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BigCommerce (NASDAQ:BIGC) Posts Better-Than-Expected Sales In Q4 But Full-Year Guidance Underwhelms


Full Report / February 22, 2024

E-commerce software platform provider BigCommerce (NASDAQ: BIGC) reported Q4 FY2023 results topping analysts' expectations, with revenue up 16.2% year on year to $84.15 million. On the other hand, next quarter's revenue guidance of $77 million was less impressive, coming in 4% below analysts' estimates. It made a non-GAAP profit of $0.09 per share, improving from its loss of $0.10 per share in the same quarter last year.

BigCommerce (BIGC) Q4 FY2023 Highlights:

  • Revenue: $84.15 million vs analyst estimates of $81.5 million (3.2% beat)
  • EPS (non-GAAP): $0.09 vs analyst estimates of $0.05 ($0.04 beat)
  • Revenue Guidance for Q1 2024 is $77 million at the midpoint, below analyst estimates of $80.23 million
  • Management's revenue guidance for the upcoming financial year 2024 is $331.1 million at the midpoint, missing analyst estimates by 1.5% and implying 7% growth (vs 10.8% in FY2023)
  • Free Cash Flow of $12.24 million is up from -$32.48 million in the previous quarter
  • Gross Margin (GAAP): 77.5%, up from 74.5% in the same quarter last year
  • Market Capitalization: $627.7 million

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 solid over the last two years, growing from $64.9 million in Q4 FY2021 to $84.15 million this quarter.

BigCommerce Total Revenue

This quarter, BigCommerce's quarterly revenue was once again up 16.2% year on year. We can see that BigCommerce's revenue increased by $6.10 million quarter on quarter, which is a solid improvement from the $2.60 million increase in Q3 2023. Shareholders should applaud the acceleration of growth.

Next quarter's guidance suggests that BigCommerce is expecting revenue to grow 7.3% year on year to $77 million, slowing down from the 8.6% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $331.1 million at the midpoint, growing 7% year on year compared to the 10.9% increase in FY2023.

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 77.5% in Q4.

BigCommerce Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.77 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, 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.

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 $12.24 million in Q4, turning positive over the last year.

BigCommerce Free Cash Flow

BigCommerce has burned through $28.42 million of cash over the last 12 months, resulting in a negative 9.2% free cash flow margin. This low FCF margin stems from BigCommerce's constant need to reinvest in its business to stay competitive.

Key Takeaways from BigCommerce's Q4 Results

It was great to see BigCommerce improve its gross margin this quarter. We were also glad its revenue topped Wall Street's estimates, driven by outperformance in its partner and services segment, where it has key customers such as Nvidia and Paypal. On the other hand, its full-year 2024 revenue guidance was below expectations, suggesting a slowdown in demand. Overall, the results could have been better. The stock is flat after reporting and currently trades at $8.26 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.

Although BigCommerce isn't a bad business, it probably wouldn't be one of our picks. Although its , Wall Street expects growth to deteriorate from here. And while its strong gross margins suggest it can operate profitably and sustainably, the downside is 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 1.9x, suggesting that the market has lower expectations of the business, relative to the high growth tech stocks. We can find things to like about BigCommerce and there's no doubt it's a bit of a market darling, at least for some. But we are wondering whether there might be better opportunities elsewhere right now.

Wall Street analysts covering the company had a one-year price target of $11.21 per share right before these results (compared to the current share price of $8.26).

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