E-commerce software platform provider BigCommerce (NASDAQ: BIGC) reported Q2 FY2023 results topping analysts' expectations, with revenue up 10.6% year on year to $75.4 million. Revenue guidance for the full year also exceeded analysts' estimates but next quarter's guidance of $77.8 million was less impressive, coming in 1.42% below expectations. BigCommerce made a GAAP loss of $19.1 million, improving from its loss of $39.6 million in the same quarter last year.
BigCommerce (BIGC) Q2 FY2023 Highlights:
- Revenue: $75.4 million vs analyst estimates of $73.4 million (2.84% beat)
- EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.09
- Revenue Guidance for Q3 2023 is $77.8 million at the midpoint, below analyst estimates of $78.9 million
- The company reconfirmed revenue guidance for the full year of $307 million at the midpoint
- Free Cash Flow of $13.7 million is up from -$21.9 million in the previous quarter
- Gross Margin (GAAP): 75.1%, 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.
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 $49 million in Q2 FY2021 to $75.4 million this quarter.
This quarter, BigCommerce's quarterly revenue was once again up 10.6% year on year. On top of that, its revenue increased $3.69 million quarter on quarter, a strong improvement from the $674 thousand decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that BigCommerce is expecting revenue to grow 7.47% year on year to $77.8 million, slowing down from the 22.1% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 12.5% over the next 12 months.
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 75.1% in Q2.
That means that for every $1 in revenue the company had $0.75 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's free cash flow came in at $13.7 million in Q2, turning positive over the last year.
BigCommerce has burned through $63.4 million of cash over the last 12 months, resulting in a negative 22.1% 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 Q2 Results
Although BigCommerce, which has a market capitalization of $748.1 million, has been burning cash over the last 12 months, its more than $297.4 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
It was good to see BigCommerce beat analysts' revenue expectations this quarter. That really stood out as a positive in these results. In addition, the company hired technology industry veteran and experienced e-commerce sales leader Steven Chung as its president and announced it will add new AI-powered features to its platform, leveraging Google Cloud’s AI technologies. However, its underwhelming revenue guidance for next quarter was disappointing. Overall, this was a mediocre quarter for BigCommerce but the market seems excited about the company's long-term prospects. The stock is up 7.56% after reporting and currently trades at $10.25 per share.
Is Now The Time?
BigCommerce may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity. 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, though we don't expect it to maintain historical growth rates. But 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 and 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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