Generated Title: Wix's Base44 Gamble: Is AI Eating Its Lunch?
The Hype vs. The Hard Numbers
Wix's third-quarter results beat expectations, but the market yawned – and then promptly sold off the stock by 20% on November 19th. Why? The culprit appears to be Base44, Wix's AI-powered website builder. Growth is accelerating (now projected at $50 million ARR by year-end, up from $40-$50 million), but so are the costs. This isn’t just about scaling; it’s about the fundamental economics of AI, and whether Wix can make them work.
The core issue, as I see it, boils down to margin compression. Wix lowered its gross margin guidance to 68%-69% (a small but significant dip from 69%) and now expects operating expenses to hit 50% of revenue (previously 49%). These aren't massive changes, but they signal a worrying trend: the cost of supporting Base44 is rising faster than its revenue.
Wix attributes these rising costs to two primary factors. First, there's the AI processing and compute costs, which are "front-loaded" as users burn through AI tokens during the initial website build. Think of it like giving a toddler a box of crayons: they're going to use a lot of crayons upfront, experimenting and making a mess, before they settle down and (hopefully) create something worthwhile. But unlike crayons, AI compute isn't cheap. Second, sales and marketing expenses are up as Wix tries to push Base44 into the market. A valid expense, sure, but it adds to the pressure on profitability.
The AI Compute Conundrum
What's particularly concerning is the AI compute cost. This isn't a one-time investment; it's an ongoing expense tied directly to user activity. The more users leverage Base44's AI features, the more Wix pays. This raises a critical question: at what point does Base44 become profitable? And how much "free" AI usage can Wix afford to give away to attract new customers?
This is where the uncertainty creeps in. Morningstar cut its fair value estimate for Wix to $143 per share from $166, citing "lower margins from investments to support Base44." The market, it seems, is sharing this skepticism. Investors are increasingly wary of companies touting "AI-driven businesses" while simultaneously reporting sharp cost increases. (The market's reaction, in my opinion, is justified.)
Here's the part of the report that I find genuinely puzzling: Wix projects 2025 bookings of $2.060 billion-$2.078 billion (13%-14% reported growth) and revenue of $1.990 billion-$2.0 billion (also 13%-14% growth). Free cash flow is expected to be around $600 million (a 30% margin). But if AI costs continue to escalate, how sustainable is that 30% margin? Are these projections overly optimistic?
I've looked at hundreds of these quarterly filings, and this particular forecast feels... incomplete. Details on the assumptions driving that free cash flow projection are scarce. What AI usage levels are they anticipating? What's their projected cost per AI token? The lack of transparency here is, frankly, unsettling. (A parenthetical clarification: I'm not accusing Wix of any wrongdoing, but a little more detail would be reassuring.)
The other question I have is, if Base44 is growing so rapidly, shouldn't we be seeing more than 13-14% growth in overall revenue? Is Base44 cannibalizing existing Wix customers? Are people switching from traditional Wix website builders to the AI-powered version, without a corresponding increase in overall spending? These are crucial questions that need answers.
Is This the Beginning of the End?
Wix is betting big on Base44, and that's fine. But the company needs to demonstrate a clear path to profitability, not just rapid growth. The market isn't buying the "growth at all costs" narrative anymore, especially when those costs involve bleeding-edge AI technology. Until Wix can convince investors that Base44 is more than just an expensive experiment, the stock is likely to remain under pressure.