We Study Billionaires - The Investor’s Podcast Network - TIP820: WIX: The Most Asymmetric AI Bet? w/ Daniel Mahncke & Shawn O’Malley

Episode Date: June 4, 2026

Daniel Mahncke and Shawn O'Malley take a deep dive into Wix.com — the Israeli website-building platform whose investment case now turns on two of the most debated questions in the stock today: whether the generative-AI wave that lets anyone spin up a site from a text prompt is the end of Wix or whether Wix is too sticky, and whether the Base 44 acquisition — Wix's bet on AI-powered app generation — is the next leg of the story or a distraction from the SMB infrastructure business the company already dominates. IN THIS EPISODE YOU’LL LEARN: (00:00:00) Intro (00:01:32) How Wix was founded (00:21:35) Why clients keep using Wix (00:28:05) How much of WIX is actually vulnerable to AI (00:37:07) Why Wix is more sticky than it seems (00:38:24) Whether vibecoding is likely to disrupt drag-and-drop website building (00:46:54) Why Base44 could change the entire investment case (01:06:24) How Wix could survive and turn into a multibagger (01:09:21) Valuation discussion of Wix (01:13:26) Whether Shawn and Daniel add Wix to the Intrinsic Value Portfolio BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Track ⁠⁠⁠⁠The Intrinsic Value Portfolio⁠⁠⁠⁠. Portfolio Review Submit Tool. Value Investor Club Article. Chit Chat Stocks w/ Manuel Cunha. Future Investing Interview w/ Manuel Cunha. Rene Sellman Substack Article. Manuel Cunha Substack Article. Previous Intrinsic Value breakdowns: Figma, Microsoft, Salesforce, Adobe. Follow Shawn on ⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠Linkedin⁠⁠⁠⁠⁠. Follow Daniel on ⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠Linkedin⁠⁠⁠⁠⁠⁠. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses through ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out ⁠⁠⁠⁠⁠⁠⁠⁠The Investor’s Podcast Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠sponsors⁠: Plus500 Netsuite Shopify Vanta References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. How are you feeling about today's company? I'd say it's a controversial one. It doesn't help that earnings actually sent it down 30% last week. Does that mean the thesis is broken? No, I don't think so. I think it's a hit or miss case. If Wix is still relevant in, let's say, five years,

I think it will most likely have been a multi-bagger from today's prices. It doesn't sound like you'd be surprised, though, if the company is just completely gone then either. No, I wouldn't be. Gotta be honest there. When you first told me you'd cover Wix, I thought I would never make it into the portfolio, but I mean, some of the stats you sent me are impressive. I thought so too, but if you just look at the numbers and also the business case that I'm going to make,

hopefully, I think it's a pretty interesting idea. Okay, well, should we do it? Let's do it. Let's get into it. Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. This show is not investment advice. It's intended for informational

and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Sean O'Malley and Daniel Manca. We usually cover companies that are either well-known compounders or companies that have the potential to become well-known compounders. And obviously, the latter is even more attractive in some ways. But we've also bought some value plays for our portfolio before, like companies like Crocs and Ulta come to mind.

And the hit rate on those hasn't been too bad. And as far as I know, today's pitch, Wix, sort of sits somewhere in between, right? Danny, I don't think you're pitching it because you think it's a buy-and-hold compounder. It's also not an asset-heavy cigar-butt type of business either. And in fact, when I look at the financials for Wix, they look more than solid. And it makes you wonder why this business is trading at one of the most depressed levels that's ever traded at. Yeah, Wix is a pitch that is somewhat out of the ordinary.

I can say that. And it couldn't come at a more, let's say, controversial time because at the time of this recording, Wix actually just released earnings last week and they sent down the stock by 30%. That was quite a brutal market reaction, but it's also good for us because it's, you know, strengthening the value case of this pitch. And as I mentioned to you before, I don't think the earnings were thesis breaking, but, you know, we're pitching 70 companies a year. So I thought, why not go with an opportunity like this one today?

And, you know, sometimes listeners ask us for process or finding companies and also deciding which companies we're actually going to pitch on the show. And I think in this case, Wix has loosely been on my radar for quite some time because Robert Vinal actually had it in his portfolio for quite some time. Funnily enough, though, just a couple of days ago, I checked and I saw that he sold his stake, which was also quite sizable at about 7% of his portfolio. On the other hand, though, Henry Allen Bogan just invested in the company. And as you can guess, by the name of his fund, which is durable capital, he only invests in companies that he sees have long-term value and on opportunity for, let's say,

the next decade. So I think we'll see who is right in the long run. And on a more personal level, I saw my friend Manuel Kunja pitching the stock more recently. And I respect him as an investor. So I thought, you know, if he brings it back to my radar, it's probably time to look at the company. I've also linked to his research on Wix in the episode show notes. So if you want to check that out, you can do that there. And also as a former user and then someone who has had the company on his radar for a while, without doing any research, though, I just felt like maybe now is the right time to look at it,

especially after, you know, the stock pretty much beaten up this year. So, but as you said, before we do that, I want to give the disclaimer this time that I see this as a value opportunity. Of course, you know, things can always go well for weeks, just like, you know, for any other company. And then it becomes this, you know, more entrenched ecosystem player that actually starts compounding. But if I look at it today, I would mostly do that through the value lens. So this company, I think I can say that has no moat, but I've made good money before in businesses or companies that don't have a mode. So yeah, I think if you know what you do, I wouldn't say that to kill criterion for me.

Well, I think, you know, I'm a little bit more of a quality guy. But hey, I was the one who pitched Exeter for our portfolio. So it's not like I'm opposed to the occasional deep value pitch. I haven't had any touch points with Wix, neither as a user or an investor. So I definitely can't say anything about the product itself. But looking at the financials and the upside opportunity that Base 44 seems to offer, I'm really interested in learning why the market could be wrong about this one. Yeah, we will get to what base 44 exactly is. You know, right now it's kind of an acquisition that the week's did and it's more looking into this AI side of the market. But fortunately, I have some consumer insights here. So that certainly helped me understand the dynamics a bit better today. And if you're a long-term listener, you know how we constantly go on your nerves by talking about how we use our consumer insights to find ideas, but also just to better understand

the business dynamics of the companies that we look at. And just to give you an example of why we do keep bringing that up, when we we're at our Intrinsic Value Conference in Omaha just a couple of weeks ago, someone asked me how I think about my circle of competence and whether there are industries I wouldn't look at. And I think it's fair to say that for this show, we do try to look at as many different industries as possible, although I would say it's not a coincidence that none of us have yet looked at an actual healthcare company. I mean, an example of a company that I like a lot.

And I also do believe I understand the company pretty well is Mikado Libre. And yet, I think I said that to you personally also. I mean, I don't live in Brazil, obviously. I also don't live in Argentina or in Mexico. So it's just significantly harder for me to assess Mercado-Libre's market position because obviously we can look at the market share data and also the enormous growth of the company. But if you're a frequent user, you just have a different intuitive feel

for the competitive dynamics, right? I mean, if all of my friends suddenly stopped buying things on Amazon, I would certainly ask, where are they shopping now? And also, what would that mean for Amazon's competitive position? But I'm pretty sure that the market share data that you could look at wouldn't show any change for quite a while. So my point is that those metrics often have somewhat of a time lack. And as a consumer, you realize that much sooner than as an investor who just looks at the data.

