E-commerce software platform provider BigCommerce (NASDAQ: BIGC) reported Q1 FY2022 results that beat analyst expectations, with revenue up 41.5% year on year to $66 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $66 million, 0.22% below analyst estimates. BigCommerce made a GAAP loss of $37 million, down on its loss of $8.54 million, in the same quarter last year.
BigCommerce (BIGC) Q1 FY2022 Highlights:
- Revenue: $66 million vs analyst estimates of $63.8 million (3.46% beat)
- EPS (non-GAAP): -$0.18 vs analyst estimates of -$0.18
- Revenue guidance for Q2 2022 is $66 million at the midpoint, roughly in line with what analysts were expecting
- The company lifted revenue guidance for the full year, from $277.6 million to $282.2 million at the midpoint, a 1.65% increase
- Free cash flow was negative $23.3 million, compared to negative free cash flow of $9.92 million in previous quarter
- Customers: 12,972 customers paying more than $2,000 annually
- Gross Margin (GAAP): 74.1%, down from 80.1% 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.
As you can see below, BigCommerce's revenue growth has been impressive over the last year, growing from quarterly revenue of $46.6 million, to $66 million.
And unsurprisingly, this was another great quarter for BigCommerce with revenue up 41.5% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.15 million in Q1, compared to $5.61 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates BigCommerce is expecting revenue to grow 34.7% year on year to $66 million, in line with the 34.9% 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 23.1% over the next twelve months.
Large Customers Growth
You can see below that at the end of the quarter BigCommerce reported 12,972 enterprise customers paying more than $2,000 annually, an increase of 218 on last quarter. That is a bit less contract wins than last quarter and also quite a bit below what we have typically seen over the past couple of quarters, suggesting that the sales momentum with large customers is slowing down.
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 74.1% in Q1.
That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still around the average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market, so it is important to track.
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 $23.3 million in Q1, increasing the cash burn by 76.1% year on year.
BigCommerce has burned through $53.7 million in cash over the last twelve months, a negative 22.4% 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 Q1 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 $1.29 billion and more than $376.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We enjoyed seeing BigCommerce’s impressive revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see the slowdown in new contract wins and the revenue guidance for the next quarter missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 1.11% on the results and currently trades at $19 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 exceptional, 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 4.7x, 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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