like this business is going to decline. Yeah. And I think another thing that is what we like is that the tailwind doesn't stop in four years because yeah, we, you know, we don't like to be the people that go, Oh, 10 years, you know, this business or whatever, and then blindly look, throw on our blinders and invest.

You know, we, we kind of do a continuously updated kind of three-year horizon ish, and it can change for each business and each type of investment. But what I think is nice is that, you know, if Wix hits these numbers or even is a little that's slower, it's not like they're going to be totally mature in 2025. So yeah, I just think that's a benefit where they continually probably from 2025 onward, if they continue to execute and all that good stuff, they're going to be able to still grow at about revenue at 10% a year. So the most important thing for a growth stock is durable growth. And we think that is pretty predictable for Wix compared to a lot of other businesses out there.

All right. Last segment. I know we've gone a little bit long. What are the risks? Yeah. So the main risk for Wix stock going forward, and this is kind of what we're looking at for why the stock would do poorly. The main risk for us is the management team. I think we have very high confidence that Wix's business will be larger three to five years from now, that its competitive position will be stronger, and that it will retain strong unit economics. we also have no concerns about the valuation given the unit economics. It's trading at an EB to gross profit of about 4.8, which is right around the market average. And if they continue to grow gross profit at a high rate, I mean, there's really no concern there. The concern

is that the choices of the management over the next couple of years will determine whether all these gross profit dollars actually get turned into value for minority shareholders. For example, and this is just one metric, but I think it's an important one. Let's look at revenue per employee. I'm going to share my screen and then we'll do that. One second. All right, share. So if we look at revenue per employee, that metric is actually down from 2016, which I think is shocking for a business that has grown revenue as quickly as Wix has. So in 2016, revenue per employee was 225 or actually $226,000. In 2021, it was only $214,000. Now, if I was telling this to Wix's management team.

I think they would argue this is because Wix has greatly expanded its product offerings. You know, they have Editor X, e-commerce, payments, more vertical solutions and everything else since then.

And that these products will scale up over time like the core DIY solutions have over the past decade. And that will lead to an expansion in revenue per employee. But they had to hire a bunch of people

to build out these products in the near term. What we're looking for is that that actually happens. This will grow because they are in the process and have laid off a number of employees. So I think employee count will shrink,

which assuming revenue doesn't decline. That's right, yeah. It'll grow. So in 2022, 2023, the numbers will likely look better, but we're looking at that to continuously expand because this is where the operating leverage is going to show up. As I mentioned before,

the cost centers are there and the cost of revenue is pretty standard. There's not going to be any sort of huge change in that for the cost of revenue for both sides of the business. and then the marketing dollars are kind of based on their return spend that they're looking for. And that's very quantitative how they do that. So it's going to be the personnel costs is where they're going to get that. So we need revenue per employee to expand. It hasn't yet. And that's a big concern for us. And if it doesn't, that is a major risk to our

investment not working out. The big questions we also have are, will management waste more money on acquisitions? We think they kind of have a bit. They got a little caught up in the market? Will they continue to overhire while pretending to appease Wall Street this year? I think that's possible because they seem to be dead set on not focusing on cash flow and just want to focus on subscribers. Again, they could prove us wrong. We're hoping they prove us wrong over the next few years. And then are they going to continue to spend heavily on stock-based compensation? I think one concern we have is they focus on free cash flow and their free cash flow number, like a lot of people are probably thinking, doesn't include stock-based compensation.

So we're going to track that stock-based compensation as a percentage of revenue. And if they hit the free cash flow margin, but it's all just because they have no gap profitability and they're just issuing more stock to employees, that's not a sustainable way to get to that free cash flow target that they're outlining. We're going to continue asking those questions this quarter. We're going to see with Wix management whether they are inhibiting what should otherwise be a quality business, in our opinion. And this is no excuse if we are wrong either. Evaluating management teams is important for our investment strategy, and we're concerned that we're wrong about Wix's right now.

