Wix.com Ltd. (WIX) Q2 2026 Earnings Call Transcript

Good morning, and thank you for standing by. Welcome to the Wix Second Quarter Conference Call. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Emily Liu, Investor Relations. Please go ahead.

Thanks, and good morning, everyone. Welcome to Wix's Second Quarter 2026 Earnings Call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, President and Co-Founder; and Lior Shemesh, our CFO. During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent Form 20-F that could cause our actual results to differ materially from these forward-looking statements. We do not undertake any obligation to update these forward-looking statements, except as required by law. In addition, we will comment on non-GAAP financial results and key operating metrics. You can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in our Interactive Analyst Center on the Investor Relations section of our website, investors.wix.com. With that, I'll turn the call over to Avishai.

Thanks, Emily. As I mentioned in our shareholder letter, our strategy is centered on deepening our ownership of the technology stack behind our AI products while expanding Wix's role across the AI ecosystem and throughout the entire user journey from ideation online to fully operational businesses and deployed software. We're pursuing this through two distinct purpose-built paths rather than betting on a single outcome for how AI reshapes online creation. Wix Harmony continues to serve self-creators through visual drag-and-drop creation paired with AI. BASE44 serves a different and fast-growing motion: natural language, vibe-coded app and software creation. Running both in parallel means we capture demand wherever the market evolves. We achieved a significant product milestone this quarter in support of this strategic priority with the introduction of Base1, the first platform in its category to launch a proprietary LLM. Building this model in-house was a deliberate choice. It gives us tighter control over quality, faster iteration cycles and a better long-term cost structure. It also means every interaction on the platform continues to compound into a proprietary data asset, one that keeps improving Base1 rather than benefiting an external vendor's model. On the economics, Base1 is also driving tangible margin improvement for BASE44. As we shift more inference to our own model and continue cost optimization work, we see AI-related costs fall across free and paid users, improving the BASE44 gross margin from roughly 0% when we started the year to approximately 60% in the second half of the year. This trajectory reflects the business moving past early-stage hypergrowth economics toward a more sustainable margin-healthy model with further room to improve. Base1 also demonstrates what is possible when bringing together Wix's 20 years of expertise building and making complex technology accessible to everyone with BASE44's nimble and ambitious AI-powered workflow. The same data science organization that led the development of the Wix Harmony LLM, our first purpose-built AI model introduced earlier this year, was able to support the BASE44 team directly with existing research, infrastructure and experimentation capabilities achieved over years of AI development. This team, which I work closely with, played an invaluable role in the creation of Base1 and was a major reason we were able to bring our model into production so quickly. With continued demand strength and more control over the technology stack powering the platform, we are doubling down on a strategy that has already proven successful. The vision behind Wix Harmony is focused on building AI and human collaboration into the core editing experience, helping users generate, refine and iterate on content while staying fully in control of the final results. This reflects a broader principle behind everything we build. As the market, the technology and user expectations keep shifting, our focus is to continuously evolve our platform to the needs of our users. We've continued to make significant advancements in Wix Harmony as part of this ongoing commitment. Our focus now is execution, leaning into our position of strength to create products that generate real value for users and durable growth for Wix. With that, I'll turn it over to Nir.

Thanks, Avishai. I want to start with a quick overview of the growth trends we're seeing across the business, then explain how those insights inform our investment strategy. We continue to execute on our plan in the second quarter with steady top line performance. Bookings grew 12% year-over-year and revenue grew 15% year-over-year, driven by strong BASE44 performance and continued growth in our core Wix business, in line with our expectations with encouraging performance from Wix Harmony. As a result, year-over-year self-creators revenue growth accelerated sequentially to 14% this quarter, underpinned by healthy business fundamentals, including improving conversion from free to paid users, stable retention behavior and a robust top of funnel. Partners revenue grew 17% year-over-year, in line with the expectations we provided in early June. Encouragingly, we saw a step-up in BASE44 contribution to the Partner segment in the second quarter as professionals increasingly leveraged AI and AI agents in their workflows and expanded their pipelines to include software creation. GPV in Q2 grew 3% year-over-year, driven primarily by the wind down of our subsidiary, InkFrog, as part of our organizational realignment in June to refocus efforts on high-return products. InkFrog had a moderate contribution to GPV but low monetization. Its wind down improves our mix towards better monetized GPV dollars, resulting in better take rate. After our June outlook adjustments related to our partners business, I want to make it clear that our partners business remains a key area of investment and focus. We are already actively testing new solutions with our agency partners and believe that these solutions will align our platform with how the partners and agencies ecosystem is evolving. Turning to BASE44, which continued on its strong growth trajectory in Q2. Top-of-funnel demand remained elevated with the newest cohort outperforming the previous one, while renewal activity led overall BASE44 growth. Encouragingly, we continue to see more new and existing users choose annual plans as they increasingly trust BASE44 for their software needs. Given the continued strong demand, meaningful product improvements and the significantly improved margin profile of the BASE44 business driven by Base1, which Lior will speak to in more detail shortly, we plan to invest further into BASE44. As a result, we are raising our TROI target moderately, underscoring our confidence that the opportunity in front of us remains competitive but massive. Our priority is to aggressively capture BASE44 market share as the AI-powered app creation space continues to be dynamic and growing with strong belief that the strategic investments we're making today will drive sustained growth and market leadership over the long term. With that, I'll hand it over to Lior, who will discuss how we expect these priorities to flow through the financials. Lior?