And you also have a much bad idea of just how different, for example, Shopify and MacArthur Leap feel if you use it. And I can learn everything about those two companies in theory. And I also try to access the websites and actually see the differences first hand. But you know, it's obviously not the same thing as experiencing those companies and everything the offer in your day-to-day life. Well, Netflix is a great example of that, too. It's difficult to explain to somebody who hasn't used, let's say, Disney Plus and Paramount

and Amazon Prime and these other competitors, why they really can't compete with Netflix, because Netflix just works better and it's got a much wider catalog and a really great algorithm. It's just a difficult argument to appreciate if you haven't used these other services. I've used all of them, and still, I've got to say, took me quite some time to accept the fact that Netflix just seems to be better. I mean, in your episode, you also talked about how, you know, their partnership with AWS and just having better connection globally makes a difference.

But still, I mean, if I hadn't experienced them as a consumer, all of them, this would have been even more difficult for me to accept. And I think today it's somewhat similar. So if you find this pitch interesting, I would encourage you, any one of you, to just actually try building a small website or project with Wix or some kind of tool with Base 44, for example, and then compare that to. building something with, let's say, clod code or perplexity or, you know,

whatever LLM you like most. And Base 44, just for Contacts, is an AI native tool builder, now owned by Wix. And it's actually one of, if not the fastest growing AI businesses out there. And yet, perhaps because it's don't buy Wix,

it's pretty much valued at zero, zero dollars that you pay for it. And I've used both tools recently, but my actual personal experience with Wix goes way back, I think, oh gosh, it's probably something like 7 to years when we were in Omaha recently. We actually grabbed sushi with some of our mastermind members in between events. And while we were doing that, we were kind of philosophizing about how we got into

investing. And I think we realized that many of us had, let's say, entrepreneurial tendencies as teenagers. And mine at some point also involved Wix. So I got into stock investing at a young age, but Daniel, you definitely have me beat as an early entrepreneur. I might. Although I got to say that hopefully you were more successful as, you know, a teenage investor than I was successful as a teenage entrepreneur. But yeah, anyway, I mean, to give you a basic idea of what Wiggs is and why the 16 or 17 year old me felt that it was the perfect tool for starting a business, it's essentially a drag and drop website builder. So the basic idea was just to reduce the friction of building a website from scratch for people who don't know how to code. So over time, and that's important for today,

Wix built all kinds of tools on the back end. So we're talking, you know, payments, booking, CRM tools and even email marketing or e-commerce, all of that stuff. And the website billet itself, you know, the drag-and-drop functionality is obviously easy to disrupt. But all the back-end capabilities, they do create a lot of staying power, especially for the customers that Wix already has. And the best way to prove that is the retention rate. You know, it's something that we often talk about. It's one of the most important KPIs for subscription-like businesses.

And Wix's net retention rate is about 105%. And it's not only that customers stay. that obviously also means that they become more and more profitable each year. And the most recent cohorts actually generate more revenue in just six months than the earliest cohorts, which by the way have been from the 2010s generate today. And this is again mainly driven by all the additional ecosystem offerings. But also because old customers have mainly joined Wix for the reduced friction of building a simple website and today's customers join not only for the drag and drop website,

something that again, AI could certainly do, but for the entire backend. And again, that makes it, you know, stickier and more profitable as a product. That's interesting because it's almost the opposite of what you would expect, right? With a lot of businesses, like Uber, for example, older cohorts become more profitable to Uber over time as they get more deeply integrated into the Uber ecosystem. I mean, you can say the same thing for Amazon Prime, you know, you start out and you order one thing, and then all of a sudden you have a Prime subscription and you're watching Prime Video, and then you're like me and you're ordering grocery delivery from Whole Foods.

But before we get into the AI stuff and base 44, I want to spend some more time on understanding what Wix actually is today, because I think we can all agree that a drag and drop website builder sounds like it would be massively under threat in 2026 from AI. And I assume if you ask a typical investor what Wix does, they'll still say it's a drag and drop website builders. Again, it's not surprising to me that the market has been. very much penalized the company and why the stock has declined sharply in recent months, as we've seen, you know, ClaudeCode and Codex from Chat, GBT, GBT,

really sort of break what people thought was possible. It was one of the most obvious shots in the market. I mean, we've looked at so many high-quality companies with, you know, tens of billions in revenue and still growing so that, you know, if you look at Wix, you can't be surprised that, you know, just in the past year, the stock has declined by 70%. And that has been, you know, despite some occasional rebounds, but it's so. certainly one of the biggest AI victims. And we will get to the valuation later, but it's training at about four to five times for cash flow now. I have to say that, you know, obviously, valuation

is a big part of the thesis, but only if we do decide that the business is misunderstood and that the risks that AI is introducing to the case are overblown. And it sounds somewhat weird, but, you know, five times free cash flow, even that can still be expensive. If we expect free cash flows to decline massively going forward, which obviously is what the market is expecting here. And it doesn't look like that right now, but even that doesn't have to mean anything because there are a lot of these long-term contracts. I think it's about 80% of Wix's revenue generally that is tied up in those. And if they're not renewed, free cash flows can just suddenly drop with any prior warning.

So we can only invest in this, I would say, if we do believe they're staying power in this business. And you mentioned it in the intro that this is not a cigar bot. And it can't be one because there are no tangible assets. So if the business goes down, there's nothing to recover, right? like even the cash that they currently have, most likely they're going to spend it in some way. It's either investing in the business or paying you back as a shareholder via, you know, dividends or buybacks. But to come back to Wix's main story, I think of its development and we should go

over that in three different stages. So the first one would be 2006 to roughly 2014. And at that point, Wix was just, you know, the website builder that you remember. So drag and drop, templates, hosting. And that's basically the entire product. And to be fair, you know, the technical web design crowd. That's something that I still remember from back then. They always hated Wix. So for them, it was just, you know, obviously way too much of a bloated and inflexible tool. And I say that because it's kind of important to understand that the technical crowd wasn't the main customer, not back then and it's still not the main customer today. The customer that you think of for Wix is, you know, your local yoga teacher or maybe someone founding a supplement startup

or even, you know, the 16 year old me. So somebody who wants to build something online, but didn't want to learn HTML or figure out any of that, you know, IT stuff in the background. So when we talk about coding with AI today, I believe there's a big difference between what is technically possible and what is actually realistic for the people to do. And I've gone through the process of building a tool with cloud code recently. And what stood out to me is that, yes, it's so much easier than ever before to actually build a website or a tool without coding. But the other truth is that it's still a lot more complicated than just using base 44 weeks. Before we get to the third stage of Wixis development, why don't you just tell us what you built

on cloud code and base 44? I think listeners might find that really interesting to hear about your experience. Yeah, I should say that it was a shared project with one of our mass amount members and since he's a rocket scientist and also a lot smarter than I am, it was more him showing me how to use cloud code than actually me building the tool. Anyway, though, I mean, we build a portfolio analysis tool with the cabbie that we have a submission page where listeners can send us their portfolios. And then, you know, the idea would be that you and I would review those listeners' portfolios. And most likely, we haven't decided on there yet.

We will live stream it. So if you want your portfolio reviewed by, you know, us, just send it to us. We have a link to the submission page in the show notes. And I would say it's hopefully a very easy process. And of course, it's anonymous. So you don't need to worry about, you know, any of your personal information getting linked to the public via live stream. Look at us, Daniel.

