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- [00:00]
Brett Schaefer
Will The Fed raise rates 25 basis points in June 2026? IBKR prediction markets let you trade the outcome alongside your stocks and options, earn interest, get it right and earn $1 per contract at ibkr.com predictions last trading day June 17.
- [00:24]
Ryan Henderson
Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation now. Please enjoy this episode.
- [00:52]
Brett Schaefer
Welcome into Chit Chat Stocks, a podcast to help you find your next great investment. Longtime listeners know that Ryan and I have been following WIC stock for years. I think honestly it's been over five years at this point, following it on the watch list, maybe buying at the right or wrong times, depending on how this volatile stock has gone. The website builder and online platform for small businesses has grown its revenue at 15% annually over the last five years. And yet the stock is currently in an 80% plus drawdown and deemed an AI loser. So we decided to bring on a new guest, Manuel Cunha who runs MBC Investing. We'll have the link to his substack in the show. Notes what I like about I was looking at your about page as we got started here. It's very straightforward. You know, I'm researching stocks, I'm talking about my holdings and that's about it. So it's very straight. People like fundamental analysis, stuff like that. Definitely check out Manuel's substack and we'll have the link to that as well as his Twitter in the shout outs. But Manuel, let's talk about wix in your estimate. As someone who's been following this company, why is Wix stock down 80% from highs?
- [02:03]
Manuel Cunha
Okay, so first, thanks for the invitation. I'm happy to be here because I've been following the podcast for quite some time actually it helped me a lot to learn like a few years ago. So yeah, it's, it's a pleasure to be here. Let me start by saying that throughout my investing life, which started like six years ago, I'm young, I had just turned 18, so I've never been a big fan of investing in software stocks, not only because of my limited knowledge in the space like technology in general, but which made me hard to get the kind of conviction for a concentrated investor, which is what I consider myself, that level of conviction that helps you to handle the drawdowns, even the drawdowns that don't make sense. You need to have the conviction to know that. So besides that, I also, and I think you agree with me, I also always found it hard to get a good valuation or to find a good opportunity in the SaaS world. So we all know SaaS companies always traded at premium multiples and I think most people normalize that, myself included. But generally speaking, I tried to find mispriced stocks where I can see a path to hundreds of percent returns in the next few years. And that was really hard to imagine when you had most software companies trading at 10, 20 times sales or even more with huge levels of SBC and not much room for operating leverage. So it was never a sector that it got me interested in. So this to say that I think a lot of the SaaS talks generally deserve to get crushed because their valuations made no sense. But of course, at the same time the level of pessimism has reached such extreme levels that I think it may have created some genuinely interesting opportunities. And in this case I think WIX might be one of them. So now specifically on the 80% drawdown, I think I'd probably break it down into three factors. The first is Covid. I assume the drawdown you're talking about is from all time highs. So weeks was a classic Covid story, not just about COVID but it got really a lot of benefits from the lockdown and people opening businesses and so on. So I think it traded at something like 20 times sales at the peak, which is a multiple I couldn't really understand, as I was saying for Even the best SaaS companies like your cyber security plays or whatsoever, but I thought it would be even less justifiable for wix, which I consider a good company, as we were going to discuss even before all these AI fears. But at the same time it didn't have the same level of growth execution or even competitive leverage as some of the other names that had the higher valuations in software. So even though I think the stock is too cheap to ignore today, I also think it's fair to say that it might or maybe never deserved to be at those all time highs either. So a big chunk of this drawdown is probably simply the COVID multiple coming back to reality. Now the second factor is one that a lot of people point to but I think actually misunderstand what really means, which is the decline in premium subscriptions. Wix total premium sub count has been declining since 2023, like just slowly declining. It didn't decline that much. But on the surface that looks bad, obviously, but management had been signalling that this would happen for a while because it's intentional. They've been deliberately letting the lower end, lower margin users churn. I remember I've seen some Reddit users, the lower end, complaining on Reddit, saying that they got Prices raised by 100% out of nowhere and they churned because of that. So I think it was really intentional because they wanted to fire customers that were not worth retaining, let's say. And that mix shift actually ended up being a good part of how they achieved 30% free cash flow margins. They're now focused on the users that are on the platform to stay, let's say, and that over time will become more valuable, more embedded in the, in the infrastructure, and more likely to use additional revenue streams like weeks, payments, bookings, marketing tools and so on. So a lot of people just throw the premium subs chart and say, well, Vibe coding is like definitely killing weeks. We just need to look at this to understand. But this decline, if you see it, started back in 2023 and when they announced that strategy that I'm referring to. So what Vibe coding platforms existed back then? None. So saying that the AI disruption is the main cause of this decline in premium subs is just wrong. But I think it's one of the things that also contributed to the misperception of everyone about wix. And then the third factor, we all know about it, perhaps the most important one, is the broader apocalypse in SaaS talks that we've all been witnessing. AI fears have crushed the entire software sector and WIX got dragged down along. So I think we will definitely touch on these later in more detail because there are obviously risks worth noting. I never demised any of the risks, but I guess it's all about how hard the market is being compared to what really is happening or might happen in the future. Because for now the numbers aren't really saying that this company is dying and the market is effectively pricing it like it's for sure going to die.