Thanks, Nir. In the second quarter, we delivered continued solid top line growth and continue to position the business for long-term success and free cash flow generation by innovating our platform and managing the business with discipline. You just heard from Nir about our strategic priorities and top line trends, so I'll focus my remarks on the cost side of the business, where we drove strong execution on initiatives that I believe will create meaningful leverage over time. I am proud to say that we have delivered on a key initiative planned for this year. A company-wide priority for 2026 was to lower inference costs with our own LLMs. We started with our Harmony model earlier this year. Then in June, we launched our Base1 model, which we believe structurally improves the margin profile of the business, and we are seeing immediate results. We now expect non-GAAP gross margin for BASE44 to be approximately 60% in the second half of this year. This is a very significant improvement from the near 0 gross margin entering 2026. These cost savings are expected to translate into approximately 2 points of total non-GAAP gross margin improvement in the second half of the year versus the first half for the consolidated business. Turning quickly to the second quarter. Let's start with gross margin. Our second quarter total non-GAAP gross margin was 67%, a slight increase sequentially and down 3 points year-over-year. Our lower year-over-year total non-GAAP gross margin was driven by continued elevated investments in BASE44 to support its rapid growth and elevated AI compute costs as we scale and maximize gross profit dollars. Our second quarter margin reflects stable gross margins in our core Wix business compared to the prior year period. Total non-GAAP operating income came in at 12% of revenue, primarily driven by continued higher levels of sales and marketing expenses in the quarter. Non-GAAP S&M expenses remained elevated in the second quarter as expected, as we continue to accelerate marketing investments into BASE44 in order to capture strong top-of-funnel demand trends throughout the quarter, while also seeing AI inference and compute costs associated with free BASE44 users continue to increase sequentially. As Nir discussed, with the margin profile of BASE44 fundamentally improved, we are going to lean into S&M expenses to capture increased demand. As a result, we plan to reinvest the entirety of the gross margin savings I just discussed back into sales and marketing activities. As a result, we anticipate third and fourth quarter sales and marketing activities to remain elevated as we now aim towards a moderately longer TROI. Finally, turning to our balance sheet. We ended Q2 '26 with approximately $960 million in cash and cash equivalents and $1.63 billion in short- and long-term debt. Let's turn now to the outlook for the third quarter and second half of 2026. We are maintaining our current guidance and continue to expect bookings to grow at a low teens percentage, lagging revenue growth by a few points and revenue to grow at a low to mid-teens percentage on a year-over-year basis for the full year. We expect third quarter revenue to grow at a low double-digit percentage on a year-over-year basis. For the full year 2026, we are maintaining our expectation for free cash flow margin, excluding acquisition and restructuring costs to be in the high teens. Our full year outlook assumes that the approximately 2 points of non-GAAP gross margin improvement in the second half in the consolidated business will be reinvested into BASE44 sales and marketing through the rest of the year. This reflects our expectation that demand for BASE44 will remain elevated, enabling us to capture additional market share as the business continues to outperform. We expect to offset this increased sales and marketing investment in BASE44 with lower AI costs and decreased marketing costs for core Wix in the second half of the year, in line with seasonality and lapping the Super Bowl investments earlier this year. We expect R&D expenses to remain stable in the second half of the year compared to the first half as the FX headwind from a strengthening Israeli shekel offsets savings from our organizational realignment. As a result, we continue to expect non-GAAP operating margin for the consolidated company to step up in the second half of the year, putting us on track to achieve our free cash flow outlook. In conclusion, our conviction in our near-term strategy and ambitious AI-focused product road map remains unchanged. The team is incredibly focused on executing our shared vision, and I am confident that key initiatives like Harmony and BASE44 are the right areas of investment. We are utilizing this year to lean into our future growth and leverage AI across every function to drive higher output. The decisions we are making today will pay off in the long term as we continue to build, refine and deliver products that capture additional market share and drive compounding financial performance for our shareholders. Operator, we are now ready for questions.

