WIX Q3 CY2025 Deep Dive: AI Investments Pressure Margins Amid Base 44 Expansion

Website building platform Wix (NASDAQ:WIX) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 13.6% year on year to $505.2 million. The company expects next quarter’s revenue to be around $526 million, close to analysts’ estimates. Its non-GAAP profit of $1.68 per share was 12.6% above analysts’ consensus estimates.

Is now the time to buy WIX? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Wix’s third quarter saw higher-than-expected costs alongside strong revenue growth. Management attributed the results to robust user adoption in both the core website business and the newly acquired Base 44 AI-powered app builder. CEO Avishai Abrahami highlighted that “Base 44 is quickly proving to be a leader and the best solution on the market today,” while acknowledging that initial costs from rapid growth and marketing outlays for Base 44 weighed on margins. Cost pressures were driven by increased AI compute expenses and the predominance of monthly, rather than annual, subscriptions in Base 44’s user base, leading to a short-term misalignment between costs and revenue.

Looking ahead, Wix’s guidance relies heavily on continued momentum in Base 44 and the broader adoption of AI-powered tools by small businesses and non-technical users. Management expects further improvement in user retention and a gradual shift toward longer-term subscriptions, which should help margin recovery over time. CFO Lior Shemesh stated, “We are going to see improving margin as a result of that…we are going to see Base 44 mix of customer change. All of that is going to drive the profitability to be very similar to the one that we see in Wix.com Ltd., and we strongly believe because we’ve been there.” The company is also focused on making Wix websites more discoverable by AI agents, aiming to maintain its relevance in the evolving digital landscape.

Key Insights from Management’s Remarks

Management pointed to accelerating adoption of Base 44 and improved user engagement in the core platform as central themes for the quarter, while also flagging short-term cost headwinds from AI investments and go-to-market ramp-up.

• Base 44 user surge: The AI-powered Base 44 platform saw its user base expand to over 2 million globally within months of the acquisition, with more than 1,000 new paying subscribers joining daily. Management emphasized this rapid adoption outpaced initial forecasts and positioned Wix as an early leader in the emerging AI app builder market.

• Shift to monthly subscriptions: Unlike Wix’s core business, where most customers commit to annual plans, Base 44 users predominantly select monthly subscriptions. This trend reflects early-stage trust-building and higher churn typical of new platforms, but management believes a shift toward annual plans will materialize as users gain confidence.

• Elevated marketing and AI costs: Investments in Base 44’s marketing and AI infrastructure drove up sales, marketing, and cost of revenue expenses. CFO Lior Shemesh explained these front-loaded costs are “a result of accelerated branding and acquisition marketing investments above our initial August plan to capture stronger-than-expected demand.”

• Commerce and partner segment strength: The core Wix business continued to benefit from healthy commerce trends, with transaction revenue up 20% year over year and growing adoption of Wix payments. Partner revenue grew 24% year over year to $192 million, driven by continued traction among professional designers and solid studio adoption. Domains, marketing applications, and Google Workspace saw particular strength within the partners' business in the most recent quarter.

• Product launch delays: The anticipated release of Wix’s new flagship Self Creator tool has been postponed to early 2026 due to technical challenges in stabilizing and refining AI features. CEO Abishai expressed disappointment over the delay but confidence that the product will deliver value once launched.

Drivers of Future Performance

Wix’s outlook centers on scaling Base 44, optimizing AI costs, and shifting subscription mix to longer durations, all while navigating ongoing margin pressures from initial hypergrowth investments.

• Base 44 expansion: Management is betting on continued growth in Base 44, expecting it to reach at least $50 million in annual recurring revenue by year-end. The company is prioritizing market share and user acquisition over immediate profitability, with the expectation that margins will improve as the user base matures and moves to longer-term subscriptions.

• AI and infrastructure cost trends: While AI compute costs remain high due to new user onboarding, the company anticipates significant efficiency gains as technology advances, in-house model training expands, and external vendor prices decline. Shemesh noted that “AI costs decrease as LLMs improve and competition continues to ramp.”

• Core platform enhancements: Wix is investing in making customer websites more discoverable by AI agents and compliant with new digital standards, aiming to ensure relevance as digital content consumption evolves. These efforts are expected to support long-term user retention and value creation, particularly as standards for AI integration across the web rapidly change.

Catalysts in Upcoming Quarters

In the coming quarters, our team will closely monitor (1) the conversion of Base 44 users from monthly to annual subscriptions, (2) the pace of AI cost reductions and associated margin recovery, and (3) the rollout and adoption of new AI-driven features across both the core platform and Base 44. Execution on these fronts will be key in determining whether Wix can sustain growth while improving profitability.

Wix currently trades at $102.35, down from $126.92 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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