E-commerce software platform provider BigCommerce (NASDAQ: BIGC) fell short of analysts' expectations in Q3 FY2023, with revenue up 7.8% year on year to $78 million. On the other hand, next quarter's revenue guidance of $81.8 million came in slightly above analysts' estimates. Turning to EPS, BigCommerce made a non-GAAP profit of $0.01 per share, improving from its loss of $0.41 per share in the same quarter last year.
BigCommerce (BIGC) Q3 FY2023 Highlights:
- Revenue: $78 million vs analyst estimates of $78.1 million (small miss)
- EPS (non-GAAP): $0.01 vs analyst estimates of -$0.03 ($0.04 beat)
- Revenue Guidance for Q4 2023 is $81.8 million at the midpoint, roughly in line with what analysts were expecting
- Free Cash Flow was -$32.5 million, down from $13.7 million in the previous quarter
- Gross Margin (GAAP): 75.6%, in line with the same quarter last year
Founded in Sydney, Australia in 2009 by Mitchell Harper and Eddie Machaalani, BigCommerce (NASDAQ:BIGC) provides software for businesses to easily create online stores.
Like Shopify, its platform includes tools to embed all the required functionality to host and design online shops. It provides modules to manage website features such as checkout, order management, reporting, and also third-party integrations for payment processing and tax management. It also provides cross-platform commerce by enabling its customers to link their online stores with top marketplaces around the world, such as Amazon, eBay, Facebook, and Instagram.
The e-commerce platform initially focused on providing cheap and simple solutions for small businesses. It has since evolved to also serve the needs of mid-sized companies and large enterprises. BigCommerce was able to meet the complex needs of large organizations via its open software approach to application development which has made it easy to integrate its software with third-party apps.
E-commerce Software
While e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.
Competitors include Magento (an Adobe company), Salesforce Commerce Cloud (NYSE:CRM), Shopify (NYSE:SHOP), and WooCommerce.
Sales Growth
As you can see below, BigCommerce's revenue growth has been strong over the last two years, growing from $59.3 million in Q3 FY2021 to $78 million this quarter.
BigCommerce's quarterly revenue was only up 7.8% year on year, which might disappoint some shareholders. Additionally, its growth did slow down compared to last quarter as the company's revenue increased by just $2.6 million in Q3 compared to $3.7 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that BigCommerce is expecting revenue to grow 12.9% year on year to $81.8 million, improving on the 11.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 13.2% over the next 12 months before the earnings results announcement.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. BigCommerce's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 75.6% in Q3.
That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, sales and marketing, and general administrative overhead. BigCommerce's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that BigCommerce is controlling its costs and not under pressure from its competitors to lower prices.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. BigCommerce burned through $32.5 million of cash in Q3 , reducing its cash burn by 37% year on year.
BigCommerce has burned through $44.3 million of cash over the last 12 months, resulting in a negative 14.8% free cash flow margin. This low FCF margin stems from BigCommerce's poor unit economics or a constant need to reinvest in its business to stay competitive.
Key Takeaways from BigCommerce's Q3 Results
Although BigCommerce, which has a market capitalization of $753.6 million, has been burning cash over the last 12 months, its more than $69.8 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We struggled to find many strong positives in these results. The company continued to burn cash, while the revenue outlook for the next quarter came in roughly in line with Wall Street's expectations. In addition, the company announced a restructuring plan to reduce its current workforce by approximately 7 percent. Overall, this was a mixed quarter for BigCommerce. The company is down 6.4% on the results and currently trades at $9.4 per share.
Is Now The Time?
When considering an investment in BigCommerce, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
We cheer for everyone who's making the lives of others easier through technology, but in case of BigCommerce, we'll be cheering from the sidelines. Its revenue growth has been solid over the last two years, and analysts believe that's sustainable for now. And while its strong gross margins suggest it can operate profitably and sustainably, the downside is that its customer acquisition is less efficient than many comparable companies. On top of that, its growth is coming at a cost of significant cash burn.
BigCommerce's price to sales ratio based on the next 12 months is 2.2x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
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