Our first question comes from the line of Ygal Arounian of Wedbush.

I want to first dig in on Base1 and the proprietary LLM and maybe if you could expand on the product in general, how it's built, but maybe if there's any quality trade-offs and potential for further AI cost improvements and compute cost improvements over time. Just love to get a little bit more detail on that. And then I have a follow-up.

Of course. So Base1 is a model that we train in-house. A big part of the concept is that we continuously keep training it based on what we see that works better for our users. And this is where the secret sauce is. How do you know what is good? How do you know what is bad? Essentially, every time you write a prompt in BASE44, the model usually generates thousands or hundreds of thousands of source code lines, and we have to somehow know how to pick the good results versus the bad results. Once you do that and you're able to push that feedback back into the model and keep iterating, it continuously becomes better. Today, because of this approach, we can already see that the results of Base1 are better than any of the models that we have from frontier providers. It's not better for everything; I want to be very clear about that. It's better for BASE44. We do see a significant improvement. And of course, the cherry on top is the fact that it also costs dramatically less. We think this is part of a very long-term strategy where we'll be able to continue to improve Base1 as a result of that, and improving one of the critical parts of BASE44 makes BASE44 a better product.

Okay. Great. And can you maybe just give an update also on what you're seeing in the partner ecosystem as more builds are going towards low-code and AI builds? And how is the competitive environment changing around that as well, maybe with BASE44 in particular, but just more broadly and how that cohort is building and starting sites and online experiences?

Ygal, it's Nir. I won't repeat what we already shared, but I do want to talk more broadly about the dynamics we're seeing. There's definitely increasing appetite in the partner ecosystem for AI solutions and AI products. We're seeing this across the board: with those using Harmony on the Wix side and with more of them using BASE44—some to create websites, some to create and build applications for their clients. We're also seeing it in conversations with our advanced beta testers on new products that we intend to release to partners. I expect we'll continue to see that trend. Our goal is to deliver value across the full portfolio of our products and offerings.

Our next call comes from the line of Elizabeth Porter.

I wanted to follow up again on the BASE44 gross margin improvement, which is really impressive. So how much of the expected improvement to the approximately 60% non-GAAP gross margin in the back half of the year has already begun to be realized versus remaining kind of in the forecast period? And what percentage of inference traffic is currently running through Base1? Are there any constraints we should consider before broader deployment?

Elizabeth, I can tell you that the range we provided for the gross margin is something we are already seeing. That's why we feel a lot of confidence about what we've managed to do. It did not happen in day one; it happened gradually over the last few weeks. But we've already started to see the increase in gross margin within the range I provided in my guidance.

Great. And then just as a follow-up, I believe BASE44's earliest annual cohorts are approaching or starting to pass their first renewal period. So just curious what you could say about the renewal behavior relative to some of the monthly cohorts or core Wix? And what are the cohort indicators that give you confidence that the BASE44 ARR is durable?

Yes, you're correct. We are nearing the first round of the annual renewals for BASE44. Naturally, we're not there yet, so we're not ready to comment on renewal outcomes. In terms of monthly behavior on BASE44, we have commented in the past: naturally, it's not at the same rate as Wix, which makes sense because Wix is a well-established brand and product. That said, we are seeing improvement almost every month in behavior on BASE44. We consider all of that when assuming our growth trajectory for ARR and how we spend our TROI. So I would say we feel comfortable with our assumptions.

Our next question comes from the line of Alexei Gogolev of JPMorgan.

Can you hear me?

Yes.

Great. I wanted to follow up on Elizabeth's question about traffic running through Base1. Any update there? And generally, what are the biggest drivers of BASE44 demand right now? Maybe you can talk about user types or channels and what indicators tell you that demand remains elevated?

