Commerce (CMRC)

E-commerce software company Commerce (NASDAQ:CMRC) met Wall Streets revenue expectations in Q3 CY2025, with sales up 2.8% year on year to $86.03 million. The company expects next quarter’s revenue to be around $90.3 million, close to analysts’ estimates. Its non-GAAP profit of $0.08 per share was significantly above analysts’ consensus estimates.

Company Overview

As a founding member of the MACH Alliance advocating for modern tech standards, Commerce (NASDAQ:CMRC) provides a SaaS platform that enables businesses to build and manage online stores, connect with marketplaces, and integrate with point-of-sale systems.

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.

Commerce's primary competitors in the mid-market and enterprise segments include Adobe's Magento, Salesforce Commerce Cloud, Commercetools, and Shopify Plus, while in the small business market, they compete mainly with Shopify and WooCommerce.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Commerce grew its sales at a decent 19.4% compounded annual growth rate. Its growth was slightly above the average software company and shows its offerings resonate with customers.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. Commerce’s recent performance shows its demand has slowed as its annualized revenue growth of 6.9% over the last two years was below its five-year trend.

This quarter, Commerce grew its revenue by 2.8% year on year, and its $86.03 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 3.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 4.1% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Commerce’s ARR came in at $355.7 million in Q3, and over the last four quarters, its growth was underwhelming as it averaged 3% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in securing longer-term commitments.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Commerce is efficient at acquiring new customers, and its CAC payback period checked in at 38.6 months this quarter. The company’s relatively fast recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like Commerce, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Commerce’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an excellent 78.6% gross margin over the last year. That means Commerce only paid its providers $21.42 for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Commerce has seen gross margins improve by 3.4 percentage points over the last 2 year, which is very good in the software space.

Commerce produced a 78.4% gross profit margin in Q3, marking a 2.1 percentage point increase from 76.3% in the same quarter last year. Commerce’s full-year margin has also been trending up over the past 12 months, increasing by 1.9 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Although Commerce broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 3.1% over the last year. Unprofitable, high-growth software companies require extra attention because they spend heaps of money to capture market share. As seen in its fast historical revenue growth, this strategy seems to have worked so far, but it’s unclear what would happen if Commerce reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

Over the last two years, Commerce’s expanding sales gave it operating leverage as its margin rose by 11.1 percentage points. Still, it will take much more for the company to reach long-term profitability.

This quarter, Commerce generated a negative 0.5% operating margin.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Commerce has shown weak cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.3%, subpar for a software business.

Commerce’s free cash flow clocked in at $7.59 million in Q3, equivalent to a 8.8% margin. This result was good as its margin was 3.4 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

Over the next year, analysts’ consensus estimates show they’re expecting Commerce’s free cash flow margin of 8.3% for the last 12 months to remain the same.

Commerce reported $143.2 million of cash and $165.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $34.41 million of EBITDA over the last 12 months, we view Commerce’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $4.83 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Commerce blew past analysts’ EBITDA expectations this quarter. On the other hand, its revenue guidance for next quarter was in line and its annual recurring revenue fell slightly short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock traded up 1.7% to $4.62 immediately following the results.

Updated: December 5, 2025 at 9:11 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Commerce.

We cheer for all companies solving complex business issues, but in the case of Commerce, we’ll be cheering from the sidelines. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its ARR has disappointed and shows the company is having difficulty retaining customers and their spending. And while the company’s gross margin suggests it can generate sustainable profits, the downside is its low free cash flow margins give it little breathing room.

Commerce’s price-to-sales ratio based on the next 12 months is 1.1x. This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $7.14 on the company (compared to the current share price of $4.65).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.