- [08:15]
Brett Schaefer
Yeah, I think that's some really helpful context, especially around the COVID bump, because I think that's something a lot of people, myself included, forget about with wix is there were a lot of people or businesses, merchants that automatically needed to start an online storefront during COVID and maybe they don't need it anymore. So there's going to be sort of natural churn there. And then on top of it, you mentioned it, the price increases, firing customers, which I think is a good term. It just so happens that those Two things that the churn from customers that didn't really need an online storefront and those that couldn't afford it also coincided with the vibe coding. So it makes it look like almost confirmation for those that see it as some a business being disrupted by AI. But let's talk before we because I do want to talk more about the AI disruption risk and where that shakes out in the future. But before we do, there were some very interesting financial engineering moves in recent months. And just to paint a picture for anyone that hasn't followed the Wick story, manuel mentioned it. 80% drawdown. I think the stock trades at an EV to free cash flow of less than seven times right now. So it is like compared to any time in wix's history, it's extraordinarily cheap. What have they been doing management wix's management team been doing in recent months to try to, I guess, improve sentiment or improve shareholder value in the long run?
- [09:50]
Manuel Cunha
Yeah. So as you said, there's been a lot happening on the capital allocation front and I think it tells you at least significantly about how management views the value of the business and about how they consider the business as being undervalued. So the most important part, and probably a lot of investors have seen the news. So through a massive Dutch auction, tender offer, Weeks bought back 17.6 million shares at $92 per share. So they spent about $1.62 billion in total, which is most of the $2 billion buyback. But I assume the other 380 million should be spent during the year. But that alone retired roughly 30% of all shares outstanding. I think it was like 29.6 or 29.7%. The stock today is at $65, so I see a lot of people just calling them stupid for doing it this way instead of just doing open market buys or whatever. And I mean, in insight, it obviously wasn't the best decision, but at the same time I think management saw it as a strong vote of confidence that could help to support the valuation. And I mean, during the period at which they were doing the tender offer, it was really a good support if you compare it with IGV or any other software names. But after the tender offer closed, the stock tanked and basically catched up with the other software names. So if they had tried to buy back 30% of the company gradually in less than 10 months, if the sentiment suddenly improved, the average price would be way higher than $92 per share. So they probably thought that this would be a better way to do it now after the facts. Yes, it wasn't. But I still think it wasn't a stupid decision. I think it was kind of smart because actually, myself included, I think one or two weeks ago a lot of people were already considering that maybe the SaaS pessimism was reaching a peak now. Yeah, Claude released a new model. We can talk about it later. And it wasn't the case, but I don't think it was that stupid as many people think now. Another event that people got confused was alongside the buyback there was also a $250 million private placement led by Durable Capital Partners, which is Henry Allen Bogan's fund. And yes, just like most people, I thought this was quite odd. Like they issued shares at roughly 5% discount with warrants attached at a 25% premium while simultaneously buying back shares at $92. It just looks weird no matter how you put it. So I actually reached out to Week's president to try to understand the logic. He didn't really explain that much, but my interpretation of his response was that the goal was to lock up a larger portion of the float. So you're retiring like 30% of shares while at the same time heading. An institutional shareholder who has a one year lockup period and really believes in the long term thesis is not only here to trade the stocks. And I've watched an interview from Henry, who I didn't know, to be honest, and I really liked his approach to investing. So I believe he's investing in weeks. Not really as a trade or as a one off thing. I think he really believes in the opportunity. But yeah, was it my favorite move? Not really. I don't think they needed Henry because WIX president even mentioned that he could help them to reach a few contracts or partnerships with other tech companies. But I think they were doing quite well without him anyways. So it was probably just trying to avoid having so much selling pressure on the float by having this lockup period and retiring 30%. In my opinion, it wasn't really needed. I didn't like to see it. I can't really try to say anything other than that, but I think at the same time people massively overthink this. Like the $250 million is about 15% of the tender offer value, so the dilution is maybe if warrants are exercised up to like 6, 7, 8% maximum. And so if you net everything out, the tender, the placements, the previous buybacks, even SBC, you've gone from like 59 million shares to roughly 41 million shares today and at today's price, I don't know at what price it's trading right now, but even if you say like $65 per share, it's like $2.7 billion market cap. This is a $2 billion recurring revenue company with 30% free cash flow margins. EV is probably what you said six, seven times because of the debt. But most of their Debt is at 0% interest rates with being convertible notes at a price over $200 per share. So I don't think they have any balance risk, any balance sheet risk, because now a few analysts are like downgrading the stock