Why Wix Stock Plummeted by Nearly 23% This Week
Key Points
One of the pundits even downgraded his recommendation to the equivalent of hold.
The other reduced his price target on the shares.
A pair of bearish analyst moves helped put the hurt on Wix.com (NASDAQ: WIX) stock over the past few trading days. By the time Friday market close rolled around, according to data compiled by S&P Global Market Intelligence, the stock's price had eroded by almost 23% over the week.
Two bearish changes over two days
The first, and more impactful, of the two changes occurred on Tuesday, when Citizens' Andrew Boone downgraded Wix.com stock. His new recommendation on it is market perform (neutral, in other words), one level down from the previous market outperform (buy).
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Boone expressed concern about Wix.com's recent round of share buybacks, according to reports. In a rather unorthodox move, it elected to do so via a modified Dutch auction, in which the lowest bids would be honored (potentially saving the company money). All told, it repurchased nearly 17.6 million of its shares -- almost 30% of the outstanding tally -- for over $1.6 billion.
The analyst waxed bearish on the financial impact of the move, noting that it has saddled the company with almost $1 billion in net debt. Besides that, he expects artificial intelligence (AI) to disrupt the company's business, a fear that's been prevalent with veteran software and other tech stocks lately.
Two days later, Barclays prognosticator Trevor Young reduced his price target on Wix.com. In his opinion, the stock's fair value these days is $155, down from $160. Despite the cut, Young retained his overweight (buy) recommendation.
The specter of disruption
While the Dutch Auction was a quick (and obviously effective) way of drastically reducing the outstanding share count, I'm not convinced it was worth the heavy debt load.
That potential disruption from AI Boone mentioned is also a valid concern, as web design/modification is one activity that numerous AI models are already capable of. I'd be more bearish on Wix.com's future than the two pundits.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Wix.com. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.