We are already running significant traffic on models that are not the classic frontier models. We continuously test the right balance and how to effectively use each model we have. It's complicated because we try to estimate the best model to solve each specific application the user is trying to build, and that varies a lot. Our ability to predict better which model to use is also improving. The biggest driver of BASE44 demand is user satisfaction with the applications they build. When someone successfully builds an application and is happy with it, they share it with friends and coworkers, and that becomes the biggest driver of new users, in addition to marketing. Because of that, we strongly believe in product quality: the better the product quality, the better the demand. We've seen that pattern since the early days of Wix. In terms of user types, roughly 40% of our users are building personal projects, and about 60% are business-oriented applications. Within the business segment, there's a wide variety. Notably, we have more enterprises on BASE44 than we have on Wix. That mix is a strength because it shows the product's versatility across scenarios.

And just a quick follow-up. To what extent is partner activity migrating towards BASE44? And how do you ensure that this increases total lifetime value rather than shifting revenue between those buckets?

What we see now is the beginning of a potential big trend, but it's early. It's hard to estimate how the world will evolve with different AI technologies because this hasn't happened before. We do see some partners reducing activity on Wix and increasing activity on BASE44. It's not simply moving between Wix and BASE44: we're seeing people come from competitors and other vibe-coding offerings to BASE44 as well. It's early to predict how this will evolve over the next year; we'll update when we have more information.

Our next question comes from the line of Stefanos Crist of Needham & Company.

I just wanted to follow up on that last question. As you see some partners shifting to BASE44, can you talk about the difference in economics for selling these switches, maybe just on revenue or margin contribution?

There's no single clear answer; it depends on what partners are doing. Many partners are doing heavier applications for customers. In conversations with partners, one thing we're happy about is that, instead of building a website and charging $1,000, they can now build applications and charge $15,000 or $30,000. So while they may build fewer projects, those projects can be more expensive and leverage more of BASE44. That could result in a higher take for us, but it's early and empirical. We need several more months to provide clearer numbers.

Regarding margins, now that we started using Base1, BASE44's profitability is more in line with many other software companies. There is additional room for improvement, so gross margin and profitability are much better than they were just a few months ago.

Got it. And just a follow-up on the Base1 cost savings: is that expected to only help BASE44 margins, or can it help the rest of the company?

Base1 is used for BASE44, and we used the same approach with Harmony. With Harmony, our own LLM reduced costs significantly. We're applying the same strategy across the board, which is why we see the improvement in profitability in the second half of the year compared to the first half.

Our next call comes from Josh Beck of Raymond James.

I wanted to ask about the TROI framework. I believe historically it's been less than 12 months and with the opportunity you see ahead, you're kind of willing to lean in. So any metrics you can share on how much you're willing to extend it? Is it at somewhat of a maximum point as we exit the year? Or is that something that could flex up higher based on market conditions?

Josh, it's Nir. The TROI framework allows us to invest in marketing at a cadence and risk profile we deem appropriate, with high discipline. Is there a ceiling or maximum? Right now we think our framework is good and we don't expect to increase it anytime soon. Many things could change over time—for example, more gross margin improvement, faster adoption of annual subscriptions on BASE44 that drive faster collection—and those could allow us to adapt the TROI. Any changes would be made through a clear formula based on how quickly we can get the investment back.

Okay. And then maybe a follow-up for Lior: how should we think about bookings? Last year it was within a point of revenue growth and then dipped about three points below. Is that a good baseline to use as we model going forward until we start to lap some of these changes? Any pointers on bookings or color on how to think about modeling partners as well?

In 2026 you see revenue growth higher than bookings for obvious reasons, but that doesn't mean it will continue into 2027. It depends on how fast we generate more growth from BASE44 or other new products. If we can get new funnels or more customers, like continued or accelerated BASE44 growth, bookings could accelerate. It's hard to say the cadence will continue into 2027; it might change, and I hope it accelerates.

Our next call comes from the line of Ken Wong of Oppenheimer.

I just wanted to dig in on Josh's bookings question. Any help in thinking about that low-teens bookings trajectory in the second half? Is it a dip and then reacceleration, fairly consistent both quarters? And is the spread between revenue and bookings of a few points consistent in both Q3 and Q4?

Ken, let's look at the reason first. It's related to partners: we are delivering more AI tools to partners to accelerate partner growth and seeing more partners come to BASE44. It's too early to tell about 2027, but for the second half it's mostly because of partners. The company is concentrated on generating more profitable growth through BASE44 and new product tweaks, including tools for partners and Harmony. I hope this will change in 2027, but it's too early to say.

Understood. And on the revenue guide, the implied Q4 number suggests a bit of acceleration and the comp is still tough. Bookings have been a little soft in the first half, so what's underpinning the confidence in the Q4 revenue number?

