Like many volatile technology IPOs BigCommerce (NASDAQ:BIGC) came out of the gates flying. But since a late August surge, roughly $100 has been shed from the share price. Was it another case of trader euphoria getting ahead of fundamentals?
While there is probably some element of truth to the notion that hype played into the initial burst, the growth story for BigCommerce remains in place. With the stock now trading back below its opening IPO price, investors may want to revisit this once highflyer as an emerging software play on the e-commerce boom.
What Does BigCommerce Offer?
BigCommerce provides an ecommerce platform that helps online merchants get their business up and running. The software-as-a-service (SaaS) is used in both the business-to-consumer (B2C) and business-to-business (B2B) spaces. BigCommerce customers are located all over the world and span many different industries from health & beauty and apparel to electronics and automotive.
The acceleration of global e-commerce during the pandemic has intensified competition among software providers. Bigger players like Shopify and Wix represent a formidable challenge to an upstart like BigCommerce.
But while the company may be relatively late to the game, it is not simply picking up the leftovers. It is casting a wide net in going after businesses of all shapes and sizes from small businesses in the hyper-growth stage to lower growth, established enterprises. In the latter category, BigCommerce hangs it hat on inking software deals with well-known companies like Sony, Skullcandy, Avery Dennison, and Ben & Jerry's.
How Did Big Commerce Perform in Q4?
After the market close on February 22nd, Big Commerce reported fourth-quarter results that included a 39% increase in revenue to $43.1 million. This was $4.5 million ahead of the Street. A net loss of $0.12 also beat analyst expectations by two cents.
Outside of the headline numbers, the much-scrutinized annualized recurring revenue (ARR) figure was up 41% to $181.2 million. This is considered an important metric for SaaS companies like BigCommerce because it reflects the money being generated from software subscriptions. The steady, known nature of this revenue source is a major part of why software companies appeal to many investors.
Management offered full-year 2021 guidance that included revenue of $190 million and a non-GAAP operating loss of $33.9 million at the midpoints. The revenue forecast represents 25% growth over the prior year and was ahead of analyst forecasts while the bottom-line forecast represents an improvement over 2020's $38.7 million net loss.
Considering revenue growth accelerated from 22% in 2019 to 36% in 2020, the 25% sales growth estimate seems conservative and likely to get bumped higher or handily surpassed. And although the fact that BigCommerce is still operating at a loss may detract some investors, its high gross operating margin of 78%, accelerating gross profit growth of 40%, and accelerating top line growth should provide comfort that profitability is not far away.
What Makes BigCommerce Stock a Buy?
BigCommerce shares initially moved higher in after-hours trading but have since trended lower amid general market weakness. The timing of the current market swoon isn't good for the near-term reaction but offers an advantage for investors.
There is a clear disconnect between BigCommerce's strong recent performance and its nosedive since late January. If and when the broader market snaps out of its current funk, BigCommerce's price will have some catching up to do and we are likely to see this high beta stock dramatically outperform.
Thus far just one sell-side firm has weighed in on BigCommerce in the wake of the fourth quarter earnings report. The analyst at Needham reiterated a 'buy' rating and $85 price target which implies 35% upside from here. Following the better than expected fourth quarter and first quarter outlook, look for other analysts to upwardly revise their estimates and targets.
Despite the strong presence of Shopify, there can be several winners in the e-commerce software space. According to eMarketer the global e-commerce market will grow from $4.3 trillion in 2020 to $6.4 trillion by 2024.
While some part of consumer spending will undoubtedly shift back to offline retailers, the shift to online shopping globally will continue to unfold. BigCommerce CFO Robert Alvarez estimated that online retail transactions will eventually comprise 40% to 50% of all retail transactions compared to 18% in 2020. This means more and more businesses will be heading online and seeking out robust e-commerce platforms like Shopify and BigCommerce.
In BigCommerce investors now have a glorious opportunity to buy into a company with accelerating revenue growth and exposure to the boom in global e-commerce. A few years from now, hindsight will reveal this price level as a Big buy opportunity.
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