Wix.com Ltd. Price & Performance (WIX)

Thanks, and good morning, everyone. Welcome to Wix's fourth quarter and full year twenty twenty four earnings call. Joining me today to discuss our results are Abhishek Abrahimi, CEO and Co Founder Mir Zohar, our President and COO 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 app actual results to differ materially from these forward looking statements. We do not undertake any obligation to update these forward looking statements. 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 the earnings materials, [indiscernible] in our interactive analyst center, on the InvestorRelationssectionofourwebsite,investors.wix.com. With that, I'll turn the call over to Abhishek.

Thanks, Emily, and good morning, everyone. 2024 was a marked by substantial growth and continued innovation that reaffirms our leadership position in the web creation space. We exceeded our plan quarter after quarter showcasing our strong execution and deep commitment to users. 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. Now naturally, we're not going to just stop there. We're continuing to aim even higher in 2025 with new goals and targets. Impressively, we are now setting up to achieve the rule of 45 in 2025 which Leo will discuss in a few minutes. As we reflect on the past year, it's clear that our key product initiatives are yielding great results. Exited 2024 with bookings growth of 18% year over year, fueled by acceleration in our self creators business and strong sustained partners momentum. Partners revenue grew a lofty 30% year over year. This growth reflects our continued success in winning share of the professional market particularly among agencies as well as the ramping adoption and strong enthusiasm for our studio platform.

We now have over 2,000,000 studio accounts that represent a vibrant community of creative professionals who over 75% of these accounts created by partners, new to Wix. Feedback has been positive and engagement remains high. Which are testament to the value we are providing with our differentiated platform. Additionally, our self creators business saw steady revenue growth acceleration through 2024 driven by growing tailwinds from our AI product suite. We introduced a number of new creation, marketing and design AI tools last year. Notably, we also rolled out our AI website builder our new generation AI site builder. This is the evolution of Wix artificial design intelligence or ADI which was our first AI powered website creation tool introduced in 2016. 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 1,000,000 sites have been created and published with the website builder. As I discussed, last quarter, AI website builder continues to drive demonstrably stronger conversion and purchase behavior as well. Looking ahead, I'm excited about the product roadmap for 2025. Our 2023 launch of Studio was a major landmark in our product strategy. With incredible reception, and strong adoption, Studio has revolutionized web creation for professionals and has proven to be a key growth driver for our partners' business.

This year, we're channeling that same enthusiasm and focus to reimagine the self creator experience. We have two major products that I believe will change how self creators build and grow [indiscernible] The first will be a new solution that expands powerful design capabilities beyond just websites we expect this to launch [indiscernible] 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. I strongly believe that these two products will drive tremendous value for self creators and accelerate growth In this business, double digits. On the other hand, we also have a number of exciting new products and features planned for partners this year. We remain dedicated to evolving the Studio platform into the go to canvas for professionals where creativity meets functionality. We will introduce new advanced design tools that will enable professionals to push limits and achieve spectacular and powerful [indiscernible] Efficiently ultimately driving further market share [indiscernible] This means that by the end of twenty twenty five, we will have an unmatched offering with two clearly differentiated and best in class products for self creators and partners. Finally, A, I remains a major part of our product roadmap.

In December, we introduced our first monetized AI product, the AI site 20 fourseven AI powered chat between businesses and their customers, answering questions and directing customers to relevant products and services. In 2025, our focus is on AI assistance and agents, We've recently started to test our AI assistant the Wix Business Manager, which adds a seamless Jack, interface, to the dashboard. This chat guides users and helps to execute tasks such as creating bookings, purchasing domain names and much more all from a single entry point We are also currently in the early rollout phase of our specialized AI marketing agent. The marketing agent analyzes user website data to generate tailored marketing plans complete with actionable recommendations content schedules, and SEO insights helping users enhance online visibility. And reach target audiences. We continue to test monetization opportunities as adoption and usage ramps As we close out the year, I want to reiterate our commitment to continually enhance our platform and make online creation, management and growth effortless and impact for all our users. Thank you for your ongoing trust and support. With that, Mir, over to you. Thanks, Avishai. We achieved impressive bookings growth of 15% in 2024, with growth accelerating through the year [indiscernible] Lior will discuss in more detail shortly.

