#018 - BigCommerce

BigCommerce provides software for small and large businesses to help create an online store and sell products to customers. BigCommerce is one of Shopify's most notable competitors.

BigCommerce - (NASDAQ: BIGC)

BigCommerce provides software for small and large businesses to help create an online store and sell products to customers. BigCommerce is one of Shopify's most notable competitors.

If you enjoy this, sign up for more shallow dives here!👇

Share


Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.


Industry Overview

BigCommerce competes with companies that provide e-commerce software for merchants. There are numerous competitors in this space. Shopify is likely the most notable, but Wix, Webflow, GoDaddy, WordPress, and others all compete with BigCommerce.

Shopify operates a “closed SaaS platform” meanwhile BigCommerce operates an “open SaaS platform.” Shopify merchants are pushed to pick a Shopify offering instead of having the option to choose another option that works best for their business. For example, Shopify wants merchants to use its Shopify Point of Sale (POS) hardware instead of using POS hardware from other companies like Square. Now, yes, you could go and use Square’s POS and set up some integration in the Shopify App Store to make this connection work, but it’s not as apparent since Shopify will try to upsell POS hardware to merchants.

BigCommerce offers the basic tools necessary to run an online storefront while giving merchants the ability to pick what other companies they want to work with to successfully run their business. BigCommerce provides the first 20% of tools needed for a merchant to operate a store online while letting merchants choose the final 80% of tools they need to operate an online business.

Business Overview

BigCommerce collects revenue in two ways. First, it offers subscription services for merchants, and second, it collects partner and service revenue (PSR) through revenue share agreements with other companies that provide services to merchants. The best way to think of PSR is to think of it as an extension of BigCommerce’s offering but giving merchants the flexibility to choose who they want to work with.

There are some benefits to being a closed ecosystem such as simplicity and ease of use, but there are also downsides like not having the best products or not being able to fully customize your store and your choice of products and services.

I believe that smaller merchants may view Shopify more favorably than BigCommerce because smaller merchants may just want the ease of use without having to research what other companies have a good POS system, best tax software, or best payments company to work with. Shopify makes these decisions nonexistent and allows merchants to focus on what they do best.

I believe BigCommerce may be a more attractive option for larger merchants or more experienced sellers. BigCommerce provides the flexibility that some merchants may want or need to run their business. Larger merchants may need the flexibility because the difference between a Shopify product and another company’s product can be thousands of dollars or more. If larger merchants have enough volume, even the smallest difference can be thousands of dollars for merchants.

Total Addressable Market

E-commerce is a massive industry. This is no surprise to anyone. Shopify has built an incredible $100bn+ of market value all while continuing to grow and showing no signs of slowing down. I think BigCommerce may be able to compete in this industry but I think it depends on your level of comfort and where you want to invest in this industry.

BigCommerce has the chance to go after a large and growing customer base, but to what extent does Shopify compete and win these customers? Shopify has many advantages such as the brand name, arguably more attractive features, and scale to benefit Shopify merchants.

While Shopify captures the long tail of customers, BigCommerce can capture the larger merchants that may have outgrown Shopify or are already too big to rely on Shopify. BigCommerce’s enterprise-type customers may have higher GMV volumes than the average Shopify store. Does this mean BigCommerce might have more GMV than Shopify one day? Just a thought, but I’d bet the top 20% of stores on Shopify do around 80% of GMV. Larger merchants are an attractive customer segment to target because they drive more GMV than small merchants. BigCommerce can monetize the GMV through revenue share agreements with payments companies.

Competitive Advantages

  • Partnerships/Ecosystem

    BigCommerce’s partnerships and building up the number of companies available to its merchants have likely taken years of work and would not be replicated within months or years probably. These partnerships likely require negotiations as BigCommerce and its partner need to sort through revenue share agreements.

    Large merchants also want the flexibility to pick and choose the companies they work with. Assuming all else is equal between BigCommerce and a future competitor, a competitor that wants to copy BigCommerce’s strategy would need to match or exceed the partnerships available to merchants in order to make BigCommerce a less attractive option.

    I called this an ecosystem because I think it can represent a small network effect. As BigCommerce makes more partnerships with companies, more merchants join. As more merchants join, more partnerships are created. This matters because BigCommerce’s whole schtick is providing flexibility to merchants. This flexibility can’t happen with only 1 partnership in each category.

  • Brand

    Although BigCommerce can’t compete with Shopify’s brand, BigCommerce may already have a strong brand among potential enterprise customers or may develop a strong brand among enterprise customers. If BigCommerce can have the same branding among enterprise customers as Shopify has among SMBs, that would be a strong competitive advantage.

  • Switching Costs

    Just like other companies like Shopify and Wix have strong switching costs, BigCommerce likely has strong switching costs for merchants. Switching a store from Shopify to BigCommerce, or switching a website from Wix to Shopify can be one tough process and many things can go wrong. Businesses can lose customers and thousands of dollars or more if done incorrectly. Large merchants could be even more dissuaded from switching because having a website that goes down can cost millions in lost revenue.

Financials

BigCommerce has disappointing financial results in my opinion. I’m disappointed that it didn’t benefit more from the COVID-19 pandemic and the uptick in e-commerce.

