What crisis? Israel's software giants expect double-digit growth in 2023

The fears of a deep crisis in high-tech continues to fade with each financial report released by the big Israeli companies traded on Wall Street.

After good reports from Check Point and monday.com, it was Wix, Fiverr, and Global-e that provided a pleasant surprise on Wednesday, recording better than expected performance in the fourth quarter of 2022, which was one of the hardest the high-tech industry has experienced in a while. More importantly, the three companies believe they can grow at a double-digit rate in 2023.

After the cutbacks initiated by almost all technology companies, profitability is also expected to improve and lead to a reduction in losses. The improvement of the bottom line also comes from the high cash balances that the three companies have, which, since the rise in interest rates in the U.S., generates a nice financial income.

Against the background of the good results - and especially in light of the optimistic forecasts - the shares of Fiverr, Global-e, and Wix registered sharp increases of 18.9%, 13% and 12.4%, respectively, on Wednesday.

Fiverr.

Fiverr: Growth challenge in the first quarter

The report that was received with the highest excitement by investors was Fiverr’s, which on the one hand is already within touching distance of an operating profit and is expected to grow in 2023 as well. The company, which develops a platform for managing the work of freelancers, saw its revenue grow by 13% last year to $337.4 million.

Although it recorded a loss of $71.5 million for the year, an increase of 10% compared to 2021, the cutbacks brought it closer to breaking even in the last quarter with a loss of just $1.3 million. In the corresponding quarter it recorded a loss of $19.5 million on revenues of $83.1 million.

Although the rate of increase in new users remained almost unchanged, Fiverr managed to increase its share of the transactions made between the companies and freelancers on the platform. Fiverr stated that showing growth in the first quarter of the year will be challenging, because the corresponding quarter last year was one of the strongest in the company's history, and came before the effects of the macroeconomic changes began to be feld. Against this background, the company also provided a conservative annual forecast, which anticipates a growth rate of only 4% to 8%. However, the company believes that it will ultimately manage to finish 2023 with a double-digit growth rate.

Global-e: 2.5 times the loss compared to 2021

The highest growth rate was registered by Global-e, which even before the reports was trading above the value of its initial public offering on Nasdaq, which was completed in May 2021. The company, which provides solutions for the localization of online stores, grew by 67% in 2022, and its revenues reached $158.2 million. It now expects revenues of $557-584 million this year, which will reflect a growth rate of 39% compared to 2022. In the first quarter, it should present revenues of $108-114 million, which will reflect a decrease compared to the fourth quarter of 2022.

"Despite the volatile and challenging market that we saw in 2022 and the continuation of the atmosphere of uncertainty into 2023, we are very optimistic about our market for the long term," said Global-e CEO Amir Schlachet after the publication of the results. However, the company is still far from profitable and lost $28.5 million in the last quarter. The annual loss reached $195.4 million, a 2.5-fold jump compared to 2021.

In the fourth quarter of 2022, Global-e made a cut of about 5% in the workforce, with 40 of the 800 employees being laid off. Global-e has acquired two companies since it was issued: the American company Flow at the end of 2021 for half a billion dollars, and Israel's Borderfree for $100 million in the summer of 2022.

Wix: Single-digit growth in 2022

Wix slightly exceeded the forecasts in the last quarter of 2022, which was far from an easy year for the company. Quarterly revenues amounted to $355 million, a modest increase of 6% compared to the corresponding quarter and significantly lower than the high double-digit rates to which its shareholders have become accustomed.

Against the background of the significant slowdown in the rate of growth, the company is implementing ever-increasing efficiency measures. After carrying out a round of layoffs in August in order to save $150 million in costs, Wix has announced an expansion of the cost-cutting measures.

Last week, Wix laid off about 370 employees, most of them in its customer support centers in the U.S. Its total workforce following the cuts stands at 5,200 employees, compared to 6,100 employees during the peak period in the first quarter of 2022. In total, the company has laid off 15% of the employees.

On top of the $150 million cost reduction plan announced in August 2022, Wix announced that it is implementing an incremental $50 million of cost savings in 2023. These savings consist of a further reduction in headcount that took place last week, increased hosting efficiencies and a reduction in capex. After the completion of the move, Wix estimates that it will be able to achieve an operating profit and net profit in 2025 rather than 2026.

Meanwhile, Wix continues to lose money, ending 2022 with an operating loss of $285 million on revenues of $1.39 billion. This is somewhat of an improvement compared to 2021, which is the result of a slight increase in gross profitability and the beginning of the effect of a decrease in the number of employees, which stood at 5,516 at the end of 2022.

Net cash provided by operating activities for the full year 2022 was $37.2 million, but following the investment in the building of Wix’s new headquarters in Israel, which amounted to $70 million last year, the free flow was negative. The company states that in the last quarter of 2022 it reached the highest flow in its history which was $52 million.

“Combined with our original cost reduction plan, we now expect total cost savings of $200 million in 2023 and $215 million of annualized savings compared to the plan we shared at our May 2022 Analyst Day,” said Wix CFO Lior Shemesh. “By continuing to control what we can, we expect to accelerate profitability with positive GAAP and non-GAAP net income now expected sooner than originally anticipated, exit 2023 with a FCF1 margin of ~12-13%, and achieve the 'Rule of 40' in FY2025 under varying revenue growth scenarios."

According to Wix’s forecast, if there is no deterioration in the macroeconomic environment, it will end the current quarter with revenues of $367-371 million, a figure that will reflect an annual increase of 8% (against the corresponding quarter) and also an improvement against the last quarter.

The forecast for 2023 is for revenues of $1.50-1.53 billion and a cash flow of $152-162 million before the investment in the building of the new headquarters in Israel. The investment in the new offices is estimated at $150 million.