Our incredible performance was underpinned by robust business fundamentals and fueled by successful execution of our strategic Over the past couple of years and through 2024, our strategic focus has been on onboarding higher intent users with greater lifetime value as well as maximizing the life time value of our existing user base. We executed on these mandates by shifting towards a more targeted marketing strategy beginning in late twenty twenty two, addressing the more sophisticated needs of professionals with the introduction of Wix Studio last year our cornerstone partner product, building out our comprehensive and best in class suite of AI capabilities to make the website creation experience more frictionless for everyone expanding our commerce capabilities through new verticals a growing base of Wix Payments partners, and enhanced payment solutions and offerings. These engines drove take rate in 2024 to increase over 10 basis points compared to the previous year. And finally, regularly aligning the growing value of our Successful implementation of these initiatives are reflected in the strong business fundamentals achieved this year. First, the 2024 cohort performed exceptionally well.

Our Q1 twenty twenty four user cohort generated approximately $61,000,000 in cumulative bookings through its first four quarters. This is only second to the Q1 twenty twenty one cohort which benefited significantly from COVID tailwinds. Recent performance was particularly impressive given the smaller user base of the Q1 twenty twenty four cohort compared to previous cohorts, as a result of continued execution of our streamlined marketing strategy. Additionally, average bookings per subscription or ABPS increased 13% a year Over year, to more than $294 This step up in monetization was driven by the continued shift to higher packages increased adoption of business solutions and compounding GPV as we onboarded and retained high intent users such as commerce oriented users and more, upmarket partners. ABTS also benefited from the price increase implemented earlier this year, which was absorbed better than historical increases, another testament to the improving quality of our user base over recent years. At the same time, continued product innovation boosted conversion across both self creators and partners. Throughout 2024, we introduced and expanded the integration of AI across our onboarding process. Most new users today are creating their websites through our AI powered onboarding process and website builder. [indiscernible] which is leading to a meaningful increase in conversion of free users to paid subscriptions, particularly among self creators.

As we innovate best in class products to provide users a seamless and intuitive creation experience we believe conversion will continue to improve. Given these solid fundamentals, we now expect existing user cohorts to generate $18,400,000,000 in bookings over the next ten years, assuming consistent cohort behavior. This is a significant increase compared to the $16,200,000,000 estimated in last year's model The improvement underscores the high quality of users brought onto the platform in 2024 as well as the tremendous increase in value of our overall user base over the past year. Finally, existing cohort behavior improved compared to the prior year demonstrated by net revenue retention increasing to 106% in 2024. We expect our growing product offering and continued ability to attract partners and larger commerce users will increase revenue retention going forward. Our initiatives in recent years have undoubtedly shifted our base in favor of higher intent users such as partners and commerce users, This dynamic has been meaningfully accretive to our business. Demonstrated by the strong top line growth achieved in 2024. We expect this positive momentum to continue into 2025 as we drive our strategic initiatives forward and innovate to add new layers of long term growth With that, I will now hand it over to Lior to walk through our financials and outlook [indiscernible] Thanks, Nir.

We wrapped up a fantastic 2024 with strong growth and profitability driven by successful execution of our product roadmap and pricing strategy as well as strong business fundamentals. Outperformance on all fronts put us squarely above the rule of 40 for full year 2024, a significant milestone for Wix as we outperformed Venice targets of our three year plan Still, we are maintaining full speed ahead and are targeting rule of 45 on an as reported basis in 2025, Before walking through 2025 outlook, I want to quickly summarize our Q4 and full year 2024 results.

Bookings and revenue growth both accelerated for our fourth consecutive quarter driven by strong execution of our key growth initiatives Studio AI and Commerce, as well as continued benefit from the price increase implemented earlier this year and a positive demand environment in Q4. Total bookings in Q4 was $465,000,000 up an incredible 18% year over year driven by strong Creative Subscriptions performance and an acceleration in the Business Solutions segment due to robust adoption of business applications, particularly Google Workspace. We began to experience elevated FX volatility late in the fourth quarter continuing through the New Year, which resulted in a modest negative FX impact in Q4, Excluding FX, total bookings was over $466,000,000 in the most recent quarter, which was at the top of expectations, Total revenue in Q4 grew to $460,000,000 up 14% year over year driven by continued acceleration in our self creators business and sustained partner strength. Partners revenue grew 29% year over year to $168,000,000 in Q4 as we onboarded new partners studio adoption remained strong and partners increasingly attach business applications and compounded GPV transaction revenue in Q4 was $57,000,000 up 23% year over year driven by a 12% year over year increase in GPV a very meaningful year over year step up in take rate as we expanded the Wix.com Payments platform.