and calling the bear case like balance sheet risks or base 44 margins drag while the price target is still like the double of the current price. So they just throwing out the bear case as a way to follow the price action as usual. So I think overall all these financial engineering moves, or whatever you want to call it was were a creative. I would prefer if the private placements didn't happen. But I think the size isn't really enough for me to bother much or to change my thesis or to think that management isn't aligned or whatever. I think people overthink that part. The reality is that the share count declined dramatically and it should really help to offset the decrease in margins from base 44 because they were at 30% free cash flow margins in 2025. But they already said that those margins are going to decrease because of the inference costs of base 44. But this 30% reduction in share count will probably make the free cash flow per share stay flat or even. I'm not really sure if it's going to increase a bit because I think base 44 will surpass expectations and that will drag margins perhaps even lower. But it will really help them in maintaining the low multiple that we have on a trailing basis and keep it on a 2026 basis. So if you use just the market cap, it's trading at like 4.5 times the free cash flow they had last year, which I don't see any other way to call it other than just the markets. Assuming these guys are going bankrupt soon or that users and revenue are going to decline and we're going to touch on that later, but I don't think it's happening.
- [17:36]
Brett Schaefer
Yeah, one of the most attractive parts of this business which we'll get to at the end again is the valuation. Now we're going to talk about AI and base 44, but I want for any listener doesn't follow this closely, take us through the Q4 results because again the sentiment is that the business is dying. But if you look at the financial numbers I believe and you can correct me if I'm wrong, Most of their KPIs are seeing accelerating growth. What were your thoughts on the Q4 results? Kind of as we lead into the broader future AI discussion, will the Fed
- [18:09]
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- [18:56]
Manuel Cunha
Yeah so I was really satisfied with Q4. It was my first quarter as shareholder. I just recently started the position. I can say full disclosure my average cost is like in the low 80s so I'm quite rare but it's okay.
- [19:15]
Windows 11 Advertiser
Yeah.
- [19:15]
Manuel Cunha
The core business itself is growing at double digits even with vibe coding and all the AI fears which I understand that it could take some time to to be felt. The core business is doing great and base 44 is helping them to re accelerate growth. And as we'll touch on later as you said I think that's that could be a real trigger. But yeah as you said and I think the markets not. I think it really happened. It reacted positively to this especially with the headlines of base 44 reaching $100 million in ARR and all that. But I think I'm looking at my notes and they really showed that the business is not struggling. Yes. What's more important for the market for everyone is from here not really last quarter because we're talking about Q4, not Q1. But I was really happy with everything. There wasn't anything that I really pointed out. I made a quick review, not so quick but an interesting one and I thought they released weeks Harmony as I'm sure you know and that's something I'm going to talk as well. And one of my concerns about WIX Harmony was that it could really be a much lower margin tool than the legacy one. And in the earnings call management said that it's really not the case and it could even be better for margins because they optimized everything in 2025 and it's not whatsoever comparable to base 44 in terms of inference costs and all that. So one of the things that I think analysts and I don't even say investors in general because I think investors in general, like retailers and whatever, they don't really care about wix and don't spend five minutes studying it because they just assume AI will kill it. But analysts and the institutionals, I think the main concern is that the margins won't be able to be sustainable from now to the future because of AI costs and everything else. But the fact that WIX Harmony is showing good cohorts and even better than the core business, which again I wasn't really expecting. I was also kind of thinking that, well, if these guys change the core business everything, two weeks Harmony, yeah, that could help them in acquiring more customers. Something I, I will also talk about. But if gross margins come from 70% to like 50 or 60, the market is going to continue to push the narrative that they're going to die, that they have no pricing power, that AI is killing them. So apart from the headline numbers that were good and mainly like they, I think they missed like by 0.5% in the revenue estimates, but good beats on EPS, whatever, I don't really care about that. I think everything was equal or better than I was expecting when I first initiated my position. So I understand the fears, I understand the risks, I understand what everyone is thinking right now, I understand the consensus view, but at least for now the numbers are not telling the same story.
- [22:54]
Brett Schaefer
And real quick, just for listeners, WIX Harmony is their new AI website builder where it's like correct me if I'm wrong here on anything, but it's primarily prompt based. But like so you can vibe code your website and then turns it into their core drag and drop website, is that correct?
- [23:15]
Manuel Cunha
Okay, yeah, just the core legacy website building experience, but combined with vibe coding, it all starts like a vibe coding platform. You do the prompt and then they give you the, the vibe coded website and then you can do weather prompting or using the core business of wix. Basically yeah.