Podcasting is one thing, but man, I never thought we'd be streamers. No, we're expanding our circle of competence, I guess, right? I mean,

getting back to Wix because that's, you know, the main story we still should talk about. The second stage that I was referring to earlier is 2014 to 2019.

And that's when Wix started layering on all these commerce adjacent capabilities that I talked about. So it introduced tools like Wix bookings for scheduling, CRM, email marketing, Wix payments,

you know, I don't know, you like payments companies, and stuff like that. And those individual features themselves are obviously not the best on the market. So, I don't know, Shopify, for example, obviously does e-commerce better than Wix and Kellenly, which is also what we use. Internally, does scheduling better and then MailChimp, most likely, I haven't used it, but most likely it does email marketing better. But you know what matters is that strategically, what Wix built was somewhat of a bundled version of all of that.

So for the small business owner who would otherwise need to be. manage, let's say, four or five different separate tools. Having it all in one place is just a big help. And I don't know, it's probably similar to Microsoft's bundling advantage. Although, you know, on a much, much smaller scale, I don't want to compare Wix to Microsoft. Please don't quote me on that. Although, to be fair, Wix has over 300 million registered users. So it's not a small company either.

And then the last stage, and then we finish with, you know, the history of Wix, that happened from 2019 to today. So that is when Wix expanded its offerings, both to attract the more professional users, like, you know, agencies and freelancers. They mostly did that through Wix Studio, which launched in 2023. And then they also, relatively early, I got to say, decided to invest in AI. They started that with like the first very small project in 2016. And then all of that culminated in the launch of Wix Harmony, which is their AI website builder. And then of course, you know, last year they had the acquisition of Base 44. So is it right that you've used both

Wix Harmony and BASE 44? I did use both, but unfortunately, I didn't have the time to take on any larger projects. It was mostly about figuring out the main differences between them. So I would say the main difference that I found is that Wix Harmony still works much more like the original Wix version. So you can prompt the first layout of the website, but it doesn't get too much into the details, right? It still feels like you will end up with what more or less looks like a template.

And then the prompting beyond this initial website is also not working perfectly with the details, I would say. It's kind of easier to do a lot of things yourself via drag and drop after you have this initial template built. So it's a mix of prompting and it's a mix of drag and drop essentially. And at least that was my first impression. Perhaps some people out there have also tried Harmony and they feel like it's significantly better now with the details than when I've tried it. Base 44 is much more AI native and there's no drag and drop at all. Instead, the prompting works much better and it goes into much further detail. And it's also not really a website builder either.

Base 44 is supposed to program things like CRMs, entire tools or entire apps. So does Base 44, just to be clear, does it have its own AI? Or is it really just running on other LLMs that are sort of integrated into it? It's a good question. Base 44 works with Gemini and Claude, so it's not their own AI. And that's basically the same for all of these tools. So any of the competitors, lovable or cursor, they are all also using, you know, Gemini, Claude. Some of them probably also use open-air eyes, chat GPT.

So the way it works generally is that when you send a prompt to Base 44, Base 44 would forward that prompt to Claude or Gemini, and they're actually the ones writing the code. Now, you might ask yourself, and I did that in the beginning, why do you even need an app like Base 44 in the first place? And I'm sure we'll get into more details about that later, but just briefly, after you have the code, you still need to host the app. You have to run databases and you perform authentication. For example, you know, for our tool, there are obviously different authentication processes

in terms of us getting into the portfolio review tool and others just having access to the submission page. And all of that is handled by Base 44 and you, as the user, you don't have to face any of that complexity. And it might not sound like it, but it can quickly get complex on the back end. And again, Base 44 basically takes all of that and you don't even see it. And now that you say, though, I should mention that. Wix's actually just announced that they built their own LLM, but not for Base 44, but for Wix Harmony. And Wix's CEO, Avishaya Brahami, said,

quote, importantly, our model empowers us with more control of AI influence costs. As we scale the Harmony platform with little to no reliance on third-party LLMs, we expect this to be the first of many custom Wix-built AI models, which is becoming increasingly central to our product roadmap and long-term profitability strategy. I guess I shouldn't be surprised because it feels like everybody in their mother as an LLM these days. But it looks like there are more business units for us to discuss, or at least more products than I initially expected.

And so perhaps it helps if you can just give another overview, maybe of the entire Wix business. Which segments does Wix report? How does it break it out and its financial statements? And how are they performing? So they have a couple of products, but only two major reporters. segments. The first one is creative subscriptions, which did about $1.4 billion in revenue last year in 2025. And it's growing in the low double digits. So we're talking 11 to 12% growth. And that's pretty

much the legacy SaaS part of the business. And then the second segment is business solutions, which generated close to $600 million last year. And it's going close to 20%. And that's the segment where Wix is monetizing all the backend tools. So again, I know you love payments. So the main part of is Wix payments. And that basically works so that when a small business processes a payment through Wix's integrated checkout, see we're getting there again as payments. Wix takes a cut. And I think the transaction revenue specifically came in at about a quarter billion last

year. And that's also growing about 20%. And that's mainly driven by, first of all, more transaction volume in total and then also them increasing the takeaway. So business solutions is mostly payments and then plus some of the smaller pieces like CRM, email tools, stuff with that. Let's take a quick break and hear from today's sponsors. Curious about online trading, but haven't taken the first step yet.

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Daniel is teasing me about my love for payments because I actually don't love payments. I've said many times that I can't wrap my head around payments businesses. So anyways, it's still pretty remarkable to look at the revenue chart here and looks like it just goes out in one straight line. So pretty much no volatility. And it's almost like an Adobe financial chart, which I,

I say with some hesitation because I don't think Wix is anywhere near Adobe's quality, even though Adobe has also been pegged as perhaps being an AI loser. But Wix's reliable growth here is so pretty impressive. And so it supports the idea that Wix's retention is very high. And maybe they do have some pricing power that's supporting the business. I'm going to say, though, to defend Sean here, that the payment companies that we had in our portfolio also didn't perform that well. So perhaps it's a good bias to have.

So another important number is partners revenue. And it's not a standalone segment. It's pretty much part of both. So the core business and also the business solution segments, because obviously they're spending money across both of those products. So the so-called partners are mainly agencies and freelancers, kind of what we talked about before. And what that means is that they build sites for other people.

So partners generated about $750 million last year, which is roughly 38% of total revenue, and it's also growing more than 20%. So we're still talking about a company here that shows not only pretty good financials, but also pretty healthy growth. And I think that's a good sign, especially for the partner revenue,

because freelance web designers, they are running, you know, 10 or 20 different client sites on Wix Studio, and that just means they have much higher switching costs. Just because, you know, obviously, it takes more time rebuilding 20 sites compared to just one, especially when you have to explain

to all those different yoga teachers that suddenly their dashboards will look different from before. And if you then consider that you probably only do that to save, let's say, a couple hundred bucks a year, I think that's not the most attractive value proposition. So as the partner share grows, the share of Wix revenue that's particularly vulnerable to vibe coding should go down over time.

That's sad, though, and that's quite important. And part of why the stock dropped 30%. This quarter has actually been the first where partner revenue was almost flat quarter over quarter. And interestingly, you don't immediately see that in the filings because Wix shows you the year-over-year comparisons, and they would still show 20% growth. Quarter-over-quarter, though, they have actually flatlined. It's not necessarily a great sign when you see that, right? If management had a good explanation for that, they might have made an extra effort to point this dynamic out, even if they're used to showing the year-over-year cops.