In the fourth quarter, we saw slightly lower GPV growth across some of our services verticals compared to our initial expectations, We believe this was due to Christmas falling in the middle of the week in 2024, which drove many service focused merchants to stay home and celebrate with their families entire week, resulting in fewer selling days for those merchants. GPV was also impacted by the FX headwinds that arose late in the fourth quarter. Adjusting for FX GPV was up 13% year over year on a constant currency basis, These situational GPV headwinds drove transaction revenue to finish lower than expected in the quarter, which had immediate impact on bookings and revenue in Q4. Turning to margins, we were able to drive continued margin expansion and increased profitability as we kept our costs stable resulting in better growth in operating margins. We exited the year with free cash flow of $132,000,000 in Q4, or 29% of revenue, Moving on to 2024 full year results. Total bookings in 2024 grew to $1,830,000,000 up 15% year over year Total revenue in 2024 was $1,761,000,000 an increase of 13% year over year with Creative Subscriptions ARR of $1,343,000,000 as of the end of the year, up over 13% year over year, Non GAAP operating income margin expanded to 20% of revenue in 2024, an increase of nearly four fifty basis points compared to 2023 as we maintained a stable operating cost base amidst strong top line growth momentum.

Notably, GAAP operating income was $100,000,000 or 6% of revenue. This marks the first year of positive GAAP operating income in Wix's history We generated free cash flow of $488,000,000 or 28% of revenue and above the high end of our expectations. This is nearly double the free cash flow generated in 2023 and a testament to our focused cost management as we drive sustained growth momentum [indiscernible] 2025, Following a standout 2024, we expect another year of robust growth powered by the existing key product initiatives are familiar with as well as other ongoing product enhancements against a positive demand environment. First, Studio continues to capture market share of the professional community and AI usage and conversion benefits continue to ramp as our offering suite grows We're encouraged by the trends we see today and so we anticipate these products will be even bigger growth engines in 2025.

Second, we have a number of product enhancements and new strategic initiatives slotted many of which we have already rolled out or tested. We are seeing these enhancements and initiatives already delivering value to users today, which we expect to translate into direct ARPS and conversion tailwinds this year. We expect top line contribution from those enhancements and initiatives currently underway increasingly layer in as we progress through the year as it typically does in a subscription business model like ours. As a result, we expect bookings and revenue growth to accelerate in the second half of the year this anticipated acceleration in bookings is particularly impressive as we fully lapped the price increase benefit midway through Q1 twenty twenty five, while we'll continue to see revenue tailwind through the entire year. I want to note that we are factoring almost no contribution from the new products you just heard about from Avishai into expectations. While I'm confident these new offerings will drive medium term growth we do not plan to include them in outlook until they are fully launched and we can build better expectations around early usage data. Finally, before I turn to the numbers, I want to remind everyone that as a global company, with approximately 40% of revenue derived outside of The U. S. We began to experience adverse impact from outsized volatility in FX rates beginning mid Q4, which has continued through the New Year assuming late January spot rates we anticipate strong FX headwinds to our 2025 outlook.

So we will be providing guidance for the full year and first quarter on both as reported and constant currency basis. For the full year, we expect total bookings of 2025 to $60,002,000 on an as reported basis up 11% to 13% year over year, we expect an FX headwind of approximately $45,000,000 for the full year following changes in primarily U. S. Dollar to euro and British pound exchange rates.

