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BigCommerce (NASDAQ:BIGC) Surprises With Strong Q3, Next Quarter Growth Looks Optimistic


Full Report / November 04, 2021
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E-commerce software platform provider BigCommerce (NASDAQ: BIGC) reported Q3 FY2021 results beating Wall St's expectations, with revenue up 49.2% year on year to $59.2 million. The company expects that next quarter's revenue would be around $61.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. BigCommerce made a GAAP loss of $21.6 million, down on its loss of $10.8 million, in the same quarter last year.

BigCommerce (BIGC) Q3 FY2021 Highlights:

  • Revenue: $59.2 million vs analyst estimates of $54.8 million (8.09% beat)
  • EPS (non-GAAP): -$0.06 vs analyst estimates of -$0.14
  • Revenue guidance for Q4 2021 is $61.5 million at the midpoint, above analyst estimates of $60.9 million
  • Free cash flow was negative $14.7 million, compared to negative free cash flow of -$5.82 million in previous quarter
  • Customers: 12,378 customers paying more than $2,000 annually
  • Gross Margin (GAAP): 79%, in line with 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.

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.

Sales Growth

As you can see below, BigCommerce's revenue growth has been impressive over the last year, growing from quarterly revenue of $39.7 million, to $59.2 million.

BigCommerce Total Revenue

And unsurprisingly, this was another great quarter for BigCommerce with revenue up an absolutely stunning 49.2% year on year. On top of that, revenue increased $10.2 million quarter on quarter, a very strong improvement on the $2.35 million increase in Q2 2021, and a sign of acceleration of growth.

Analysts covering the company are expecting the revenues to grow 30.7% over the next twelve months, although estimates are likely to change post earnings.

Large Customers Growth

You can see below that at the end of the quarter BigCommerce reported 12,378 enterprise customers paying more than $2,000 annually, an increase of 1,392 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.

BigCommerce customers paying more than $2,000 annually

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 79% in Q3.

BigCommerce Gross Margin (GAAP)

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. 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 a pressure from competition to lower prices.

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 $3.2 billion and more than $408.3 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were very impressed how strongly BigCommerce accelerated the rate of new contract wins this quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 1.41% on the results and currently trades at $46.5 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. We think BigCommerce is a solid business. Its revenue growth has been strong. And while its growth is coming at a cost of significant cash burn, the good news is its impressive gross margins are indicative of excellent business economics, and its efficient customer acquisition is better than many similar companies.

BigCommerce's price to sales ratio based on the next twelve months is 12.7x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about BigCommerce and there's no doubt it is a bit of a market darling, at least for some.

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