- [23:38]
Brett Schaefer
For anyone that's listening you can check it out for free. You don't have to pay to try it out or anything, just go to wix.com harmony you can kind of see what Manuel is describing there. Let's talk about AI first Before we get into where WIX may be insulated because obviously if you're bullish on the stock, you think there is a difference between what's going to happen versus the narrative. But where for you as an investor, and I guess I should disclose I'm an investor in Wix as of this recording as well, what are you worried about as like the AI disruption? What, where, where could they get hurt as a website builder for small businesses?
- [24:20]
Manuel Cunha
Okay, so I want to be honest here because I think this is not a thesis where I, how can I say this? Like I understand and think that there are valid reasons for the people that are concerned and there are valid risks here, that this is not about that, that this is not about people like inventing risks where they don't exist. I think they exist. They're just being totally overblown by most people and especially by the markets. But more specifically on the core business, I think the concern I think about the most isn't really about the churn, as I'll explain in the part of where I think it's insulated because most WIX customers are deeply embedded in the platform and in my opinion aren't going anywhere. We're going to talk about it, but what worries me the most is the customer acquisition from here. So the market for website building and online presence tools is getting flooded right now. Every vibe coding platform, every AI native builder, every new entrant, they're all spending a lot in marketing to grab market share. You're seeing ads for these tools like everywhere. Even base 44 is a good example and that creates a more competitive environment for acquiring new customers. So I think that could be a pressure on customer acquisition costs over time, even if the existing base is sticky or somewhat sticky. So on that front, WIX has always been one of the most efficient marketing machines in SaaS. Like they've spent 20 years perfecting the framework. The chief marketing officer is a nice guy and he's been there literally since the beginning over 20 years ago. And they only scale the spending when the payback period is under 12 months. So they have discipline there. One thing I really like and that most people don't know is that if you ask any LLM, like what's the best website building builder for beginners, it will say wix. Because WIX makes sure that happens. They pay them for that to happen. And I think when we talk about the emerging users that could come from this ease of use that AI made websites creation become, I think I just imagine like not my mother or My family. But like the people that aren't used to laptops or to AI, I bet they would just go to ChatGPT or to ChatGPT, we all know that right now isn't the best model. I also changed to cloud, but if you talk to the regular dude on the street, they probably don't know cloud exists. And I'm from a small town in Portugal. If I go to the street and ask anyone about ChatGPT, they probably heard it's on the news or whatever. But they don't know about cloud, they don't know about Gemini. So they probably, if they wanted to build a website, they would go to ChatGPT and say, how can I build a website very easily? And it would say weeks. So I think on that side it's really smart from them. But at the same time, I mean, it's hard not to say that with the market getting noisier and more crowded, even the best marketing teams can see their economics shift. And that's part that, that's the, the most important part of, and the, the most important concern I have on the core business on base 44, I think the concern I take most seriously and I actually have thought about it. But the founder of Base44 really was clear about this in an interview and he really said that the main risk he also sees is on the model layer concentration risk. So base 44 right now runs primarily on Cloth and Gemini La. Like whenever a new model gets released, half an hour later they have it integrated on base 44 and that also helps to improve the experience and to make the platform better for users. And so in one way it ends up being beneficial for them. Switching between providers is really easy. If they want, they can just go away from Claude. They just don't do it because it's by far the, the best model now and Gemini as well. It's a mix. They use nanobanana for images and Claude for coding. It's a mix, but they can just. If tomorrow there's a new model from a different company, which is better, they can switch really easily. But the real risk isn't about this. It's about whether one model provider suddenly ends up truly winning the race. Like if say Google or Anthropic or whoever wins the model race, I don't count ChatGPT, but it could happen if suddenly the balance of power shifts away from these application layer platforms like Base44. In that scenario, the dominant model provider could easily absorb these type of functionalities or at least compress margins and dictates unfavorable economics for these type of companies that is trying to build the application layer on top of the models. So I always say this, I've said since the beginning when I started to cover wix, if you think Claude or Gemini or whatever, one of those companies is going to take the entire market and truly win, the models race to the point where they can control the entire stack. I don't think you should invest in weeks or frankly most SaaS companies. Apart from maybe cybersecurity or something more particular. The entire application layer would be at risk in that world. But I personally don't think that's going to happen. Or at least that's the most likely outcome. From my research in AI infrastructure, I think the model layer is actually getting more competitive, not less. You've got open source models improving rapidly, you've got multiple frontier providers. The economics are pushing towards commoditization of the models and that's really something that helps base 44 and companies like this that are model agnostic over time and can optimize by using different models for different hierarchy of workloads. So I think the main risk for core business is, is the pressure that they might see in terms of customer acquisition from here and for base 44, the possibility even like, I mean, each person has a different opinion on the likelihood of this happening, but the possibility of one of the model providers suddenly winning the race and leaving all of the other ones behind.