We expect total bookings growth of 13% to 15% year over year on a constant currency basis. We expect total revenue to be $1,970,000,000 dollars to 2,000 million dollars on an as reported basis up 12% to 14% year over year for the full year, excluding an estimated approximately $34,000,000 of negative impact we expect total revenue growth of 14% to 16% year over year on a constant currency basis. Over year on a constant currency basis. Following the meaningful operating leverage generated over the past two years, we remain focused on managing a stable operating cost structure in the year ahead. As such, we anticipate top line strength to flow through to improve profitability in 2025. We expect non GAAP total gross margin to improve to 70% for the full year. Most of the anticipated margin improvement is expected to occur in the back half of 2025, As newly implemented AI cost initiatives drive incremental efficiencies across our care organization. We also expect additional operating leverage with non GAAP operating expenses anticipated to be 47% to 48% of revenue for the full year. This year, we expect to pay cash taxes of approximately $40,000,000 following the full utilization of our NOLs in 2024, We also anticipate CapEx of approximately $13,000,000 to $15,000,000 or approximately 1% of revenue in 2025, This translates to free cash flow expectations of $590,000,000 to $610,000,000 or 30% to 31% of revenue in 2025.

While FX is anticipated to be a headwind to our top line as I discussed earlier, we are modeling a benefit from the strengthening of the U. S. Dollar on the expense line, with a significant portion of our operating expenses particularly payroll, denominated in non U. S. Currencies we expect a $25,000,000 net headwind from FX translating to 31% to 32% free cash flow margin on a constant currency basis 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. Finally, I want to touch quickly on capital allocation plans for the year ahead. Our $575,000,000 convertible note comes due in August. Which at this point in time, we plan to pay down with cash. Nevertheless, we remain committed to returning value to shareholders and responsibly managing dilution as demonstrated by the completion of our $200,000,000 share repurchase program earlier this year, We were able to repurchase approximately 868,000 shares or 1.5% of outstanding shares. We expect strong free cash flow generation in combination with our careful focus on share count management to translate to higher free cash flow, per diluted share in 2025.

We have many exciting things planned for this year, and I look forward to the new milestones on the horizon. Operator, we're now ready for questions. Our first question comes from Yigal Arunyan with Citigroup. Line is open. Hey, good morning, good afternoon, guys. Great to see the results continue here.

Maybe just starting off on the 2025 guidance and acceleration over the course of the year, I know, Ler, you mentioned some of that, but if we could dive into it a little bit more on the various components that drive that strength over the course of the year, particularly given the comps in the second half get much more difficult and then I have a follow-up Hi, Gal. This is Leo. Yes, you absolutely much more exciting I think that's take for example Studio. Right? Or take partners as a whole, they are growing faster.

And we know based on every ADOSAS loader that as long as you go and progress into the year, you're getting more and more [indiscernible] from those new cohorts, definitely when they are growing faster. This is one. We see that studio is going to be a major contribution Actually, today we see that studio is for the new court is about 50% of the overall partners which make it even more exciting The other stuff is obviously about AI. We see the impact of AI increasing conversion as long as we're progressing throughout the year, we see more and more impact of this conversion on the numbers. So this is mostly the effect of the new product that we've launched in 2024. And we are seeing more impact on the second half of the year as a result of that.

Okay, thanks. And there's definitely a lot to ask about product wise, but maybe just because I've been getting this question a lot more lately on on the payer side, on the premium subscriber side. And growth in that number? I know in the letter you kind of highlighted some of the year over year comps and factors that got that number to decline year over year slightly, but given the commentary around better conversion, [indiscernible] all the products that are coming through Can you talk about how you think about The premium subscriber number, how investors should think about the growth opportunity there? If users are growing, total users are growing 7%, you're getting better conversion. Theoretically, the paid number should be this year and next year should be growing faster than that. How should we think about that? Thanks.

Hey, Guy, it's Nir. So I think you know that in the last few years, we deemphasize net net subs as a specific a specific API in terms of importance because we made so much more focus on the cohort value, both on the signal level. So if you look at take for example the Q1 twenty twenty four cohort that we published, you can see it's our strongest non COVID cohort with $61,000,000 of cumulative bookings. But also if you look on the longer terms, if you look at the table we published for the ten year projection, the value of the aggregate bookings of those existing courts is significantly higher. It moved from 16,200,000,000.0 last year to 18,400,000,000.0 this year. It's a very significant [indiscernible] So when we come to determine our business goals and actions, the net subs is is really a secondary factor and a secondary KPI, not the main one. That being said, I do believe that we had a very we kind of elaborated on this the headwinds that we had in 2024 from that perspective. In fact, I would point out that the actual result is is slightly better than we expected. Simply because one of the things we factored in is is what will happen in a price increase.

