Base44 nears $250 million in ARR as Wix spends heavily to fuel AI growth
The AI coding platform is outperforming expectations, but its rapid expansion is requiring greater investment in marketing and computing infrastructure. Wix lowered its free-cash-flow margin forecast to 16% and appointed longtime President Nir Zohar as co-CEO.
Wix reported stronger financial results for the third quarter, driven in large part by the continued rapid growth of Base44, its AI-powered coding platform acquired in 2025. Base44 is now approaching $250 million in annual recurring revenue (ARR), well ahead of the company's initial expectations. But its expansion is also forcing Wix to make substantial investments in computing infrastructure and marketing, putting pressure on cash generation even as the business becomes more profitable.
The company said Base44's non-GAAP gross margin reached 58% in the third quarter, a significant improvement from near zero in the first quarter. Wix expects the figure to exceed 60% in the fourth quarter, bringing the division closer to the gross margins of its established business. The improvement has been driven partly by lower AI inference costs following the development of Wix's proprietary Base 1 model.
Wix attributed Base44's growth to both an acceleration in new customer acquisition and improving retention among existing users. The third quarter marked the first anniversary of the initial group of Base44 users to join the platform under Wix's ownership. According to the company, renewal rates among that first cohort exceeded expectations, with retention improving among each subsequent group of users.
The company also reported a shift toward longer-term subscriptions. More than 20% of subscribers who joined Base44 in September 2026 chose annual plans, compared with approximately 5% among users who joined in September 2025. That change could help make the business more predictable, although most Base44 subscriptions are still billed monthly.
Wix's chief financial officer, Lior Shemesh, said the improvement in profitability was closely linked to reductions in the cost of running AI models. The company expects Base44's non-GAAP gross margin to exceed 60% by the end of the year and approach the level of its core Wix business next year. However, Wix plans to reinvest much of the improvement into sales and marketing to sustain Base44's expansion.
The results also brought a significant leadership change. Nir Zohar, who has served as Wix's president since 2013 and as its chief operating officer since 2008, has been appointed co-CEO alongside founder Avishai Abrahami, effective immediately. The move formalizes a division of responsibilities between the two longtime executives. Zohar will oversee business strategy, sales and marketing, and operations, while Abrahami will focus on product development, technology and AI.
Abrahami said the arrangement would allow him to concentrate more deeply on technology and product development while leaving the company's business operations in the hands of an executive who has helped lead it for nearly two decades.
Wix's total third-quarter revenue reached $570.2 million, up 13% year over year, while bookings rose 11% to $573 million. Creative Subscriptions, which includes Base44, generated $406.7 million in revenue, an increase of 14%. Business Solutions revenue rose 10% to $163.5 million. The company's total annual recurring revenue reached approximately $2.02 billion, up 15% from a year earlier.
Despite the growth, Wix recorded a GAAP net loss of $13.7 million, compared with a loss of $589,000 in the same quarter last year. On a non-GAAP basis, which excludes items such as share-based compensation, acquisition-related expenses and other costs, the company reported net income of $69.3 million. Cash generated from operating activities totaled $78.3 million, while free cash flow was $74.5 million. Excluding acquisition-related and restructuring costs, free cash flow would have reached $99.6 million.
The company's workforce restructuring has also affected its financial performance. Wix laid off approximately 1,000 employees over the summer as it sought to streamline operations and adapt its organization to the growing role of AI. Its headcount stood at 4,121 at the end of September. The company had approximately 5,200 employees at the beginning of the year, around 60% of whom were based in Israel.
The outlook is more complicated. Wix maintained its full-year revenue guidance, expecting growth in the low-to-mid-teens range, but warned that fourth-quarter revenue growth would remain in the low double digits. The company also expects bookings growth to lag revenue growth, partly because of softer activity among its partners, including agencies and resellers.
The annual outlook increasingly depends on Base44. Wix said the platform's continued expansion is expected to drive growth through the rest of the year, with much of its current annual recurring revenue momentum translating into recognized revenue and bookings over subsequent quarters.
At the same time, the cost of sustaining that growth is becoming more visible. Wix lowered its full-year free-cash-flow margin forecast, excluding acquisition-related and restructuring costs, to approximately 16%, from the high-teens previously expected. The company attributed the reduction primarily to accelerated sales and marketing investment in Base44, with additional improvements in gross margin expected to be reinvested in the business during the fourth quarter.
Wix also expects a working-capital impact of approximately $10 million in the fourth quarter as it prepays for GPU capacity needed to run its AI models over the next two years. The payment reflects the infrastructure requirements of expanding Base44, even as the company works to reduce the cost of operating its AI services.
