BigCommerce Files S-1

Written by
Ross Andrewsarrow icon

BigCommerce Files S-1

Written by
Ross Andrews

The E-commerce platform filed it’s S-1 indicating it’s intentions to have an Initial Public Offering. E-commerce was already a hot commodity and has had a spike in demand and interest since the coronavirus epidemic shuttered many brick and mortar retail. BigCommerce is a competitor of Shopify (SHOP) who has seen tremendous increase to its stock price amid the pandemic (up roughly 300% since March). While BigCommerce is most likely trying to take advantage of warm investor sentiment for e-commerce right now, when you examine the S-1 there are some signs for caution. A big concern is that they reported a LTM Net Revenue Retention of 108% (NRR) which is below the median 117% for SaaS companies at IPO through in a vacuum 108% NRR is a strong number. The issue with this number is that it only was reported for revenue from the >$2K ACV customer segment. Smaller/lower paying customers typically have higher churn and thus worse retention in B2B subscription businesses, by excluding this segment of customers BigCommerce’s NRR might be slightly worse and it is closer to 100% that can be a concern for a SaaS company that is about to IPO. This combined with the fact that their Rule of 40 does not look great (-8%), and there are a few worrying signs that might cause for investor caution. The Rule of 40 is a combination of Year-over-Year Revenue Growth percent (18% FY2019) and Operating Margin (-26% for FY2019) morning , meant to give you an idea of growth and profitability. A -8% Rule of 40 is a worrying sign that BigCommerce’s growth is slowing and their profitability still hasn’t caught up. For most SaaS businesses scale eventually begins to plateau once you have saturated a market. That is ok as long as you begin to then drive healthy profits that will sustain the company, in BigCommerce’s case they either need to accelerate revenue growth or improve the economics and profitability of the business. One encouraging sign here is that Operating Margin for Big Commerce was -41% in 2018 so 2019’s numbers represent a 12% improvement.

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