And when you do a price increase you do see a heightened loss of subscriptions that are more sensitive [indiscernible] And we ended up having a result at was better than the initial model we put in place. So that's why it's actually [indiscernible] at 2025, We again, we're not going to project and we're not guiding for that number, but we do believe we're going to see a positive trend [indiscernible] Okay.

Very helpful. Thank you guys. One moment for our next question.

Our next question comes from Elizabeth Porter with Morgan Stanley. Your line is open.

Great. Thank you so much. It sounds like there's a really exciting slate of of new products for 2025. And I wanted to follow-up on the first comment about a self creator solution that expands design beyond websites. Is it possible to help us just [indiscernible] outside of websites? And if so, kind of what the confidence and the right to win on potentially new interfaces?

Wow, I think it's a lot of questions there. And a lot of them require details that we're not yet revealing because I think let me just say a couple of things. When you build a website, a lot of the time you want to take content that you have and push it to other places. Example, you want to create an Instagram ad, Instagram story or you want to create things for your customers, right?

And so this require you to expand your design capabilities, take the content that you have into new formats. [indiscernible] where we the new product we're trying to address [indiscernible] It also of course allow us to capture audiences that are normally not starting at which but we want to see those kind of intents Why so I think that that that is the number one. Motivation behind this product is the fact that we already have a lot of people [indiscernible] Those kind of capabilities. Saying that, historically, we've seen think we've shown many times that we we can do a really good job when it comes tackling very hard user interface and creation processes and simplify them to a way that become reasonable for the vast majority of people. And I think this is the bigger challenge when it comes to how to do those things today. A lot of it is very similar to what we believe is our core capabilities as a company. Which is making something that already exists like HTML, right, always exists, website creation, but making it accessible to a lot of people because we can make a much better creation experience. If you combine that with everything else that's happening today in the world when it comes to user interface combined with AI, I think that we have something that I'm very excited about.

Of course, we're going to have the first version and then we're going to have an additional again and again versions. I'm very excited about There are few people that have seen it already that are more on the level of a user than professional technology guys. Also very excited about it. So We have to see. It's not that far. So hopefully, we're going to see very soon Great.

Thank you so much for that extra color. And then just as a follow-up, I wanted to ask on the cost side. One of the factors you highlighted was gross margin expansion with a benefit from AI integration across customer care. Would love to just understand more at a high level what you're seeing internally with the use of AI and how that can expand the cost structure? Development or is that something that's more likely to flow through profitability?

I would start with the with the second part of the question. So definitely, we are going to see this benefit going down to the free cash flow. By the way, this is why we see the expansion of the overall margin in 2025 as a result of that. Very important to mention, this is something that we are going to see mostly in the second half of the year. And it's actually accelerating, meaning that those plans are already been taken. But we are going to see the full effects of it in the second half of the year.

Got it. Thank you.

Our next question comes from Deepak Bhatavaniyan with Cantor Fitzgerald. Your line is open.

Great. Thanks for taking the questions.

I'll ask two product questions. Avish, I know the agent products, assistant and Can you give us some color on how people are sort of using it in the early days? And beyond these two products, what do you think is the right roadmap for 2025 when it comes to agents? Clearly, considering these are products with potentially higher monetization.

And then on Studio, can you expand on what you're seeing with designers and development developers who kind of use Studio in the early days. Are you are they seeing sustained increase in sort of efficiency gains in their processes as they have used it maybe for six to twelve months now? Any color you can provide on sort of like their the KPIs would be great. Thank you so much.

Of course. So the first part was about AI agents. So we released two AI agents that we monetize. We actually have more, but two that we monetize. The first one is the both of the chat for our customers' websites, right? So if you are a Wix customer, you can now install a chat AI powered chat on your website and this will handle customer requests product inquiries, supported by [indiscernible] And again, it's very in days and the preliminary results, But it looks very promising. I mean, if I had a website like that today, I would actually be very excited about installing it. It seems to be doing a really good job in helping you get better results for your business.

