E-commerce software platform provider BigCommerce (NASDAQ: BIGC) reported Q2 FY2021 results beating Wall St's expectations, with revenue up 34.9% year on year to $49 million. BigCommerce made a GAAP loss of $12.2 million, down on its loss of $8.48 million, in the same quarter last year.
BigCommerce (BIGC) Q2 FY2021 Highlights:
- Revenue: $49 million vs analyst estimates of $46.8 million (4.71% beat)
- EPS (non-GAAP): -$0.06 vs analyst estimates of -$0.11
- Revenue guidance for Q3 2021 is $54.7 million at the midpoint, above analyst estimates of $49.8 million
- The company lifted revenue guidance for the full year, from $197.4 million to $211.2 million at the midpoint, a 6.96% increase
- Free cash flow was negative -$5.82 million, compared to negative free cash flow of -$13.24 million in previous quarter
- Customers: 10,986 customers paying more than $2,000 annually
- Gross Margin (GAAP): 79.2%, down from 80.1% previous quarter
Founded in 2009, BigCommerce 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.
The COVID-19 pandemic has accelerated the global shift to e-commerce, and we can expect this trend to continue as consumers embrace flexible and fast online shopping options.
Competitors include Magento (an Adobe company), Salesforce Commerce Cloud (NYSE:CRM), Shopify (NYSE:SHOP), and WooCommerce.
As you can see below, BigCommerce's revenue growth has been very strong over the last year, growing from quarterly revenue of $36.3 million, to $49 million.
And unsurprisingly, this was another great quarter for BigCommerce with revenue up an absolutely stunning 34.9% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.35 million in Q2, compared to $3.51 million in Q1 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Analysts covering the company are expecting the revenues to grow 22.5% over the next twelve months, although we would expect them to review their estimates once they get to read these results.
Large Customers Growth
You can see below that at the end of the quarter BigCommerce reported 10,986 enterprise customers paying more than $2,000 annually, an increase of 477 on last quarter. That is quite a bit more contract wins than last quarter and quite a bit above what we have typically seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.
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, licences, technical support and other necessary running expenses was at 79.2% in Q2.
That means that for every $1 in revenue the company had $0.79 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still, this is still 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.
Key Takeaways from BigCommerce's Q2 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 market capitalisation of $4.86 billion and more than $203.2 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We were impressed by the very optimistic revenue guidance BigCommerce provided for the next quarter. And we were also glad to see the acceleration in new contract wins. On the other hand, there was a deterioration in gross margin. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is down -0.65% on the results and currently trades at $70.85 per share.
Is Now The Time?
BigCommerce may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although BigCommerce is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been strong, though we don't expect it to maintain historical growth rates. But while its impressive gross margins are indicative of excellent business economics, unfortunately its growth is coming at a cost of significant cash burn.
The market is certainly expecting long term growth from BigCommerce given its price to sales ratio based on the next twelve months is 23.1. We can find things to like about BigCommerce and there's no doubt it is a bit of a market darling, at least for some. But it seems that there is a lot of optimism already priced in and we are wondering whether there might be better opportunities elsewhere right now.
The Wall St analysts covering the company had a one year price target of $69.2 per share right before these results, implying that they didn't see much short-term potential in BigCommerce.