Why Shopify Rival BigCommerce Is Tumbling After an Earnings Beat

While down sharply from its late-August highs, BigCommerce still carries a rich valuation. And it's also growing more slowly than Shopify.
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Though BigCommerce  (BIGC) - Get Report topped analyst estimates, a high valuation -- and perhaps also unfavorable comparisons to the performance of larger rival Shopify -- are leading its shares to add to their recent losses.

BigCommerce, which like Shopify  (SHOP) - Get Report offers a software/services platform that helps merchants sell online, posted Q2 revenue of $36.3 million (up 33% annually) and non-GAAP EPS of negative $0.38. Those numbers beat FactSet consensus estimates of $35.6 million and negative $0.51.

BigCommerce also guided for Q3 revenue of $35.9 million to $36.3 million and full-year revenue of $142.5 million to $143.3 million. Those guidance ranges were respectively above consensus estimates of $34.4 million and $139.6 million.

Nonetheless, BigCommerce’s stock is down 9.8% to $82.58 in Thursday trading as of the time of this article. Shares are now down 49% from a late-August high of $162.50 -- hit after news of a non-exclusive Facebook/Instagram partnership sparked a buying frenzy -- albeit still up 249% from their $24 August IPO price and 21% from a post-IPO opening price of $68.

High multiples undoubtedly have much to do with the market’s reaction to BigCommerce’s report. In spite of its recent tumble, BigCommerce is still worth about $6.5 billion after accounting for stock option, restricted stock unit (RSU) and warrant grants, or about 38 times its 2021 consensus revenue estimate.

In addition, it’s hard to ignore how BigCommerce’s growth rates are well below Shopify’s, in spite of being a much smaller company.

Shopify’s revenue rose 97% annually in Q2 to $714.3 million -- a growth rate nearly three times higher than BigCommerce’s. Moreover, whereas BigCommerce’s revenue rose just 9% sequentially, Shopify’s revenue rose 52% sequentially.

BigCommerce might note that Shopify’s higher growth rates have a lot to do with the fact that Shopify (unlike BigCommerce) often handles payment-processing for its merchants and charges a transaction fee if a third-party payment provider is used. As a result, Shopify’s top-line growth is more strongly correlated with the spike in e-commerce activity that has happened since March.

However, if one only zeroes in on high-margin subscription revenue, Shopify still comes out ahead. Whereas BigCommerce’s Subscription Solutions revenue rose 19% annually in Q2 to $23.9 million, Shopify’s Subscription Solutions revenue rose 28% to $196.4 million. Both companies’ subscription growth rates were depressed some by promotions tied to COVID-19.

Also: whereas BigCommerce’s Partner and Services revenue (it’s tied to e-commerce transaction cuts) rose 74% to $12.4 million, Shopify’s Merchant Solutions revenue (it covers payment and transaction fees, as well as things like shipping services and loans) rose 148% to $517.9 million, fueled by 119% gross merchandise volume (GMV) growth for Shopify’s platform.

While Shopify sports a very rich valuation as well, it is the clear market leader and appears to have gained additional share in recent months. For the time being at least, an investment in BigCommerce represents a bet on a company that sports comparable sales multiples, but is much smaller and also growing more slowly.