Of course, you have to see the fact that it's very doesn't necessarily mean that we're going to get huge amount of users that want to install it, right? That Should make sense, but it doesn't always work like that.

It's a subscription monetization that we have on that and I think the product is vehicle It's really worth taking a look at it if you didn't. The other one is a marketing mastermind that you hired to your website, right?

I think this is again for a lot of our customer provide tremendous value because it does it does work better The most Most of what Agencies or definitely users would be able to do by themselves.

Need to analyze your SEO plan, need to analyze your ads, how to run the right ads, what are the right ads, and then it help you manage them.

The result of course is the ability to attract more traffic to your website and because of that sell more and be more successful.

In terms of long term strategy, I believe that the concept which we have now is a good concept We allow users to have To kind of like hire an expert to the website, right? So the marketing expert or the support customer support expert and agile to to the team [indiscernible] business, right? And I think that is a very good way to present it to our users. It also when we think about a product, help us focus a lot about what which one of those agents is doing.

Are doing, right? And I think that is tremendous value. I think that's what the question, right? But studio, not a question about studio. [indiscernible] what we're seeing on Studio is the fact that For agencies, it streamlined their work Today, if you want to create a example, WordPress website, usually you go to some design tool, design it there and then start copying things. Have another guide, it does all the CSS and all the HTML coding, they have another guide, it does that. The actual coding and installation. Those things you don't need. Let me just go to Studio and design a website and you can have then you have tremendous power and capabilities how to do that. You don't feel like you're programming. You don't feel like you're confound by a lot of technical tools. It's really feels more like a design tool than a website building.

Environment. But the result, of course, is a website. Because of that, we see two things that we get two kind of feedbacks. One, is that our agencies are able to create better looking websites, right? And this is a big part of the value they want to provide customers.

The second part of course, is that they don't need this long cycle for every change that they want to do. [indiscernible] They get better efficiency and better results. So we think that's a great deal and I think that is big part that of course this product is going Thanks, Osha. One moment for our next question. Our next question comes from Josh Beck with Raymond James. Your line is open.

Yes. Thanks so much for taking the question. I'll just make it a two parter. So on Studio, how would you delineate the momentum with the core editor versus the workspace as in is the studio editor pretty much where you'd like it to be from a product point of view? And then secondarily on the GPV, I think you mentioned that partners contribution has risen from 45% to over 50%.

So is this something that could continue and potentially lift up GPV over time? That would be great. So I'll take the first part of the question and then Mehul will take the second one.

The Studio Editor where I want it to be. The answer is no.

Have so many more things I want to do there and I think the roadmap is super exciting. And I think even at the end of this year, it will not be where I want it to be. There's much more we can do. Is it where realistically it It should be, then the answer is yes. I think the team is doing a really good job of executing and building and innovating and adding new things to the product, So I'm very happy with the R and D speed. I'm really very excited about what we can do in the future. And it's worth to point out also kind of just kind of rehashing the timeframe we're talking about it was released in open to the public in October 23. So essentially, we're talking about fifteen months of it being out there in live, with more than 2,000,000 accounts now on studio and and essentially 75% of those are new partners on studio. So it's definitely becoming prominent solution for our partners' demographic and we are very, very happy about it. To the second part of your second question about GPV or Department of GPV which obviously they're quite well connected.

As we see see ongoing growth of usage by partners And naturally, they build the bigger websites, the the websites that also drive more and higher GPV. So the uplift in terms of the airport portion of the general GPV of the company continues to grow. But there piece of that pie also increases all the time. As we noted, it has surpassed the 50% And our expectations looking at the growth trend for that for their piece of the pie to continue to increase and essentially also helped drive the overall GPV upwards in total.

Very helpful. Thank you. One moment for our next question.

Our next question comes from Andrew Boone with into achieving double digit self creator growth. What do you guys need to do to be able to achieve that level? And then talk about just kind of timing there. And then secondly, more of a strategic question. AI is allowing Wix to expand into new product categories like customer service, with AI Site Chat. Can you talk about just AI more strategically? And how it is allowing you to expand into new product categories? And how do we think about that over time, right? Are you guys limited in terms of what you guys may offer for SMBs? How do we think about the expansion of the category and the TAM as we think about AI unlocking new products? Thanks so much. I think that maybe Leo, you want to take the first part?