2020

  • Total revenue = ~ 152 million

  • Subscription solutions revenue = ~ 104 million

  • Partner and services revenue = ~ 49 million

  • Gross profit = ~ 118 million

  • GAAP EBIT = ~ -39 million

  • Adjusted EBITDA = ~ -25 million

  • ARR = ~ 181 million

  • ARR attributable to accounts with ACV > $2,000 = ~ 82.2%

  • Accounts with ACV greater than $2,000 = 14,615

  • ARR attributable to enterprise accounts = ~ 55.6%

  • Subscription solutions revenue growth = ~ 25.4%

  • Parter and services revenue growth = ~ 65.4%

  • Gross profit margin = ~ 77.6%

  • GAAP EBIT margin = ~ -25.4%

  • Adjusted EBITDA margin = ~ -16.1%

  • ARR growth = 41.0%

  • Net revenue retention = ~ 113%

2019

  • Revenue = ~ 112 million

  • Subscription solutions revenue = ~ 83 million

  • Partner and services revenue = ~ 29 million

  • Gross profit = ~ 85 million

  • GAAP EBIT = ~ -41 million

  • Adjusted EBITDA = ~ -35 million

  • ARR = ~ 129 million

  • ARR attributable to accounts with ACV > $2,000 = ~ 78.5%

  • Accounts with ACV greater than $2,000 = 11,098

  • ARR attributable to enterprise accounts = ~ 51.9%

  • Subscription solutions revenue growth = ~ 17.3%

  • Parter and services revenue growth = ~ 25.4%

  • Gross profit margin = ~ 75.9%

  • GAAP EBIT margin = ~ -36.6%

  • Adjusted EBITDA margin = ~ -31.6%

  • ARR growth = 25.8%

  • Net revenue retention = ~ 106%

2018

  • Revenue = ~ 92 million

  • Subscription solutions revenue = ~ 70 million

  • Partner and services revenue = ~ 21 million

  • Gross profit = ~ 70 million

  • GAAP EBIT = ~ -38 million

  • Adjusted EBITDA = ~ -34 million

  • ARR = ~ 102 million

  • ARR attributable to accounts with ACV > $2,000 = ~ 74.2%

  • Accounts with ACV greater than $2,000 = 9,056

  • ARR attributable to enterprise accounts = ~ 45.5%

  • Gross profit margin = ~ 76.1%

  • GAAP EBIT margin = ~ -41.3%

  • Adjusted EBITDA margin = ~ -37.1%

  • Net revenue retention = ~ 108%

What’s Interesting

  • #2 E-commerce Player

    Like I said above, e-commerce is a massive industry and there will likely be a number of winners in this industry. Shopify won’t be able to power all the online and offline stores. There are already a number of competitors attacking different Shopify offerings most notably POS.

    Even if BigCommerce ends up as the #2 company offering software for merchants, this can still be a successful business. The attractive piece to me is powering the storefronts for large businesses rather than SMBs like Shopify. BigCommerce is able to monetize its merchant base through both subscription revenue and partner and service revenue. BigCommerce is able to capture the same opportunity as Shopify, but BigCommerce gives its merchant base the flexibility to choose what works best for their business.

  • Enterprise Customers

    One of the risks of Shopify is that SMBs are more prone to economic hardships and also going out of business. Although Shopify makes it easy to set up an online store, these merchants are also more likely to stop selling if it’s not worth the investment of time and money.

    BigCommerce’s enterprise-type customers are more established, possibly more profitable, and not as likely to go out of business. BigCommerce’s merchant churn may be less than Shopify. BigCommerce could capture revenue for longer assuming merchant churn is lower on BigCommerce than Shopify. BigCommerce may be able to capture a similar percentage of payments revenue through PSR when compared to Shopify’s merchant solutions revenue. Assuming BigCommerce splits payments revenue in some way (whether it’s 60/40, 50/50, or some other way) with its payments partners, BigCommerce is effectively capturing 100% profit margins on most of the PSR revenue.

Future Questions

  • Shopify?

    Truthfully, I don’t think BigCommerce can beat Shopify in the SMB category. Shopify has a large headstart, lots of mindshare among SMBs, and plenty of offerings to keep BigCommerce from stealing merchants and having much success.

    BigCommerce may have more success among larger customers because of BigCommerce’s flexibility with what tools and products merchants have access to. This would require more work and research on the differences between BigCommerce and Shopify Plus for larger merchants which is my question below.

  • Do bigger companies prefer Shopify Plus or BigCommerce?

    Shopify also has an offering for enterprise-grade customers called Shopify Plus. One crucial question I’d have if I dug more into BigCommerce would be whether or not BigCommerce’s enterprise offering was better than Shopify Plus. If flexibility and having a more open platform didn’t matter to merchants, then I think Shopify Plus might win that customer segment. On the other hand, large companies may want the flexibility and options because those choices can be hundreds of thousands or millions of dollars over time.

    For an SMB merchant, worrying about the best payments company, POS company, tax company, or the other 20 choices may not be worth the headache. Smaller merchants may choose to focus on their core offering rather than worrying about saving relatively small amounts of money. I believe enterprise customers will worry about choosing the best payments company, POS company, tax company, and the other 20 choices because the money is large enough to worry at that stage.

Conclusion

This is a shallow dive as always, so please do your own research. This is just a way for me to introduce myself to some of these companies and share my thoughts with those who are interested.

I think BigCommerce is probably an attractive company. Some may agree, some may disagree. BigCommerce has a different strategy than Shopify and this may lead to BigCommerce winning some business from Shopify or it might not. There will always be more work to do before making an investment in this company.

If you have companies or industries you want me to research, please comment below and let me know. I’m looking to cover some companies in the automobile industry, most notably Carvana, Vroom, CarMax, and some others.


If you’ve enjoyed this edition of Weekly 10-K please considering subscribing below, sharing it with friends and colleagues, or following me on Twitter.