BIGC - BigCommerce Holdings: Macro Remains A Concern For Growth

2023-05-17 00:54:25 ET

Summary

• BIGC is a prominent provider of cloud-based e-commerce solutions.
• The company offers a comprehensive e-commerce platform catering to both B2C and B2B customers, with a focus on enterprise clients.
• The company is well-positioned to take advantage of the growing market and capture a share of the expanding TAM.
• I believe that BigCommerce is currently fairly valued at current levels.

Investment Thesis

BigCommerce Holdings, Inc. ( BIGC ) is a leading provider of cloud-based e-commerce solutions, equipping businesses with comprehensive tools to establish and expand their online presence. Its standout feature is its e-commerce platform, which supports both B2C and B2B capabilities, targeting enterprise customers. BigCommerce's pricing model is also unique in the market. With the increased adoption of digital commerce due to the COVID-19 pandemic, BigCommerce is well-positioned to capitalize on this growing market. However, considering its growth prospects and profitability, I believe that BigCommerce stock is currently fairly valued at current levels.

Q1 2023: Losses Narrowing But Still Tough Going

BigCommerce's overall performance in Q1 was in line with expectations, although there was a slowdown in growth compared to the previous quarter. Despite this, their Annual Recurring Revenue ((ARR)), a key performance indicator, exceeded consensus estimates, posting a 13% year-over-year increase to $316.7 million. The deceleration in growth was primarily driven by Enterprise ARR, which accounts for 72% of the total, slowing down from 30% year-over-year growth in Q4 to 21% in Q1. This was mainly due to longer sales cycles for larger enterprise opportunities in the US, while mid-market, small and medium-sized business ((SMB)), and international customers remained relatively stable.

Non-Enterprise ARR, on the other hand, showed positive growth, increasing by 0.2% sequentially, which was better than anticipated. The contraction in growth also improved compared to the previous quarter. BigCommerce expects non-Enterprise ARR to experience a year-over-year contraction in the mid-single digits throughout FY23. Despite the current deceleration, BigCommerce maintains its expectation of 20%+ ARR growth for the full year, with a projected acceleration in the second half of the year.

The management in discussion highlighted the strong performance of Feedonomics, a company BigCommerce acquired. Feedonomics is experiencing success and is growing at a similar or faster pace than BigCommerce's enterprise business. The integration of Feedonomics with Amazon Multi-Channel Fulfillment has provided additional value for merchants. This positive momentum and continued innovation contribute to a favorable view of Feedonomics.

Overall, while the company's strategic direction and focus on higher-return opportunities in the market are appreciated, I remain concerned regarding the challenging macro environment and the deceleration in leading indicators. Hence, I recommend not taking a position in BigCommerce at this time.

Differentiated Solution Focused on the Enterprise Market

BigCommerce provides a unique offering in the e-commerce market with its e-commerce platform. This concept involves separating the front-end presentation layer from the back-end e-commerce functionality, which appeals to large enterprise companies. It allows businesses to design their desired user experience using any front-end technology, offering flexibility and future-proofing. Companies can easily update and iterate on the front-end design without impacting the back-end systems.

BigCommerce's platform stands out for its openness and integration capabilities. It seamlessly integrates with numerous partners that offer complementary services such as payments, shipping, and Point of Sale systems. Moreover, the platform offers extensive enterprise functionality tailored to large companies, including features supporting B2B commerce like customer groups and price lists. This sets BigCommerce apart in the market as one of the few pure Software-as-a-Service (SaaS) vendors providing a headless e-commerce platform with both B2C and B2B capabilities, specifically targeting the Enterprise market. Notably, BigCommerce's pricing model is based on tiered pricing tied to transaction or order volume and functionality rather than being based on Gross Merchandise Volume (GMV) like many other platforms.

Secular Tailwinds Driving a Large TAM

BigCommerce operates in the Digital Commerce Application Market, which was valued at $5.05 billion in 2022. This market is expected to grow to $14.4 billion by 2031, representing a compound annual growth rate of 12% during that period. The adoption of digital commerce and Direct-to-Consumer models by manufacturers and brands was already on the rise before the COVID-19 pandemic, but the pandemic has accelerated these trends significantly. BigCommerce is well-positioned to benefit from these long-term trends in the market.

Valuation

Based on my assessment, I consider BigCommerce to be fairly valued, given its current price level relative to its growth trajectory and margin profile. Currently, BigCommerce is trading at 1.9x its estimated revenue for CY2023. The multiple is at a discount to its core comp set that includes Salesforce, Inc. ( CRM ), Adobe Inc. ( ADBE ), Shopify Inc. ( SHOP ), and Wix.com Ltd. ( WIX ), which trades at ~6x EV/CY24E revenue based on a weaker FTM growth and FCF margin profile as well as incrementally challenging demand environment for its business.

Conclusion

The e-commerce industry is still in its early stages of development and has not yet reached widespread adoption. BigCommerce is in a favorable position to capitalize on this opportunity by targeting enterprise customers, and it has begun expanding its presence beyond the United States. However, I remained concerned about the challenging macro environment and deceleration in leading indicators, which is why I recommend a hold rating on the stock.

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