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BigCommerce (NASDAQ:BIGC) Posts Better-Than-Expected Sales In Q3 But Stock Drops On Weak Guidance


Full Report / November 03, 2022
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E-commerce software platform provider BigCommerce (NASDAQ: BIGC) announced better-than-expected results in the Q3 FY2022 quarter, with revenue up 22.1% year on year to $72.3 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $73.3 million, 3.79% below analyst estimates. BigCommerce made a GAAP loss of $30.2 million, down on its loss of $21.6 million, in the same quarter last year.

BigCommerce (BIGC) Q3 FY2022 Highlights:

  • Revenue: $72.3 million vs analyst estimates of $69.6 million (3.97% beat)
  • EPS (non-GAAP): -$0.15 vs analyst estimates of -$0.21
  • Revenue guidance for Q4 2022 is $73.3 million at the midpoint, below analyst estimates of $76.1 million
  • Free cash flow was negative $51.5 million, compared to negative free cash flow of $16 million in previous quarter
  • Gross Margin (GAAP): 75.7%, down from 79% 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 very strong over the last two years, growing from quarterly revenue of $39.7 million in Q3 FY2020, to $72.3 million.

BigCommerce Total Revenue

This quarter, BigCommerce's quarterly revenue was once again up a very solid 22.1% year on year. On top of that, revenue increased $4.18 million quarter on quarter, a very strong improvement on the $2.15 million increase in Q2 2022, which shows re-acceleration of growth, and is great to see.

Guidance for the next quarter indicates BigCommerce is expecting revenue to grow 12.9% year on year to $73.3 million, slowing down from the 50.4% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 18.5% over the next twelve 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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 75.7% in Q3.

BigCommerce Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a good gross margin that allows companies like BigCommerce to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that BigCommerce is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. BigCommerce burned through $51.5 million in Q3, increasing the cash burn by 250% year on year.

BigCommerce Free Cash Flow

BigCommerce has burned through $100.7 million in cash over the last twelve months, a negative 37.1% free cash flow margin. This low FCF margin is a result of BigCommerce's need to still heavily invest in the business.

Key Takeaways from BigCommerce's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on BigCommerce’s balance sheet, but we note that with a market capitalization of $1 billion and more than $306.7 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see BigCommerce outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for BigCommerce. The company is down 9.05% on the results and currently trades at $12.05 per share.

Is Now The Time?

When considering BigCommerce, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of BigCommerce we will be cheering from the sidelines. Its revenue growth has been strong, 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 twelve months is 3.0x, 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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