The Deutsche Bank Note Moving Wix 5% Higher

• Since Deutsche Bank first initiated coverage on Wix.Com Ltd (NASDAQ: WIX), the stock has declined 20 percent versus 11 percent declines in peers.
• Analyst Deepak Mathivanan said that the decline is unwarranted and upgraded the stock to Buy with a $27 price target.
• Mathivanan argued that there are three reasons for the upgrade, including "a number of catalysts" that can drive the stock higher in the near term.

Wix.com may be trading at a premium compared with peers, but Deutsche Bank's Deepak Mathivanan argued that it is not a high enough premium for the growth that investors get. Mathivanan noted that, "Wix deserves a bigger premium given the 2.5x top-line growth vs. peer group and significant potential for margin expansion." Further, the recent pullback in the stock can become an attractive entry point for new investors, given a more than 28 percent decline from its 52-week high.

However, it is not a clear case for Mathivanan, who outlined three risks to Deutsche Bank's forecast. Notably, Mathivanan expressed concern that average revenue per user and collections per subscriber growth would increase, instead suggesting that it may "remain muted." And to secure that level of growth, the company may have to offer more promotions. After that, the stickiness of customers secured using promotions is unclear, meaning that there could be high churn.

However, those risks are outweighed by the prospects for gains in the stock. Mathivanan said that the Wix upgrade was made before a "number of catalysts" can drive the stock higher. According to the analyst, those include a new editor rollout, "better marketing leverage" in H2 and "favorable" foreign exchange trends. Some of that marketing efficiencies were prevalent in Q2, according to Mathivanan.

Following Deutsche Bank's bullish note, Wix gained 5 percent Wednesday. Shares are still lower by 5 percent year-to-date. In late February 2014, the stock hit an all-time high above $30 per share, while falling to a low below $16. At $27, the stock would be within striking distance of its 52-week high at $28.63.