And so I really think it's more important than ever for companies that are. are sort of caught in the crosshairs by the market's fears of AI right now to really prove that they're not hiding anything. And so another number that fits into the bare argument against Wix is that their premium subscriber count peaked in 2023 around $6.3 million and has since declined by 200,000 paid subscribers. So are those perhaps the first signs of AI disruption? I don't think so. I mean, those data points, especially right now, they certainly don't help the narrative. But the decline was planned by management to mostly focus on these higher value, more deeply embedded customers.

As I said, again, if you look at the cohorts, the newer ones make significantly more money than the older ones. So Wicks aggressively raised prices on the lower tier plans, by some accounts up to 50 to 100%. And they basically let the churn on the low end happen. So, I mean, you're always going to be skeptical when companies say that, you know, they lose subscribers, but that's actually what they wanted to do. But since they've alluded to that in the earnings calls, before it actually happened, I think we can take this as a case of not AI impact,

but actually just business strategy. Also, there are a lot of KPIs that actually underscore that thesis. So if you look at revenue and bookings, they are still growing at a healthy clip, and they've actually started to meaningfully re-accelerate since 2023. So we're talking about total bookings growth that is actually triple, going from 4% back to 13% last year, year. And then probably even more important, especially for a value case like today, margins

expanded significantly as well. So, you know, the business solution gross margin went from 28% to 34% by the end of last year. And that's a six point expansion. Well, revenue also grew double digits. And as you pointed out, net revenue retention is 105%, which means existing customers in aggregate are spending 5% more this year than last year after accounting for every customer that churned after these price hike. So I think the one big risk, and we might still talk about this later, but I kind of want to bring it up here already, is that there will be one LLM provider that reaches what everybody's calling AGI, this huge level of intelligence, and outperforms all the other models by a wide margin. And if that's the case, this model agnostic nature of base 44,

lovable and all these other tools, which basically just means they could use Claude, but they could also use chat jupiti and they could also use jemini that is pretty much useless at that point because there's only one model that is doing a significantly better job than all the other ones. The only argument left for them at that point would be that they are specialized in building websites and tools while these still more general LLMs might not be interested in actually building all the backend stuff to then create a competitor for these vibe coding tools. It does remind me the arguments for how Duolingo could survive. LLM disruption, right?

Learning a language through chat GBT or Gemini or even Claude is pretty much impossible. I think it's fair to say. And it's just going to take so much longer. And the experience is not optimized to keep you motivated to come back, right? There's no gamification there. And do a lingo, really, it sells at that. And so I think with all that said, building a website also doesn't require you to come back regularly, though, in the same way that learning a language would, where you're, you know, building a

streak every single day. And so the best case for them would be to really have people spend as little time as possible fixing the website once it's built, because that's sort of what you would want as a user experience. So what I am asking myself now is whether it's truly an advantage for tools like Base 44 or lovable to be solely focused on building websites, because if it's not their own AI, but they're using Clod or Gemini, then is there really even a long-term advantage that they've built by being focused on just one sort of niche. Is it like an agent or how should I think about the role that Base 44 plays? It's a good question. And I think I should clarify that. So when I say that Base 44 runs on Claude or Gemini, that basically means that it cannot be

quote unquote trained, like an agent, for example, on any skill in particular. So Base 44 is a rapper that sits on top of Claude and Gemini, for example, and then tells them what to do when you prompt it. simplified, pretty simplified, that's what's happening. So what differentiates base 44 from Claude is, as we said before, the infrastructure that comes with it. So one thing that I noticed while running this project with Cloud Code is you still need all sorts of additional stuff. And that can sound complex when you've never heard of it.

So for example, you first need a directory, which means nothing else and you know having a folder structure where you can actually have all the tools that you need and, you know, put everything and save it there. then you would need to think about whether you want a Python backend or a Node.js backend. And at that point, I would assume most people probably say, it's a bit too much, it's a bit too complex for me. I just want to have this yoga set running. And for those who actually make it through that,

you now have to decide which database you want to use. And the point that I try to make here is that while you don't really need to code anything anymore, there are a lot of things you still need to decide and know about. And it's pretty unlikely that you know exactly what you're doing, that it's actually faster if you're not a software developer. Base 44, you just give it a simple prompt, and then basically the entire backend is taken care of by itself. Once the code is written and you use Base 44,

your app is live much quicker. It has a functioning URL, which is also something that you don't immediately have through cloud code. You can click that URL and actually use that app, and you can also share that URL with whoever you want to. So, for example, if I finish my tool, I would send that URL to Sean say, hey, what do you think about this? And he says, that's great, let's stream it.

And that's what you want to do in as little time as possible. And again, I kind of know now that, you know, all of this backend stuff doesn't have to take forever and isn't necessarily difficult. I mean, I had literally a rocket scientist walk me through the entire process. So I don't think there's a way where I would have chosen this approach over something like Base 44 on my own and then also get it done as quickly. Yeah, I think it's no secret, which one I would have preferred. You lost me when you talked about just having a directory for the Clyde Koda profile. I don't think I could even get OpenCloud, which is a slightly different thing, installed onto my computer when I tried to run it. I still haven't quite figured out how to do that stuff.

If anybody wants to help me with that, I am a little not the most tech savvy, let's say. But let's talk about Cloud itself, right? What about them? So they release so many features, and it's become so easy to quickly code a simple app, supposedly, for people besides myself. Is it a threat that Claude could focus on simplifying things a lot to cater to people like me, where, you know, cloud code seems a little too complex still to use? It certainly is. I mean, we just a couple of weeks ago uploaded a call or, you know, a presentation hosted by one of our members about AI.

And, you know, he basically said one thing that I, you know, keeps coming to my mind. And that's that all the tools that we currently have, they are still the worst AI tools. we will ever have. So, you know, if you think about what especially Claude has done in the past, and you think about what's possible in the next couple of years, it's almost unimaginable that, you know, they wouldn't be able to create something like this.

Probably they would be able to do that, you know, tomorrow if they wanted to. The big question that I always come back to and that for now I haven't found that answer to is what makes the most economic sense for those large LLM providers? I have no doubt, again, that Claude could achieve this if they wanted to and that, you know, It's the same for all the other LROM providers. But to give you an example, just like Amazon could dominate Brazilian e-commerce

if they decided to outspend MacArthur Libre and Shopify by, let's say, a factor of 10. The question is, how much of these higher ROI projects would they leave on the table if they do that? And you can't do everything on your own. You know, that's one of the lessons of capitalism. And I assume that it's more profitable for these big LLM providers like Claude right now to be this sort of toll booth business that works in the background. of tools like base 44 or lovable. And as long as there's not one LLM that's better than all the others, by a white margin.

They can't really pressure companies like base 44 too much on the margin side either. At least that's what I think. And at the same time, they can also not easily compete with every somewhat related tool out there. But again, you know, the argument is that it makes more economic sense for Claude or Gemini to be this, you know, sort of base for a company like base 44, no pun intended. And if that changes, that's the bare case right there. So let's get back to the core business for a second.

And if anyone with an AI subscription or even just base 44 can spin up a website faster than they can sign up for Wix, doesn't that almost mean the marginal new customer wouldn't need Wix at all? The one thing that isn't yet entrenched in the Wix ecosystem with Wix payments and CRM and email marketing, they may never even reach those touchpoints. So I think a potential risk is that core of Wix's business is a sticky platform for maybe existing customers, but won't be able to funnel any additional customers into that ecosystem in the future.