Now, of course, there's always a small risk, and there's always maybe not even a small risk that Wix's business quality deteriorates. And Ryan, you can toss in anything that you've thought of about this, and that could hurt them at today's present, even at a discounted valuation where there's not that much growth priced in. This has come through competition from places like Substack, although Substack is really competing with blogs where Wix has a smaller presence. It could come from Shopify. It could come from them taking even more market share. But as we've seen, Shopify is the leader, but it doesn't mean Wix is not going to win as well. And then it could come from better execution

from a smaller competitor like Squarespace. I think there's also risk from these AI tools maybe taking over website building. I think that is very hard to analyze, but it's possible. I don't know how easy it would be for someone to just type into a chat bot and say, build me a website um we might be many many years out from that and that might be impossible but again this is something that maybe you know ai tools could disrupt but we'll see i don't think

anyone's switching their website because of it i mean anyways which has basically these ai tools and i think they're probably investing in this stuff i would get i mean wix has you can input your business data and it'll come up with a custom website for you it's just probably not going to be exactly what you want. So yeah, I think they're really working on this type of stuff as well. And hopefully it gets better over time. It could be a benefit for them, to be honest. But again, that is a risk. I mean, it's a changing landscape. They disrupted the traditional CMS. There could be a next step here. We'll see. However, though, with the product stuff, even if these are threats and even some of these threats take some market share, if we look at

Wix's current market share, what its market share was 3, 5, 7, and 10 years ago. Again, look at that chart from, what is it called? W3 Techs. And then the growth of website building around the world. I mean, it's pretty hard to look at. Even if the competitive landscape increases, it's hard to think this business will have fewer subscribers three years from now. So we're really not concerned about that. We are concerned pretty heavily on management teams. So again, to close things out, if they hit their 2025 free cashflow target, which we think is fairly doable, given the unit economics of this business, the stock will likely do well for us as shareholders from this current price. The big question comes down to one of our core tenets. We ask three big questions when making an investment. What will the executive team do with the cash that is generated for them? If that question is answered negatively, it'll be time for us to sell our shares in Wix stock, and you could probably expect us to do so. however you should not take these shows as any sort of recommendation like we said before this

is just kind of for our own marketing purposes and uh for anyone to get some any sort of analysis we just like to do this publicly no one should be buying or selling anything uh based on these episodes yeah and i'll add uh we truly mean that because we have kind of managed our the stock has been sporadic. And so we've actually managed our positions. When talking to the valuation, it certainly wasn't as cheap as it was a couple of months ago. And we actually added to it a couple of months ago. However, I think probably a lot of it had to do with the activist investor that came in. The stock just kind of shot up from the lows over the last, I'd say, what, four or five months.

And so to be clear, like it's not the kind of business there are some businesses where we kind of think with the never sell mindset, with the approach that we want to hold this unless it gets like

just ridiculously valued. And those are, yeah. And those are ones where we trust more in the management team, I think. Right. Yeah.

Where we see the management team as sort of a partner. This probably does not fit in that bucket. So we think the opportunity here is huge for the company, but yeah, We don't necessarily see management directly as partners right now.

They still have to kind of proof it. So, you know, when people say do your own due diligence, this is one where we implore you to kind of take a look at the business for yourself. Yeah. And we also try to be, you know, we know the endowment effect is real. We try to be anti with that or try to resist it as much as possible. where we're constantly looking, or maybe not constantly, it's the wrong term, we're consistently looking

for companies to replace someone like Wix. And there's no reason we wouldn't replace, if we find a better idea over the next couple of months, we would replace Wix, even if we think Wix's returns

will still be solid. If the other company has a better return profile at lower risk or whatever the risk reward opportunity sets up there. Yeah. So anyways,

that's going to be part of the disclosure. During the newsletter, I'll probably put in a few charts. We'll include stuff from Stratosphere. Again, thank you to Stratosphere. We use them constantly throughout the episode. And for building any sort of data, head on over to Stratosphere on their financial page. We'll link that in the newsletter as well. Anything else here? Full disclosure. Yeah. Check out the newsletter. There'll be links in for further reading and stuff like that. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. We are general partners at Arch Capital and clients may hold securities discussed in this

podcast. Thank you all for listening. We will see you next week. Check out either the newsletter again or Twitter as we're going to be releasing our schedule for Q1. So check that out. All right. We'll see you guys next time.

Bye.