- [31:26]
Brett Schaefer
So to take a quick step back here, can you explain for someone who hasn't been following the wix story, what base 44 actually is when WIX acquired it and sort of the potential that you think they might have in the AI application building space.
- [31:46]
Manuel Cunha
Okay, so base 44 is honestly the reason I got excited about WIX in the first place. I mean, without base 44, Weeks is still really interesting from a valuation standpoint. You're buying a cash cow for as we were saying, like five times free cash flow, something like that. But it was because of base 44 that someone sent me an article about it talking about the acquisition and how that changed the picture and what it could turn weeks from a value play into something with really an asymmetric upside if things go well with base 44. So giving a quick background, base 44 was founded by a guy called Maur Shlomo. He's from Israel, like the team from Wix. He was previously the founder and CTO of ExpoRium, which raised over $130 million in VC capital. So he's not like a first time builder. But after that experience he specifically said that he didn't want to do the VC playbook again. He wasn't retired, but he was just trying to help his girlfriend opening like developing a scheduling application, something like that for her tattoo business. And he realized that most Vibe coding platforms weren't really suitable for those who don't want to see a line of code. Now things have obviously evolved. This was one year ago, but he basically started base 44 as a bootstrapped side project just for fun, trying to explore how he could use LLMs without having first having that corporate overhead slowing him down. And also without having to connect to databases or to any integration and build every having everything inside one place. The core idea was basically the same that led WIX to being created 20 years ago was the abstraction part of, in WIX case, the abstraction part of users not needing to know how to develop or how to write code or whatever to build a website. Here it's the same but applied to applications and applied to Vibe coding and coding. So he started I think just in April, I think it was March or April of last year. And he wasn't really paying marketing or whatever. He was just doing LinkedIn posts, like writing LinkedIn posts, telling about his story and about what he was doing. Just not paying any ads, not SEO, like absolutely anything. Three weeks later it got like 10,000 users because the posts were getting viral. Three months later like over 150,000 users and a million dollars in ARR. All organic as I was saying. And WIX started to pay attention to this probably. They were also trying to discuss ways of not getting more insulated, but trying to get into these AI fears or whatever, like trying to play offense and defense at the same time. So they acquired base 44 in June of 2025 for $80 million in cash plus earn out payments tied to performance until 2029 I believe. And at that point base 44 was being roughly $3 million in ARR. 3 to 4 they didn't say, but low single digits, I assume it was like three to four million dollars in ARR. Just half an year later they were doing, at the end of 2025 they were at $59 million in ARR. In early March they crossed $100 million. So that's one of the fastest paths to this kind of level in software history. I mean now it's kind of normal with all these AI startups emerging, but it's quite fast. And it happened funded by wix own cash flow, not by constantly raising VC funds like Lovable Replit. And this is what the founder of base4e4 wanted because he's still running the company independently. Obviously they probably tell him stuff to do or whatever, but he really said that he values these, this kind of independence and it shows. The product velocity that I've been seeing with base 44 shows that they are really committed in being one of the leaders in the space. Because the founder, Maurer, he was pretty clear in that interview that I mentioned. And he said now Vibe coding platforms are emerging, a lot of them, and mainly because of this ease of development of software that AI brought. So if you suddenly release a feature Lovable and it's good, obviously Lovable in one or two weeks will copy it. And the same goes around. If Lovable releases a new feature, base 44 will copied like in one or two weeks. It's not that hard to do it. Which is why it was important for them to join Wix early down the road and get that brand awareness to start to roll down, grab customers, put it like, make them build applications and stick with them. So I think a lot of people also talk about base 44 and say, why can't I build a base 44 platform myself? Yeah, you can, but now you're quite late in the run. So I think I understand the, let's say low barriers to entry that many people talk about in this case, but I think what they've been doing is what's letting them stay ahead. Like they just released also the super Agents feature instead of having a Vibe coding platform. You have also the version of base 44 which is just to run your personal agents to like do not similar to Cowork, but on that tam, let's say to help you analyze competitors, to help you do a task on Excel, to help you do whatever. So they're always keeping the product velocity quite quite well. And I love that they're integrated in Claude. They're integrated in terms of. Yeah, if you go to Claude and you type base44, you can build an app and be redirected to base44. The same for ChatGPT. So it's a completely different and much larger market than website building. You can build CRM systems, ERP tools, workflow automations, financial reporting tools, like internal business applications, all new worlds and a massive TAM expansion that didn't exist one year ago. And as I said, we're going to talk about valuation. But besides being the perfect partner in my opinion for base 44, I think 4 base 44 is a huge Advantage not being at the mercy of VC capital rounds and everything. They're just aggressively pushing marketing and at the same time they're still generating a bunch of free cash flow. So you're, you're buying wix, which is a core business that's, well, many people think are dying, but it's not. We're going to talk about the installation part, but you're also getting one of the fastest AI startups in the market while having a business that just declined the share count by 30%. So it's really getting two different worlds that in my opinion complement each other quite well. For what we're going to see, the price just stupidly cheap.