There's no getting around the fact that it will be much harder to acquire customers going forward than it has been in the past. And even if we assume that Wix is still a helpful tool and LLMs or other tools aren't significantly better, there's just so much more competition that the customer acquisition costs will certainly go up compared to where they've been in the past. Also, with everyone talking about AI, I think it will be much harder for people to choose a tool that is not AI native because you to some extent feel like you don't have the newest tool and just don't get the best product because you don't work with the most up-to-date tech.

Although, again, Wix has obviously also integrated AI as well. And if you would look at any of their ads, obviously they are talking mostly about, hey, Wix is also integrating AI. if you want to build a website with AI, Wix is a place to be. Another problem, though, is that Vibe coding tools will add most of the backend features that Wix offers overtime as well. So you likely can't even argue that the more serious users, small and medium businesses, for example, will still go to Wix for the backend stuff.

It's just a hugely commoditized space, let's be really. And Lovable, for example, kind of showed you that. They have integrated Striped by now for payments and not a huge burden to do that. And when management talks about the back end in earnings scores, it always sounds like it's, you know, this huge competitive advantage. But in reality, it just doesn't take much for competitors to, you know, just copy these features. To bring up a more positive point here, it seems as if Wix is incredibly good at marketing. And for every dollar they put into marketing, they generate multiples of that in the next two to three years. And so the payback time is less than a year.

And one thing they do is actually pay LLMs to show up in the and. When you ask them, you know, what's the best tool to build a website from scratch with? And so I actually tried that myself. I asked ChatGBT, what tool I should use when I want to build a website for, let's say, a new yoga fashion brand that's going to compete with our portfolio holding Lulu Lemon. And I tried to do so without any coding skills. And its first recommendation was Wix. It's interesting because before I heard about that, I didn't even know that you could

already pay LLMs to show up in the results. I thought that's something that's planned, but I didn't know it's actually already out there. As a side note, though, you really have to type in that you have no coding skills. Otherwise, and that kind of shows you the competition in that sector, the first result I got was Shopify. So, you know, that says something about how difficult it will be also in the future and also maybe how much you have to spend in advertising going forward to still show up as the main tool for building a website. that generally, I don't want to bring down my own case here,

but it would just be intellectually dishonest for me not to say it. So the competition in this space has never been more intense and there's no sustainable competitive advantage. And I only focus so much on this. And once again, I talk to members about this, is that when you deep dive into a company and you listen to the CEO so much, it's so easy to get lost in the narrative.

And to kind of feel like, hey, you know, they talk so much about the background. Apparently it's way harder than I thought to integrate all of these two words. And it's a way stickier product than it is. It's not. You just look at the competition and they're all integrating the same tools. You know, obviously, if you have a website with Wix for years, you're just unlikely to change that.

So it's a sticky product. But there is no mode in general. And the switching costs are low. So, you know, the assumption with today's case is that there will be more than one winner for tools like Base 44 and also for tools like Wix. Though it's, you know, current sticky customer base can be a cash engine to support Base 44, which then also in turn becomes one of the more dominant AI-nated. web builders. And the perhaps biggest advantage here, and they also talk about that, is the distribution that Wix can offer Base 44. If you combine 300 million registered users and over 6 million paid subs, there's just a lot of cross-promoting opportunity for Base 44. And the founder

of Base 44, Mao Shlomo, said this was basically the main reason for the deal. So the biggest advantage for an AI vibe coding tool right now in 2026 is financial backing and distribution. And Wix, fortunately, can offer both. And to you. get back to the cohort data once more, we clearly see how much more profitable cohorts become over time. So, you know, the Q1 2010 cohort, customers Wix signed up 16 years ago, has generated roughly $50 million in cumulative bookings. The Q1 cohort of 2015 has generated roughly five times set. And that's basically the trend that you've seen over time as well. And if AI were eroding the customer base, so the more recent cohorts, the ones basically acquired during the AI hype

cycle, I think you should see a trend of deterioration. relative to the older ones. But that's clearly not what you see. I mean, the Q1-20205 cohort is actually the strongest one after all of the COVID cohorts, which obviously, that was a huge tailwind because everybody's staying at home, everybody who was also 16 years old

and has some entrepreneurial spirit, thought they would have to build a website and sell some tools. So, you know, that was obviously a good time for Wix and also in part why the stock suffered so much after COVID. But that's a side note. One feature you told me about that sounded pretty cool was that Wix's is actively working on making pages readable for agents. And so in a future where I might not be booking yoga class appointments myself, but I'm letting an agent book it, then it's really important

for that website to be easily accessible to agents. And so while they should look and care for the same things that I would care about, agents do browse websites differently. And so when I tell my agent to find a yoga instructor in my neighborhood with good reviews and book an appointment for Saturday morning. It's important that the AI finds the right type of business. So it has an idea of what I'm really truly looking for and has access to my calendar and is able to then book the appointment. And all of that sounds easy. But websites that are built for humans are not necessarily easy to navigate for AI. That's maybe the simplest explanation to give. And so Wix has now address that problem and made its websites indexable by LLMs, which means they are set up in a way

that these AI models, LLMs, can easily browse it and act on their websites. It's basically another level to pull in terms of SEO, right? Search engine optimization. And that's one of the things that matters pretty much a lot for the people who have Wix websites because that's part of this all in one package that you want from Wix. You want to build a website, have all the backend tool. and also the SEO included. And that's something you don't get by vibe coding something yourself with Claude.

But it's also not an advantage. That's pretty much everything that we talk about today over any other website builder. Because, you know, it's not an investment you can make based on the idea that you have this superior engine, for example, or superior tool that will outperform competitors. And that's why the stock can suddenly start compounding because you're just, you know, having significantly better margins or financial. So what you get, to kind of summarize you, is a business that has a business that has, as sticky customers, exceptional margins still, and also one of the fastest growing AI tools in

the market, and all of that is trading at just four to five times cash flows. Well, considering that, let's take a moment to talk to the financial quality of the business, because I have to admit, I was surprised when I saw the margin profile and profitability of this business. The first thing to point out is that revenue growth is accelerating instead of decelerating, as I talked about before. And it's not, you know, a lot. Wix went from something like 12.5% to 14% now.

A more significant inflection can certainly be seen in the free cash flow margins, which went from 2% in 2022 to 30% today. And one reason for the bad margins in 2022 was mainly overhiring during COVID. Again, like this was a part of the business where it went pretty well. And obviously, everybody thought this would go on for a couple more years. And the management team apparently did so as well. Wix has over 5,000 employees by now. And I wouldn't be surprised if we see further margin improvement over time by saving more

costs, which obviously also means letting go of some of those 5,000 employees. But there was also significant operating leverage. So the take rate expansion through more backend services increase the business solution margins by six percentage points in the last two years. And in dollar terms, that actually means that free cash flow has 19 X in the last three years. So you can also use the rule of 40 framework, which is something that you're always. often try to put companies into perspective, especially when you talk about these SaaS companies. So revenue growth plus free cash flow margin should be above the number of 40.