And then Yes, I will take the first part about the self creators. Let's take for example what's happening 2024. We saw the acceleration of bookings and it was part also not just because of partners and studio, but also because of the different initiatives with CellCreto, we definitely understand We know that while we are introducing more tech [indiscernible] but also increasing the ARPU. We are not modeling right now double digit growth for cell in 2025, but we definitely believe that we can achieve it in 2026 based on the new product that we are going to launch. [indiscernible] As for the second question about AI, I think that we released a first gen AI product, right, in 2016. ADI was the first time I think, anywhere there was a generative AI that actually consumers or users or small businesses to do anything, probably also for enterprises. And you could create a website just using very, very simple prompts.

So of course, already then, AI allows us to increase our market Obviously, in the last couple of weeks, more powerful, we can do more with that. And things like the website chat, the support for our users' websites, agent and the marketing agents Of course, examples of that. And I think there's a lot more that we can do there. Right? And I believe that that that is one line of expansion of functionality we will see. I do also believe that this is the most trivial, the more trivial kind of line of thinking about it. And in 2016, I think we surprised everybody by doing what we did. I think there's a lot of new things we can surprise the world with.

And additional initiatives that we can create I don't believe that if you look forward, right, into the future, if you look five years into the future, websites will look and feel the same. I think there's a lot more we can do now.

And I also believe that Wix is probably the best company in the world in terms of positioning and technical capabilities and product capabilities to enable small businesses to achieve everything they need to be ready for how websites and how the Internet we're looking five years from today.

And there's a lot of discussions about it, a lot of theories about it.

But I really I really believe that the opportunity there is bigger [indiscernible] anything else because what we have today is going to continue to dramatically evolve into something that is probably more powerful and more enabling for small businesses to be successful. Overall, the Internet has a tendency to do it every so every ten years or so, right, in the 90s, [indiscernible] Became HTML, then it became images. Images and then later on videos. And then it became mobile. Right. And I think and then it became interactive, it would then become an application kind of an application.

And I think how WebServe will look in AI universe is the next step. And I think there's a lot of exciting things we can offer our users there.

One moment for our next question.

Our last question comes from Brent Thill with Jefferies. Your line is open. Hi, thank you. This is John again for Brent Thill.

Two questions on the free cash flow margin expansion, pretty impressive increase in this year, but what will be the biggest sources in leverage beyond the gross margin that you mentioned [indiscernible] And then I want to see about the top of funnel, how that's looking, whether you're also seeing the usual of the year with a bump in activity.

So I will start with the first part your question and he will answer the second one about the top of the funnel. So we have a few actually mostly two reasons. The first one as we mentioned before, is about the gross margin that is actually improving by one point. We also see more leverage in operating expenses And we can see that also in our guidance for the overall savings that we have over there. But we are guiding to approximately one to two points of operating expenses leverage as a percentage of revenue Let's remember that in dollar, we're actually increasing the cost. For example, those new products that we are going to launch in 2025, I definitely took into consideration that I will need more marketing budget in order to support it.

Despite of this fact, I do believe that we are going to see one to two point of leverage also as part of the operating expenses. This is more of the reason why we are going to see the improvement In free cash flow.

Brent, in terms of your question about the top of the funnel and what we're seeing I think we made some commentary about it as well in Q4. So I think we are I would say we are happy to comment that We are seeing positive trends. Naturally, we have no ability to predict the rest of the year. But But we're very that's This is for now, we're seeing a positive trend. And we continue on our strategic marketing effort, which is monetizing and prioritizing towards high intent users. Which I think you've seen us perform very successfully as you know can be a clear testament in what you see in terms of the current value, the ten year current value, as well by the way is an increase in net revenue retention over time, which increased a bit more modestly, but from 105% to 106%. And and also the increase of the eight bps which is kind of our equivalent for ARPU that rose 13% year over year.

I think from that standpoint, it's a good indication and one that we have the right tools to capitalize on. For 2025. It will be interesting to see how all of the new the new releases of these new products that Avishai is hinting towards. Will impact that going forward, but that's going to be kind of much further down the year.

Thank you, ladies and gentlemen. This does conclude today's conference. We thank you for your participation. You may now disconnect and have a wonderful day.