- [40:06]
Brett Schaefer
So for anyone wondering why, why are we talking so much about base 44 when discussing Wix, the. So Manuel just mentioned it, they went from base 44 went from essentially $3 million in ARR to $100 million in ARR in a year. Essentially nine months. Right, nine months. Wix overall added $232 million in revenue in 2025. So it is, it's meaningful to the revenue growth for wix overall. Before we get into more of the valuation, specifically, why do you think the core wix business is insulated from these vibe coding and AI threats?
- [40:59]
Manuel Cunha
So first, one of the reasons, and I think it's quite important, is that WIX is not a per Seat Enterprise SaaS company. Sorry, a big part of this apocalypse and all the panic is about AI agents replacing human users inside, let's say Salesforce ServiceNow work day. So those tools that companies pay per seat and AI can theoretically do the work of 10 employees. So here Wix model is completely different. The user is the business owner. So you're not going to replace a restaurant owner or a yoga instructor or a freelancer or whatever by an AI agent. It's simply just not going to happen. So these specific arguments around seat compression doesn't apply here. And second, there's something that almost everyone misses. And again, I can always be proved wrong. But so far this is what I've come to conclusion. Yes, AI lowers what I'd called the surface level switching costs. So it makes it really easy to build the front end, to recreate how something looks, to build a landing page basically. But it does the opposite for deep infrastructure lock in. Let's say it's a naive word, but let's say as software becomes more dynamic and fluid, like the value increasingly shifts to the infrastructure to like the execution layers underneath. So payments, data integrations, permissions, bookings, all the operational side that's not the landing page or the easy things that you can vibe code and those are way harder to migrate. Like a meaningful portion of wix customer isn't just building websites there. And when I say meaningful it's like 80 or 90%. So they're running payments through WIX payments, they're managing bookings, they're doing email marketing, they're tracking analytics, they're processing e commerce transactions, handling domains and so on, so on. So their entire operational stack sits on wix. It's not like you were mentioning the COVID businesses that were forced to build a simple landing page just during the lockdown period. This is not the case. These users are basically have the entire business running on weeks. And for these users, switching isn't just about rebuilding a website in five minutes with some AI tool. They need something reliable and it's not. They can't just unwind an entire bundled operating system and just to pay a few hundred dollars less per year, it's not really worth the risk. Actually when I first started to research wix and I wrote my first article about it, I got a few DMs from some of my readers saying that they were surprised because they were SMB owners and they literally said, well, I actually run my business on wix for a few years and I don't have any intention of switching just to save 200 or $300 per year. It just, it's just not worth the risk for me and like for all the people that work with me because then you have to have everyone understand the other platform where they're going. And so it's not really a point solution as most people see weeks. Most people, when you see those tier lists or those ranking lists that some creators or some investors do about the most vulnerable businesses or software stocks to the AI and AI disruption, whatever, they always put tweaks classified as a pinpoint solution that is easy to be disruptive because that's how everyone perceives risk without taking a few hours or not even hours to do research. And I can say I thought about the same. I didn't know about all these features and all these integrations that SMBs have and mostly with yearly and multi year plans. So they're not just the lower end users that everyone thinks about and that they can just vibe, code the website in a different platform and switch to that provider in a minute. It's just not like that. And you can even look at the revenue mix. Like right now, almost 40% I believe of Wix revenue is already coming from partners. And this means agencies, freelancers, professional web creators that build and manage sites for clients. They're not just going to say, well, we're not going to use WIX anymore, let's use base 44 or whatever, or another website building. It's just not going to happen. And this segment is actually the one growing faster. It grew over 20% last year and it went up like 60% in just two years. And we also have WIX payments, all those revenue per transaction they have. So I think the core thing here to understand, or at least in my opinion, is that the market sees WIX as just a low end landing page creator that's not durable by any means. But I think wix has a much more durable revenue base than the market is currently pricing in. And that everyone just assumes it's true. I'm divulgating a bit, but I think everyone just assumes it's true that WIX is going to die. And they don't even take a few minutes to understand whether that's really something that's going to happen or why it's going to happen. They just assume it's going to happen. And I think, as I said from my side, I took a few months to do research and I'm glad I did it because the stock kept tanking. But the first time one of my subscribers asked me to take a look at it, I was like, well yeah, I will. And I didn't because I looked at it and it's like, it's wix. Why do I care about these guys? These guys are going to be disrupted by AI. But then insisted again. And then I saw some things about base 44 and I saw that WIX acquired them and like my YouTube is just full of base 44 ads. So I was like, okay, let me take a look at this like more properly. And I understood, or I'm not stating that this is a fact, but I think it's really more durable than most people think. And this is 80, 90% of revenue. So even if we have that problem that I mentioned about customer acquisition, you have on the other side, millions of users that are growing in terms of revenue, in partners revenue, in terms of payments revenue. And that alone could just sustain the business and not letting it decline. And as we've seen, ARR, even excluding base 44 is growing, is still growing at double digits. And that speaks for itself in my opinion.