And Wix actually hits 43% right now and they're aiming for the rule of 45 by 2026. So you can say that, you know, this is a tier one SaaS profile, at least in terms of the financials, perhaps not in terms of the mode. And again, you know, the downside, as with so many of the other software companies right now, is also stock base com. So stock base com is roughly a quarter billion, $240 million to be exact. And that's on an annualized basis, of course. So SBC adjusted free cash flow lens closer to $360 million, is all about, you know, an 18% margin on revenue. So what about the drag from base 44? Because you mentioned earlier that it has been pulling

the consolidated numbers down. So could we see even more potential in terms of margins when base 44 continues to scale and hopefully becomes more profitable along the way. The first impact is just, you know, the acquisition itself and the expenses that came with that. So Wix only acquired Base 44 again in mid-2025. So it's still a recent deal, which is also why R&D suddenly jumped in 20205 after basically three years of being more or less flat. And perhaps it makes sense to just generally give some more background on Base 44 and, you

know, the founding story in the entire acquisition process. We talked a bit about how it works and how it functions, but I think this kind of gives background that's also important for the listener. So the founder again is Maura Shlomo, and he's an Israeli engineer who built a venture-backed data company before he founded Base 44. And by his own account, he was somewhat burned out on the VC playbook by the time he stepped away.

And his wife apparently ran a small business. I don't think it's yoga. For some reason, we always talk about the yoga business today. I don't think it was that. But, you know, since he had some free time on his hands, he thought, why not help her out a bit? So he was, you know, tinkering with software, which is kind of what he does, to help her manage her schedule and customer database.

And like every tech savvy guy, he decided to check out some of these new AI native tools to do so. So I think he used lovable and replete two of the competitors for Base 44. And he kind of found them frustrating to use and not really as accessible to non-developers as they should be because, you know, that's their primary marketing claim. and obviously with the founder DNA still in him, he decided that gap in the market was worth filling and he built Base 44.

And he basically bootstrapped it. So he paid LLM inference costs out of his own pocket and then he started posting building public updates basically on LinkedIn. And the posts pretty much went viral. And within three weeks, Base 44 had 10,000 users. And that's already quite the success, I would say. But only 12 weeks later, it was 150,000 subs. and roughly $1 million in AIR.

And you know, considering that there wasn't a single dollar spent on marketing in what even at that time was already a pretty competitive feel, I think that's a pretty insane result. That's not too shabby. It makes me rethink the effectiveness of LinkedIn. We were pretty negative about it on our Microsoft episode after having very little success in our attempt to do some advertising prospecting via LinkedIn's premium subscriptions. Yeah, I think organic traffic, you know, in the end, might work out a bit better for that.

And also, it's somewhat of a different thing to talk about a new, flashy AI product compared to finding some advertisers on LinkedIn. You know, anyway, I mean, that trajectory basically caught Wix's attention. And then both companies, which are based in Tel Aviv, kind of found together. And I believe also the founders, they kind of knew each other through the local tech scene in Tel Aviv. And Wix eventually reached out and they closed the deal in 2025. again, about $80 million up front in cash, plus ownouts running through, I think, 2029 in case they hit certain ARR targets. And at the time of the deal, Base 44 was at roughly $3 million in ARR. Let's take a quick break and hear from today's sponsors.

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again, it's mostly distribution. So for example, how does that look? 12 days after Wix acquired Base 44, they booked a Super Bowl ad. And I mentioned this because every company we cover on the show that has or had a Super Bowl ad, you bring it up every time. So I thought, you know, I have to do that today too.

And as someone who, you know, doesn't watch the Super Bowl, I know, I watch the wrong sport, still do it. And football is better. Just, you know, my two cents on. that. And, you know, I'm also not into this half-time show thing. So I'm always surprised by the impact of those ads. But I mean, I looked on YouTube and Base 44's ad has almost 500 million views on YouTube. So I don't know. I guess, you know, the $20 million spent on the Super Bowl ads for both the Wix and Base 44 was certainly worth it.

No, it does sound like money well spent to me. It's too bad our portfolio holding co-star hasn't have the same luck with paid marketing and Super Bowl ads for Homes.com. Although I like that spot too. I watched it before your pitch on YouTube and I think both ads were pretty good. Maybe it's a factor that AI might be a bit more flashy currently, as I said. And beyond just the advertising budget, Wix is over 300 million users globally. And that's one of the most efficient SMB focused marketing engines in software. So there's, again, this huge cross-promoting opportunity that certainly has.

helped Base 44 to grow significantly faster than it could have on its own. And the financial backing obviously matters too. I mean, if you look at these competitors like Lovable, like Bold, like Replete, all of those are standalone vibe-coding companies. And they basically have to raise capital, I think it's like nine to 12 months, because they burn in cash so quickly that they need more cash to keep growing relatively quickly. And Base 44, now being under Wix's umbrella, doesn't have that pressure since, you know, Wix generates these $600 million in free cash flow.

annually to help boost base 44. Speaking about burning money, what are the unit economics actually look like here? Because base 44 is running deeply negative margins forever. Of course, that changes the attractiveness of Wix as this seemingly cash printing machine type business. Well, according to the management team, Base 44's paying user gross margin is already positive and is expected to grow much more in the future. I think the main reason is that AI inference costs are heavily front-loaded, so that means that users generate a lot of prompts during the build phase than fewer during maintenance when basically your tool or your website is already set up.

So mature cohorts are dramatically cheaper to serve than the new ones, but obviously they're making the same amount of money for Base 44, which is why the consolidated margins look worse in the beginning than the underlying economics would actually suggest. There was also a comment that LLM costs 2Base 44 are down about 30% since the acquisition, partly from model provider competition and partly from what's called internal routing optimization, which is a complete way of saying that easy to handle prompts are given to a less powerful and thus cheaper model. So let's say I want to change the color or positioning of a logo. I don't need Claude's latest deep thinking model to do that. That could easily be handled by one of the open source models, which obviously in turn would also be cheaper to use than Claude.

But we don't have any specific numbers. You know, in the interviews I watched both with Shlomo and also with the other founders or the competitors like Loveable, for example, none of them is actually giving you the numbers on how much they pay the model providers. And I don't know, in terms of long-term economics, Wix's CFO said that he would expect Base 44 to converge on operating and free cash flow margins similar to the Wix score in the long term. And that would basically mean, you know, roughly a 30% free cash flow margin eventually. And I think you mentioned that 2027 is supposed to be this inflection point for margin.

So obviously they don't reach 30% by then. They should be more meaningfully positive. Oh, let me just take a shout at summarizing how I understand what we would actually be buying if we were to add this wicks with base 44 combination to our portfolio. And so the idea is that you have this asymmetric bet with base 44, which is fastest growing vibe coding tool out there, backed by structural distribution and, let's say, capital advantages from Wix. And so it's not about base 44 being the best product. That's just impossible to copy, though. The price you're paying for this Wix base 44 combination implies that base 44 is worth

basically nothing. And Wix itself would only be worth three to five times free cash flows at the current market valuation. So, of course, this is not a case similar to, our intrinsic value portfolio holding Excer that we mentioned earlier, where the actual asset value of the firm is higher than the market cap. But if you have a company that is generating cash flows in the range of $300 million to $400 million a year after adjusting for stock-based compensation and has a billion dollars in cash, then a market capitalization of $2.4 billion seems very, very reasonable. And then you get all this potential upside of Base 44 for free. right? So that's sort of the logic of the picture.

