Wix Achieves "Rule of 40" Early: 5 Key Takeaways From Q4 2024 Earnings

Wix.com (NASDAQ: WIX) reported fourth-quarter and full-year 2024 results on February 19, 2025, showcasing significant growth and operational improvements. The company hit its "rule of 40" target (where the revenue growth percentage plus free cash flow margin exceeds 40%) a year ahead of schedule and is now setting its sights even higher for 2025.

Achieving Growth and Profitability Milestones Ahead of Schedule

Wix has successfully balanced aggressive growth with improved profitability, reaching its ambitious benchmark ahead of time.

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In 2022, we set out an ambitious plan to achieve rule of 40 by 2025. I am excited to announce that not only have we now achieved the rule of 40 milestone, but the tremendous commitment and execution of our team allowed us to reach this target a full year ahead of our goal.

-- Avishai Abrahami, CEO and co-founder

Bookings grew 15% in 2024 (accelerating to 18% in Q4), while non-GAAP operating margins expanded to 20% of revenue, up 450 basis points from 2023. Free cash flow nearly doubled to $488 million (28% of revenue). For 2025, Wix is targeting the more ambitious "rule of 45," demonstrating confidence in continuing this balanced approach to growth and profitability.

Studio Platform Driving Professional Market Expansion

The professional partner segment has emerged as Wix's fastest-growing revenue source, powered by strong adoption of its Studio platform.

Partner's revenue grew a lofty 30% year over year. We now have over 2 million Studio accounts that represent a vibrant community of creative professionals with over 75% of these accounts created by partners new to Wix.

-- Avishai Abrahami, CEO and co-founder

Launched in October 2023, Studio has quickly become the go-to solution for web professionals and agencies, now accounting for approximately 50% of new purchases. By streamlining the website creation process and eliminating the need for separate design and coding specialists, Studio enables partners to deliver better results more efficiently, driving both adoption and loyalty.

AI Investments Boosting Conversion Rates and Creating New Revenue Streams

Wix's AI strategy is yielding tangible benefits in user conversion while opening new monetization opportunities.

The new AI website builder is the linchpin in our suite of AI products and is revolutionizing web creation. Available to all users today, over 1 million sites have been created and published with the website builder. As I discussed last quarter, the AI website builder continues to drive demonstrably stronger conversion and purchase behavior as well.

-- Avishai Abrahami, CEO and co-founder

The company's AI website builder is improving free-to-paid conversion rates, particularly for self-creators. In December 2024, Wix launched its first monetized AI product, AI Site Check, providing 24/7 AI chat capabilities for businesses. The company is now developing an AI assistant for its business dashboard and an AI marketing agent that analyzes website data to generate tailored marketing plans, expanding its AI monetization opportunities.

Higher User Quality Driving Improved Cohort Performance

Wix's strategic shift to targeting higher-intent users is resulting in better cohort economics and lifetime value.

Our Q1 2024 user cohort generated approximately $61 million in cumulative bookings through its first four quarters. This is only second to the Q1 2021 cohort, which benefited significantly from COVID tailwinds. Recent performance was particularly impressive given the smaller user base of the Q1 2024 cohort.

-- Nir Zohar, President and COO

Average bookings per subscription increased 13% year-over-year to more than $294, driven by higher-tiered packages and increased business solutions adoption. The company now expects existing user cohorts to generate $18.4 billion in bookings over the next 10 years, up significantly from the $16.2 billion estimated last year. Net revenue retention also improved to 100% in 2024, further validating the company's focus on quality over quantity.

New Products Targeting Self-Creator Growth Acceleration

After focusing on its partner strategy in 2024, Wix is turning attention to accelerating its self-creator segment through significant product launches.

We have two major products that I believe will change how self-creators build and grow online. The first will be a new solution that expands powerful design capabilities beyond just websites. We expect this to launch around spring. The second will be a transformative new way for self-creators to build their presence on the internet. This is planned for launch in the early fall.

-- Avishai Abrahami, CEO and co-founder

While not included in current 2025 guidance, management believes these new products will drive double-digit growth in the self-creator business by 2026. The first product will expand design capabilities to formats like social media content, while the second represents a "transformative" approach to online presence building. These initiatives demonstrate Wix's commitment to innovation across both its self-creator and professional segments.

Looking Ahead

Wix enters 2025 with strong momentum across its partner and self-creator businesses. With continued acceleration in partner revenue (up 30% year over year), improving self-creator growth, and proven AI-driven conversion benefits, the company is well positioned to achieve its "rule of 45" target. Management is focusing on expanding design capabilities, transforming the self-creator experience, evolving Studio for professionals, and monetizing AI across the platform.

As CFO Lior Shemesh stated: "The high end of our revenue and free cash flow expectations positions Wix to achieve rule of 45 in 2025, a new milestone target that underscores our relentless focus on driving both growth and profitability improvements on top of the incredible progress made in recent years."

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David Kretzmann has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Wix.com. The Motley Fool has a disclosure policy.