- [48:23]
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- [49:24]
Brett Schaefer
yeah, one of the gut checks I like to do is think, well if I was a restaurant owner anywhere in the world, I'm paying Wix maybe 500 bucks a year. If you're a higher paying customer, maybe a thousand, something like that. Are they really going to spend all the time to switch to someone else? I think that's highly unlikely. It's not like you're an enterprise with a whole team of people working on these solutions specifically for the company. That's where I think a lot of the AI risk is, at least for today. But let's lead into now talking back more on the stock valuation and I should mention at this moment our friends at Fiscal AI I'm looking at the EB to free cash flow chart right now, which might change a little bit because of the buyback which isn't reflected well. You know, we'll get the updated numbers on the Q1 results, but it's gone from just at the start of 2024 from 40 down to 7 now. 7 times free cash flow is very, very cheap no matter how you put it. You know, that's clearly a discounted multiple. So let's get into the valuation. But first I should mention again Our advertiser Fiscal AI slash chitchat get 15% off any paid plan. They have so many new features coming down the pike. A lot that Ryan has told me about that they're working on as well that should be coming to the line. It's well worth it. They even have some integrations working with Claude for enterprise customers if you want to check those out. But again, valuation, it's trading at seven times cash flow. What are your projections here and what do you think causes the stock to start working going forward?
- [51:01]
Manuel Cunha
I think that's the billion dollar Question. It's honestly a tough question to answer precisely. I'm usually not much of a contrarian investor, but more one that likes to find under followed stocks like companies that aren't really a lot discussed out there. I mean if you check what I own and you can say oh, you own a lot of the names that everyone is talking about, but I found them before that happened, so that's usually how I like to do things. So it's even harder for me to reply to this because my usual question is like awareness using the awareness card. But most people already know about tweaks and they have the wrong perception as we were talking about. So it's a bit of harder to use that argument. Generally speaking, it will probably be art to move meaningfully higher without the software sector in general bottoming. And I understand that on one hand you can argue that every week or every month there will be new AI developments, there will be new models being released, so the sector might continue under pressure for a while. But on the other hand we're also reaching a point where the premium multiple of tech stocks in The S&P 500 has already reached its lower level since 2019, I believe we have the largest software names like Adobe, Salesforce, ServiceNow and so on, reaching free cash flow multiples in the high single digits, which is something no one thought would ever happen like two years ago or whatever. So at some point if these companies show good quarterly results, and I'm not even talking about Wix in particular, but the most well known software names, if they show that AI isn't going to kill them, or at least that they have a word to say, because right now the market is just assuming it will like kill most of the software names the sector has inevitably to bottom. At some point, though some names will obviously be affected more than others because I think these AI fears are valid and that a lot of companies will suffer at on some way or another. But I think as the quarters, as we have more quarterly results after these AI fears started to take place, I think the market will at some point start to differentiate software companies between those that are performing well even amidst this AI cycle and and those that are not. So maybe we should start to see that level of differentiation in terms of being disrupted or not on a firm specific level. I think an important trigger would be the confirmation of re acceleration of revenue growth. And this is not only because of base 44, but also assuming the core business remains steady or at least doesn't suddenly start to decline. So as we said in the past quarter we saw the core business still growing at double digits. It decelerated. But that's also because they're shifting marketing spend away to base 44 because they know that it will help them to re accelerate. So I think even with margins getting dragged by base 44 due to the inference costs, they still will be able to maintain above 20% free cash flow margins. And if growth re accelerates to the high teens or even twenties, which I don't think is impossible at all considering how base 44 is growing, I think at some point you just gotta ask yourself how can a company be traded at five times free cash flow if it's accelerating? It has like 20% free cash flow margins, it's growing at now it's like 14%, something like that. But if it re accelerates we could easily go to 20%. So I think what could make the stock work from here is a mix of help from the software sector in general, which is, I understand that it's hard to believe, but in the moments where it's the hardest to believe, I think it's when we're getting closer to to the peak pessimism and also the re acceleration in growth. Because right now, as you were saying, it's hard not to say that this is incredibly cheap. The only way this isn't incredibly cheap is the business really ends up declining. And I think they just have to prove that the business will continue even if it doesn't re