I couldn't have said it better. And it's also worth noting that all of Bates 44's public comparables are trading at multi-billion dollar valuation. So Lovable is valued at $6.6 billion. We plead is valued at $9 billion. And cursor, which, to be fair, is a lot further in its journey is valued at almost $30 billion. Now, if you ask me, those companies are very likely to be overvalued, so I wouldn't buy any of them at current prices. I don't know. I mean, getting one of them in Base 44 for basically free for like zero dollars, that doesn't sound like the worst deal to me. The last big thing I think we should walk through here is capital allocation because you told me that the management team has done some things in the last 12 months that

might seem a little bit odd. Yeah, so let's start with the positive things first, although you can even argue that it doesn't look as smart anymore after the recent earnings report. But in late 2025, Wix's board authorized a $2 billion share repurchase program. And to put that into context, Wix had a market cap of about $4 billion at the time. So this was basically a buyback authorization for roughly half the company. And as listeners might know by now, we love buybacks a lot. You actually sent me a chart recently that showed some of the biggest share cannibals. And it's kind of funny because we own quite a lot of them.

And even among them, no company is buying back 50% of its shares. So another thing I liked is that they executed these buybacks via a Dutch auction, which is also something that we know, right? We do know about these Dutch tender auctions from, and I'll bring it up again, Exeter, but just to explain the concept once more and why we like it more than the approach of just doing open market purchases for share rebuybacks. The way it works is that shareholders submit the price at which they would be willing to sell their shares back to the company. So the company then gets to set basically the lowest clearing price that fills the buyback. And so everyone who bid at or below that price gets the clearing price. And so that ends up being cheaper typically for the company more often than just buying in the open market where you can be bidding against yourself and pushing the price up.

In Wix's case, about 17.5 million shares were retired for approximately $1.6 billion. dollars. And that's probably 30% of the float in a single transaction. By the way, most sites haven't yet updated Wix's share count, which is often why you see a higher market cap and also more expensive valuation metrics than the actual is and what we mentioned here in this episode. So you should pay attention to that. If you're on, you know, any site like fiscal AI, for example, probably when this comes out, they should have updated it. Now, the only problem is, and that's what I alluded to in the beginning, is that, you know, after the massive drop of over 30% recently, buying back shares at $92, which has been the price, doesn't seem that smart anymore.

And as of today, the stock is trading at $55. So the same buyback, just 10 weeks later, would have bought back closer to 50 to 60% of the company instead of 30. So if you still want to see the positives, I think the fact that the management saw the stock as being undervalued in the low 90s and, you know, basically committing this massive buyback program should be somewhat reassuring that at $55, you're probably getting an even better deal. So there's one other aspects of this capital allocation picture I think we need to look at.

And so around the same time of what we're discussing, Wix did a private placement with a firm to name durable capital. So they were buying back shares at $92, but then issuing new shares at a discount to durable capital. How exactly does that add up in your mind? Yeah, I feel I can't give you a perfect argument on that. And, you know, durable capital is who I mentioned Henry Ellenberg, before in the beginning. So when I said that Robert Vinalis basically sold his stake and Alan Bogan came in, that's basically the way that he did it. So to summarize, there was a $250 million private placement to durable capital,

which is said at roughly a 5% discount to market with, you know, attached ones that struck at, I think it was a 25% premium and a one-year lockup. And the official explanation is that Wix wanted to lock in a long-term institutional shareholder, as I said, that the fund that Henry Allen Bogan is managing is mostly known as patient capital with a long-term growth orientation. The unofficial reader is probably that this was about shareholder composition rather than the balance sheet, because it's not like Wix needed cash since they had plenty of cash on the balance sheet for the tender offer that they had.

So bringing Allen-Bogen on potentially insulates Wix from, you know, these short-term activist pressure that might come up during a period of multiple compression. When the stock is going down that much, there's a chance that an activist is coming in and is trying to gain control over the company. And also, this is not a huge negative because it's not like this deal has been massively dilutive. I think it was about 4 million shares from the placement plus 1 to 2 million potentially from the warrants, which don't look like they will ever exercise. And compared to that, the 17.5 million shares that were retired through the buybacks, they're just significantly more. So if you net that out, the share count still came down dramatically. but of course, you know, just the optics of buying at $92,

then issuing at a discount in the same quarter, then also having the stock coming down to $55 just 10 weeks later, and that's a pretty bad look for the management team. We're talking a lot about the stock. What about the debt? You mentioned a billion in cash at a $2.4 billion market cap. So without debt, the enterprise value would actually be $1.4 billion, right? You subtract the net cash.

And at that point, Wix and Base 44 would trade, way below one times A or R and two to three times your cash flow. So that might be the lowest price I've ever seen for a highly profitable SaaS business with double-digit growth. The only debt that Wix has is about $1.5 billion in zero coupon convertible notes with conversion strikes well above $200 per share. So at $55, the convertibles are deeply out of the money, almost as far out of the money as possible. So I think the economic cost of carrying them is, you know, essentially zero. And Wix's borrowing money for free because also the coupon on those convertibles is near zero. So the only cost is dilution if the stock could dobbles and the convertibles

and the convertibles actually kick in, which I don't know about you, but if the stock is quadrupling, I think I could live with the dilution coming from that. Yeah, it would be a high class problem to have, to say the least. How about insider ownership, though? When Wix's management team thought the stock was massively undervalued at $90, now we're sitting, well below that at around $55, you would expect the management team to have a significant stake in the company personally and to be buying shares hand over fist, right? This is one of the many yellow flags, I got to say. I mean, this is a hit or miss case, right? I mentioned that in the beginning. And if Wix or Base 44 are still just relevant in five

years time, they don't need to be striving, but if they are just relevant in terms of market share that they currently have, I can't see how the stock is not a multi-bagger from these prices today. but if you told me that there won't exist anymore in five years time, I wouldn't be surprised either. Now, why do I say this? Avichai Abrahami, the founder and CEO of the company right now, should know best which case is at least more likely. And on earnings calls, he seems pretty confident, so why is he not buying any stock? He owns about 1.5% of the company.

And I don't know about you, but I think that's pretty low for a 20-year founder, CEO of a public company. There's been no major individual insider buying for quite some time now. So, you know, management would likely, I know, defend this by pointing out to the $2 billion buyback that they've done. And, you know, just kind of say, you know, this is an expression of conviction in cheapness of the stock. But I don't know, personally, seeing one of them invest in my mind would be a greater signal of confidence for me. And the fact is they're not doing that. Nobody in the management team is.

And, you know, dropping another one of our mastermind Omaha discussions, we also talked about how you can get lost in the narrative when you do too much work. and that's what I mentioned before. And I just feel like Wix is exactly a candidate for that. And if you just want to look at one or two things that you can kind of see whether this makes sense to you, insider buying would actually be the one. I mean, there are a lot of companies by now in the SaaS world where the CEOs are actually buying a lot of their stock, right?

