What you need to know ahead of the Q1 release

Wix.com (WIX) is expected to report a year-over-year earnings decline on higher revenue in its quarter ended March 2022. This widely-known consensus forecast provides a good picture of the company’s earnings, but comparing actual results to these estimates is an important factor that could impact the stock’s near-term price.

The earnings report, due on May 16, 2022, could help the stock rally if these key numbers turn out to be better than expected. On the other hand, if they don’t meet expectations, the stock could fall.

While the sustainability of the immediate price change and future earnings expectations will depend primarily on management’s discussion of business conditions during the earnings conference call, it is worth assessing the likelihood of a positive earnings surprise.

Zacks Consensus Estimates

The cloud-based web development company is expected to report a quarterly loss of $0.64 per share in its upcoming report, which would represent a year-over-year change of -18.5%.

Revenue is expected to be $340.07 million, up 11.8% from the same quarter last year.

Estimate revision trend

The consensus EPS estimate for the quarter has been revised up 0.73% over the past 30 days to current levels. This is essentially a reflection of how the analysts covering the aggregate have reassessed their initial estimates during this period.

Investors should note that the aggregate change does not necessarily reflect the direction of estimate revisions by each major analyst.

Price, consensus and EPS surprise

Whispers about earnings

Estimate revisions ahead of a company’s earnings release provide an indication of business conditions in the period in which the earnings are released. This knowledge is the basis for our proprietary Zacks Earnings ESP (Expected Surprise Prediction) surprise prediction model.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; The Most Accurate Estimate is a newer version of the Zacks Consensus EPS. The idea is that analysts revising their estimates just before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had previously predicted.

Thus, a positive or negative Earnings ESP reading theoretically indicates a likely deviation of actual earnings from consensus estimates. However, the predictive power of the model is only significant for positive ESP readings.

A positive Earnings ESP is a strong predictor of an earnings beat, especially when paired with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks in this combination deliver a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of its Earnings ESP.

It’s important to remember that a negative Earnings ESP reading doesn’t necessarily mean earnings are lost. Our research shows that it’s difficult to predict earnings growth with any degree of confidence for stocks with negative Earnings ESP readings and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How do the numbers stack up for Wix.com?

For Wix.com, the Most Accurate Estimate is above the Zacks Consensus Estimate, suggesting analysts have recently become optimistic about the company’s earnings prospects. This resulted in an earnings ESP of +15.09%.

On the other hand, the stock currently carries a Zacks Rank #2.

So this combination indicates that Wix.com will most likely beat consensus EPS estimates.

Does the history of surprising results hold any clue?

When calculating future earnings estimates, analysts often consider how well a company has been able to match consensus estimates in the past. So it’s worth looking at the company’s surprise history to assess its impact on the upcoming number.

For the last reported quarter, Wix.com was expected to post a loss of $0.38 per share when it actually generated a loss of $0.37, representing a surprise of +2.63%.

The company has topped consensus earnings per share estimates three times over the last four quarters.

Summary

Improving or lacking earnings may not be the sole basis for a stock’s value rising or falling. Many stocks lose value despite good returns because of other factors that disappoint investors. Similarly, unforeseen catalysts help many stocks gain despite losing profits.

That said, betting on stocks that are expected to beat earnings expectations increases the odds of success. That’s why it’s worth checking a company’s Earnings ESP and Zacks Rank ahead of its quarterly earnings release. Be sure to use our Earnings ESP Filter to discover the best stocks to buy or sell before they release.

Wix.com seems like a compelling candidate for financial outperformance. However, investors should look at other factors when betting on or staying away from this stock ahead of its earnings release.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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