accelerate, which I think is unlikely, the business will continue to grow at double digits. As I was saying, partners revenue is growing to a larger and larger piece of the pie and it's growing at 21% or 20 something percent. So I think I understand that. As I said in the beginning, most analysts are concerned that this reacceleration is at the cost of margins. But the scale and the levers that they have to pull in terms of margins for base 44 are real. And as I touched on the open source models coming up to commoditize the entire inference costs and all that. Even management said that 2027 could be an inflection point for base 44 in terms of margins. So I don't think base 44 will drag weeks margins to levels that will really worry the market because they said the core business will even go higher than 30%. So even if you exclude base 44, weeks would be stupidly cheap. And then you also can look at private markets, which obviously is not a good comparison to make. But you see lovable at $6.6 billion and they raised when they had $200 million in ARR. You see Replit at like $9 billion. And then you have Wix plus base 44 at less than $3 billion market cap. It just doesn't make sense. Even if you don't use the crazy multiples that they use in private markets. I mean, base 44 can easily reach like $200 million in ARR by the end of this year. Let's say they went from three to 100 in nine months. We still have like nine months from the point they crossed $100 million to the end of this year. So imagine they get to $200 million in ARR. That's first that if you give it like a very, very small multiple compared to private markets, you already have like half or all the market cap that WIX has. But even if you discard that part, you have to consider that reaching that scale already makes a lot of difference in the growth side of the business, in the consolidated numbers. So in 2027, imagine they go to high 20s in terms of growth, because that will always depend on how Vibe coding develops and how Base44 performs. But if they just continue to grow at. I mean, they don't even need to continue to grow at these rates because it's not even sustainable. But imagine just they close the year at $200 million and then double from 2026 to 2027, which is hard, but based on what we've been seeing from other comparables, not even talking about valuation, but in terms of performance level, went from $200 million in AR to 300 in like three months or something like that. I don't know the numbers for sure, but I don't see this slowing down. I think, and I understand that a lot of people are talking about Claude releasing similar things, but it's what we talked about. Whether you believe or not, Cloud or Gemini will take the entire market and make this application layer completely relevant. Because if that's the belief that someone has, then it's not a stock for them. But I think it's, and I'm deviating a bit, sorry, but I think it's really the combination of the software sector and the RE acceleration for base for weeks consolidated numbers at the cost of margins. But making sure that they stick to the 20% level or high teens is still four or five times free cash flow. It could even be generated like lower margins. It's just insane. And I never really got interested in software names, as I said, but this just didn't make any sense to me.
- [60:13]
Brett Schaefer
Yeah, I know private markets are probably a flawed proxy for valuing things, but if base 44 were a private company, it would probably have close to wix's full market cap today would be my guess. In terms of private valuation, obviously that's again not necessarily that useful. But the other part you mentioned re acceleration potentially helping in the short term, at four or five times cash flow you could get single digit growth and you're going to be just fine realistically because there's so much they can do to increase the per share value. So yeah, I I I really liked this. I guess before we sign off, you do a lot of good work. So where can listeners find more of your research?
- [61:06]
Manuel Cunha
So I started purely on X, just writing a few posts or threads. MVC Investing is the annual. Then I got it more seriously and started on Substack as well. I have a newsletter which is MVC Investing as well. The link is in my bio of X, but the annual is the same. So yeah, I write deep dives mostly free. I have some paid tiers, but it's just X and substack. Not much more. Sometimes I interview CEOs or founders, but it's really rare since I don't own many stocks and I prefer to stick with them. So I have that YouTube site, but it's really very sporadic let's say. So yes, just X and substack MVC Investing.
- [61:51]
Brett Schaefer
All right, we'll have the link to both of those in the show Notes. Thank you once again, Manuel. As a disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan I, or any podcast guest may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you everyone for tuning into this episode. I hope you learned a lot and we'll see you next time.
- [62:19]
Ryan Henderson
Welcome to Chitchat Stocks. On this show, hosts Ryan Henderson and Brett Shaffer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode.
- [62:46]
Value Spotlight Host
I finally had a light bulb moment about a stock we've all heard about growing at 18% a year and a 15 pe. I shared this insight in a special Deep Dive report to subscribers of my research service Value Spotlight. The report is called A Generational Moment, Reigniting Human Connections through a Tangible Network of Intangible Assets chitchat listeners can get a discount to my research at stockwriteup. Com. That's stock write.
- [63:13]
Brett Schaefer
Com.