I don't see Q4 much different than Q3; I don't see acceleration in Q4 compared to Q3. Q3 and Q4 revenue growth on a year-over-year basis are more or less the same. We see a lot of benefit coming mostly from BASE44 in both quarters.

Our next call comes from the line of Robert Coolbrith of Evercore.

Two questions, please. As partners use BASE44 in place of Wix Studio, can you talk about the attach rate of Wix Business Solutions on a headless basis? Maybe also some early learnings from some of the headless initiatives you have with LLM partners. Then I wanted to double-click on the GM profile in H2. I think you said one to two points of benefit H2 over H1 from BASE44 or the Base1 model specifically. But you also talked about some AI savings in the rest of the business. If you could put that together, what is the consolidated view of GM improvement in H2?

I'll start with the gross margin. We said the consolidated gross margin would improve by about 2 points in H2 relative to H1, and this is mostly coming from the savings related to BASE44 using Base1. The usage of Base1 has been higher and faster than we expected, so we've updated the gross margin accordingly. The dramatic change in BASE44 gross margin translates to a roughly 2-point improvement in consolidated gross margin.

Rob, on partners using BASE44 instead of Studio: the dynamics are very early. It's too early to comment definitively if it's supplementary or additional revenue. We are seeing some partners use both for different use cases. Headless also applies: as more agentic solutions appear, we want people to benefit from Wix's business stack in an easy manner, and headless helps enable that. We're seeing headless pick up among more professional users. In the coming quarters, it will become clearer what the preferred paths are for different partner segments.

Our next call comes from the line of Naved Khan of B. Riley Securities.

I understand you guys are not updating the ARR for BASE44, but is the trajectory similar to what we saw between your last few updates? And are you still taking share from Lovable in the U.S.? Also, regarding BASE44 mix of monthly versus annual, can you talk about how that mix looks? It seems like you're getting more annual versus monthly, but any color would be helpful.

For ARR, we are not reporting that KPI; it's trending similarly as before. On the mix of monthly versus annual, there is more adoption of annual, but we are not breaking out exact numbers right now.

It's important to say we are not simply taking share from Lovable; we're creating a new market together. We're educating the market that people can now build applications themselves and create products, and that helps both of us. It's difficult to precisely split market share between us and Lovable because they are private and report metrics differently. Our estimate is that in the key U.S. market we are ahead, but quantifying by how much is tricky; we look at secondary internet metrics and believe we're in a very good position.

Our next call comes from the line of Andrew Boone of Citizens.

I wanted to go back to Base1. Can you talk about the improvements of the model? If we think about the trajectory of Base1, should we expect a parallel path with open-source models broadly? For example, as Kimi K3 or other open models come to market, is that the right trajectory for Base1? And connect that to conversion and retention — how do improvements in models improve the overall business? Second, on the bigger picture, many think about frontier models and competitive threats from Claude, etc. How should we think about the competitive moat for Base1 and open-source broadly versus frontier models, especially for code assistance?

Those are three questions. First: will Base1 improve in parallel with open-source models? Yes, of course. But I don't think that's the most significant part of improvement for our use cases. For most applications people want to build today, models like Kimi K3, GLM 5.2/5.4, Claude, or other recent models are already good enough. Most applications don't require the extra few percent in model intelligence. The majority of improvements we need are about making the model better at building applications given real user prompts—many of which are not professionally crafted. It's about making Base1 better at solving those specific problems, not about pushing model intelligence on esoteric tasks like advanced poetry or molecular biology. So yes, we'll benefit from open-source progress, but most of the value will come from what we do. Second: how does Base1 improvement impact conversion and retention? If a user prompts BASE44 and gets a bad application, conversion will be much lower than if they get a good application. Even if the result is not perfect but close enough to iterate towards the desired outcome, conversion improves dramatically. We measure this and see consistent evidence that better model output improves conversion and retention. Third: what's the competitive moat for Base1 and open-source vs. frontier models? Currently many parties use similar underlying algorithms—transformer-based architectures—with engineering differences on top. The moat is not huge for frontier models, but frontier providers have historically shown the ability to innovate even within the same algorithm. There's also the potential for legal or regulatory actions to limit releases of new models, especially where security concerns arise. For many customers, current models are already intelligent enough for their needs, which constrains pricing for marginal improvements. It's a complex landscape, and while I hope Western frontier providers continue to innovate, a big part of our moat is the product and data feedback loop: designing models and systems tailored to our specific use cases and continuously improving them based on user interactions.

Thank you very much. This concludes our question-and-answer session. Thank you for your participation in today's conference. You may now disconnect.