And I mean, we've seen insider buys of about $100 million to some extent. And the fact that this is not the case for a company trading this cheaply right now, at least to me that's somewhat of a yellow flag, certainly. You know, you've seen a 30% stock drop just recently, so maybe we will see some insider buys. But I would probably even say that before we do that, I would also wait with getting any type of engagement in this stock. And if I want to be bullish on Wix and also base 44 in the long term, I think you could argue that it's kind of like a payments or brokerage company. I know you don't like payments, but maybe brokerages are a bit better. So basically the structure or the dynamic in those industries is that there are a few competitive advantage.

it is, but the product is just very sticky once you've onboarded a customer. So I would argue that website builders are in the eye of the storm when it comes to disruption right now, but potentially this huge customer base that Wiggs already has. And then the ability to convert those to perhaps also be base 44 customers, that's the one thing I would double down on. It's a calculated gamble. I mean, I'm looking at your model here right now, and that's exactly what this all looks like. As long as things are business as usual for Wix, this company should return maybe 20% plus

per year over the next five years to shareholders. And in a bull case, I mean, you can quickly imagine that number going up to above 40%. But then on the other end, in a bare case, this is a business getting massively disrupted and there's really no floor to how bad things could be besides the stock just going to zero. I mean, just going through some of the assumptions for why we talk about, you know, 40%. It doesn't take that much. I mean, the base case is assuming that the Wix business is slowing down slightly over the next few years, while Bates 44 grows in importance and obviously, you know, it's a bigger part of the business and kind of starts dominating the revenue growth overall.

So overall revenues would then grow about 11% per year, again, mostly through Bates 44 growth. And I assume that in 2030, Bays 44's margins would be 15%. Again, Wix's management team thinks they should reach 30% eventually. And if I then apply a multiple of nine, which to be fair, is a double from today, but also I feel like nine times for cash flow for a company growing double digits, it's not unreasonable to assume that. And then you use the discount rate of 10%, which is higher than the 8% we usually use, but there's certainly increased risk here. And a margin of 20% that would give you a return of about 20%, as you said. And then in the bear case, I expect a significantly more severe downturn in Wix's core business. And,

And that base 44 basically won't be able to fill the gap. So perhaps you have the app growing, but it's not going fast enough. And you also don't see the margin to actually replace this significantly more profitable core business in Wix. So if you want to put numbers on it, what have you used? Then only grow at 2% and margins basically collapse. And if that's the case, as you said, there is no bottom for Wix stock. You have no physical assets.

There's no tangible value in this stock. And I could imagine that the cash that would be earned along the way would either be spent or perhaps it's reinvested into the failing business of Base 44 at that point. And you know then in the bold case, because we always need a bullcase, if you assume that Wix keeps cruising like it is right now, but Base 44 is achieving a growth rate of, you know, 50% annually for the next five years. I know that sounds like a lot, but again, right now, it's growing 50% every 12 weeks. I also expect, you know, a faster margin expansion reaching 20% in 2030.

and a free cash flow multiple of 15, which, to be fair, like to reach a 15x multiple on free cash flow, so Wix, all of the AI fear has to be gone, basically. It's kind of need and narrative change

from Wix is a victim of AI to Wix is a winner of AI through base 44. And, you know, that's when I would say you could argue that some of this multiple expansion is certainly justified in. If all of this happens,

Wix will be a multi-bagger, and let me say that in this case, you know, sometimes we label them as like bare case, base case. and you could think that we think each of them is either equally likely, or maybe you'd just assume that the base case is the most likely. Perhaps it is the most likely, but I would certainly say that,

probably I would even say that in this case I would give the bare case a possibility of 40%, the base case also a possibility of 40%, and in the bull case, a possibility of 20%. So I certainly think that you are closer to the lower end of my assumptions here, but if you're not, you will have a huge payout, even just in the base case. The incredible thing to me here is that we're talking about a company that made an acquisition less than a year ago or about a year ago. And now that small acquisition that they made is basically the premise of the entire company's future growth. Two years ago,

Base 44 had no connection to Wix. And now we're talking about Base 44 as being the savior for the company. And so the one hand, if things go well with Base 44, this will be like an all-time capital allocation, you know, success, right? In terms of right as the business is about to get massively disrupted and killed, they just pull out, you know, this reverse Uno card, and they turn things around with base 44. So as much as I would love that story, because it's a great story, there's another part of me that's thinking, man, in this time of AI, things are moving so quickly and changing so quickly. And as quickly as things can come and be given to you, they can be equally quickly taken away from you. As that makes me really hesitant about base 44.

And you know, I kind of said when you told me you were pitching Wix, I really almost immediately thought, okay, well, there's like no way. This is going to end up in our intrinsic value portfolio. And I don't think it is going to end up in our portfolio, but you have maybe sold me more than I expected, right? I don't encourage gambling, but if you can responsibly gamble and that helps you get some of this aggressive risk taking out of your system with the rest of your investments, and I don't think it's necessarily a bad thing to do. And so, yeah, I mean, from time to time with small amounts of money, I let myself gamble a bit. That's something I've talked about in the past. And Wix here seems kind of like the perfect candidate for something like that. I almost don't even

want to know more about the company. I just like the idea of rolling the dice was some call options maybe on Wix. And so, yeah, I don't know if I'll end up actually doing that, but that's sort of how I think about this one. And so I've got no idea what's going to happen to the business. And it may be nothing good, but I can also see why betting that Wix as a cash cow can persist longer than the market thinks while also betting that base 44 will be a success. I mean, I can see why that's an interesting bet or maybe a fun bet to make, to better

say. So, you know, whenever we start talking about gambling, though, that does not typically bode well for a company being added to the portfolio. I've got to say, I would say it's success that I've kind of convinced you that this could be a good gamble. Like even when I, you know, looked at the company and thought about pitching it, I kind of had an idea it wouldn't make it into the portfolio. It's also not in my personal portfolio right now. But as you said, like for a calculated gamble, it does not look like, you know, it couldn't work out at all.

Actually, I think that a lot of times what do you have with value traps? said you buy them when they drop, I don't know, let's say 30%, but the multiple is still at 15. You think, okay, 15 is reasonable. It's a great company. This time, though, you just have so little room left for a lower multiple, except for, you know, if you assume that in the next two or three years, Wix's free cash flow will drop dramatically.

Currently, if you look at the financials and also the structure of their long-term contracts, it looks like Wix will earn a lot of money at least for the next two or three years. And at that point, you're already at a level where you say the multiple is so low and the market capitalization is so low that they're likely on a good chunk of money before they could even go broke. But as you said, you know, one thing that I've seen in the last year after we covered 70 companies, mediocre companies or bad companies, if they surprise you, they surprise you to the downside. So, you know, I know that I couldn't sleep well and that I would basically know, well, in two days, Wix's reporting earnings, well, we suddenly see a 30% decline

if we cash flow because a whole lot of customers is not there anymore. And you know, value investing means prioritizing your downside risk, not optimizing for the upside. And investing in Wix feels like the latter. I think Wix can be a nice gamble from here, but those are not really the place that we look for. So again, what I feel comfortable sleeping with Wix in my portfolio, maybe as a gamble, a very, you know, small position, but beyond that, probably not. All right, let me close it for today with a quote from, we're talking about Wix. Who else in Buffett, right? Immediately comes to your mind when we talk about Wix. So we have Buffett reminding us why investing in highly innovative industries is so difficult. So he said,

the key to investing is not assessing how much an industry is going to affect society, how much it will grow, but rather determining the competitive advantage of any given company and above all, the durability of that advantage. I'm sure vibe coding will be bigger in five years than it is today, but I have absolutely no idea whether Base 44 and Wix will still be involved in it. And with that, I hope this case was interesting nonetheless, and we will see you all again next week. Thanks for listening to TIP. Follow the Investors podcast on your favorite podcast app and visit the investorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax or

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