BigCommerce Q3 2022 Earnings Last Week Show Big Losses
BigCommerce Q3 2022 Earnings Last Week Show Big Losses
It appears to me that SaaS companies have much belt-tightening to do.
Shopify moved from flat to negative 25% net operating margin with their latest quarter. Just to give you some comparison.
This post is about BigCommerce, however. The below figures are based on the same quarter a year ago:
* BigCommerce grew revenue by 22% year over year.
(Their revenue is not dependent on GMV)
Subscription revenue is up 26%. Shopify's subscription revenue is growing approximately 12% y/y at the moment. Now on a much larger base!
Shopify subscription revenue is ~9x BigCommerce.
* Their cost of revenue grew 41% y/y. Expense lines grew to:
- sales and marketing grew 31%
- R&D grew 35%
- G&A grew 42%
Yes, Shopify had large expense growth, but BigCommerce was already historically hovered where Shopify is now -- near -22%.
With these new expense gains, Bigcommerce is now at -42% net operating margin, which is just a tremendous number in this environment for a SaaS company not growing over 30% y/y.
So what does it mean?
1 - Shopify and BigCommerce need to either find a large source of margin dollars (think on the order of Amazon's ad business), or you will likely see significant price increases over the next year.
I would be shocked to see both BigCommerce and Shopify NOT raise prices by 30%+. When was the last time these platforms truly raised prices a significant amount?
I suspect this is being planned.
2 - Shopify is in a different place than BigCommerce since they have already (recently) demonstrated net operating margin potential. I expect a price hike plus a restructure could get them back to more normal numbers, where that might be -5% net operating margins, for instance.
3 - BigCommerce, I think, has other challenges.
- While subscription revenue is growing faster than Shopify, total revenue is growing slower.
Ultimately this means the company is under-monetized.
Witness, Shopify revenue is about 18x BigCommerce this quarter.
However, Shopify's profit dollars are 37x BigCommerce.
Since BigCommerce subscription growth is healthy, this is one of the reasons I predict prices will go up.
I also think BigCommerce could be a significant take-private opportunity, similar to what happened recently with Avalara (who was also growing similarly but also -25% net operating margin).
I do not see why BigCommerce needs to be a public company in these markets, and I would not be surprised if private equity sees the same thing.
