CA - BigCommerce: The Challenges And Opportunities Ahead

• BIGC's Customer acquisition is good so far but not guaranteed moving forward.
• Competing with SHOP is not easy for BIGC.
• BIGC offers cheaper customer solutions, and it has the potential to grow through international expansion.
• Future competition may hinder BIGC's route to profitability.

BigCommerce ( BIGC ) is a SaaS business in the eCommerce space that helps retailers build websites and tools to connect with customers and sell through omnichannel solutions. It is a high-growth company being crushed by the recent market sell-off (-44% year to date). While the future growth prospects for the eCommerce solution business are huge, I think BIGC will have some challenges down the road. In this article, I would like to share some of my thoughts.

BIGC's Customer acquisition won't be smooth moving forward

BigCommerce Q2 revenue grows 39% to 68.2M. Notably, enterprise revenues grow for 15 consecutive quarters of 40% or higher. Currently, 70% of annual recurring revenue are enterprise accounts, which is good news for BIGC. While BIGC's growth is faster this quarter, it still gains less market share than Shopify ( SHOP ), as shown in the chart below.

BIGC's sales & marketing spending increased to $32M, which is 46% of revenue, while its RD spending only accounts for 28%. This is heavy spending on marketing compared to SHOP. If BIGC wants to catch SHOP's market share sustainably, the cost of acquiring customers is still high for BIGC.

SHOP will constantly be a threat for BIGC

SHOP is clearly the current leader with strong brand recognition. BIGC has to constantly adapt its strategies to SHOP's actions. As the COVID hit, SHOP focuses on small and mid-businesses as they have a greater demand for social commerce and really need help under COVID restrictions. Then BIGC found the opportunity to expand its enterprise customers.

The good news is that E-commerce is a large market. Small businesses, start-ups, mid-market, and enterprises all have their specific needs. While SHOP is absolutely a dominating force, there will always be spaces for other players.

Moreover, enterprise companies usually have similar workflows and pain points for each market vertical. BIGC has lots of experience in several vertical categories, its sales team is getting more and more knowledgeable about specific customer needs in those verticals. This also helps differentiate BIGC to find its niche.

BIGC's customer solutions are more affordable

Another competitive strategy for BIGC is pricing. If you use their PRO plan for around $299.95 (last time I check), you can have essential tools for free such as payments, analytics, product listings, importing, themes and so many others. BIGC builds those features in-house with good usability. No need for third-party apps. SHOP, in another hand, will charge many of those through its app store.

Moreover, BIGC is a more open SaaS system with higher flexibility and less proprietary blockers/restrictions. The cost of ownership with BIGC is just cheaper. BIGC's margins may be lower, but it can build a durable business around cost-sensitive customers.

International expansion is a great way to build business advantages

BIGC is very vocal about its plans for international expansion (SHOP is not doing much yet). In Q2 2022, they added operations in new Europe countries including Denmark, Sweden, and Norway, and Austria. Mexico and Peru were also launched recently. The management stated in the recent call:

We're supporting new languages, adding new geographies and integrating new payment methods for local markets. We're in the early innings of global expansion and our growth rates in EMEA, APAC, and non-US Americas give us confidence that expansion will pay off in the near and long term.

Moreover, BIGC is backed by global tech investor SoftBank which owns hundreds of businesses directly in many emerging economies. SoftBank should be able to offer unique insights and word-of-mouth marketing to help BIGC land deals.

The journey to Profitability won't be easy

BIGC is founded in 2009 with 13 years of history already. However, the company is still relatively small and requires cash burning to fund growth. Other than SHOP, Magento (or Adobe commerce), Miva, BigCommerce, WooCommerce, and WIX are also eying the eCommerce markets BIGC is operating in. The competitive pressure will also be a threat to BIGC's profitability. Magento (now adobe commerce) has gained lots of engineering resources backed by Adobe, and it has gained some momentum in creating very customizable features. The Salesforce commerce cloud also migrated to Adobe, which offers great analytics and marketing tools. These are very tough and capable competitors that also focus on enterprise customers.

As in the chart below, BIGC's EBITDA hasn't improved as it grows its revenue and gross profits.

Bottom line

Overall, BIGC still got lots of opportunities to grow in the large global eCommerce market given the strong tailwind ahead. Shopify won't be the sole player in the space, and BIGC is arguably the best alternative option for now. BIGC also has merits with a low-cost and open SaaS concept that could attract more partnerships. However, I could not find many strong arguments to prove BIGC is better than SHOP, except that BIGC is smaller. Given the extreme complexity of SHOP, I don't see how BIGC will be a more important player than SHOP.

However, if BIGC is extremely undervalued, I would take a shot. Historically, SHOP always trades at double P/S ratios as BIGC (chart below). If, one day, BIGC trades at a quarter of SHOP's P/S ratio, I think that becomes too cheap to ignore.

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