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BigCommerce aims to raise $130 million from the sale of its Series 1 stock in an IPO, according to an amended registration statement.

The company provides enterprises of all sizes with a suite of cloud-based ecommerce software solutions.

BIGC has an accelerating revenue growth trajectory and the IPO appears reasonably priced.

Austin, Texas-based BigCommerce was founded to develop e-commerce software delivered as a SaaS platform for online retailers.

BIGC has sold its software to 60,000 online stores in more than 110 countries worldwide.

Management is led by president, CEO and Chairman Mr. Brent Bellm, who has been with the firm since June 2015 and was previously president and COO of HomeAway, a vacation rental online marketplace.

Below is a brief overview video of BigCommerce:

Source: BigCommerce

The firm has a robust partner program for both Agency partners and Technology partners.

The firm's primary uses cases include:

  • Headless Commerce
  • B2B
  • Wholesale
  • Multi-Channel
  • International

Industries the company focuses its software include:

  • Apparel & Fashion
  • Health & Beauty
  • Food & Beverage
  • Manufacturing
  • Automotive

BigCommerce has received at least $225 million from investors including Revolution Growth, General Catalyst Group, GGV Capital and SoftBank.

The firm originally launched with a focus on the SMB market, with a self-serve website-based service.

Since then, the firm has transitioned to a much wider approach, expanding its focus to include larger enterprises.

Sales & Marketing expenses as a percentage of total revenue have been uneven as revenues have increased.

The Sales & Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales & Marketing spend, rose to 0.5x in the most recent reporting period.

Management disclosed the firm’s recent net revenue retention rate as, “NRR for accounts with ACV greater than $2,000 was 108% and 106% for 2018 and 2019, respectively.”

A figure of greater than 100% is considered good as it means the firm is generating increasing revenue (negative net churn) from the same cohort of customers over time.

According to a 2020 market research report by Grand View Research, the global market for e-commerce software was valued at $6.2 billion in 2019 and is expected to reach $18 billion by 2027.

This represents a forecast very strong CAGR (Compound Annual Growth Rate) of 16.3% from 2020 to 2027.

The main drivers for this expected growth are an increase in e-commerce capabilities to assist enterprises in automating core business functions while increasing the leverage firms have as consumers increasingly adopt online shopping for goods and services.

Also, firms that utilize APIs (Application Programming Interface) enable companies to employ low code solutions to quickly modernize their existing systems.

Major competitive or other industry participants include:

  • Magento
  • Salesforce (CRM)
  • Shopify (SHOP)
  • WooCommerce
  • Numerous smaller platforms

BigCommerce’s recent financial results can be summarized as follows:

  • Growing topline revenue
  • Increasing gross profit
  • Variable gross margin
  • Fluctuating operating losses
  • Increasing cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

bigcommercepl2

Source: Company registration statement

As of March 31, 2020, BigCommerce had $33 million in cash and $118. million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was negative ($43.8 million).

BIGC intends to sell 6.85 million shares of Series 1 stock at a midpoint price of $19.00 per share for gross proceeds of approximately $130 million, not including the sale of customary underwriter options.

Private equity firm Tiger Global Management has indicated its non-binding interest in purchasing up to 20% of the shares offered in the IPO. This is unusual for a non-life science IPO and represents a strong vote in favor of the proposed valuation.

Only holders of Series 1 common stock are entitled to vote, Series 2 holders are not entitled to vote, although the series is convertible into Series 1 stock under certain circumstances.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $1.5 billion.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 10.4%.

Per the firm’s most recent regulatory filing, the firm plans to use the net proceeds as follows:

We intend to use a portion of the net proceeds from this offering to pay in cash the Series F Dividend, which is expected to total $16.4 million as of the closing of this offering. As a result of the anticipated payment of the Series F Dividend, holders of our Series F preferred stock are expected to receive approximately $16.4 million of the net proceeds of this offering, including entities affiliated with General Catalyst Group and Lawrence Bohn, a member of our board of directors, and entities affiliated with GGV Capital and Jeff Richards, a member of our board of directors, which are expected to receive approximately $0.1 million and $0.3 million, respectively. We intend to use the remainder of the net proceeds from this offering for working capital and general corporate purposes, including sales and marketing, research and development, general and administrative matters, and capital expenditures.

Management’s presentation of the company roadshow is available here.

Listed underwriters of the IPO are Morgan Stanley, Barclays, Jefferies, KeyBanc Capital Markets, Canaccord Genuity, Needham & Company, Raymond James, and SunTrust Robinson Humphrey.

Commentary

BIGC is going public in part to pay a Series F dividend although most of the proceeds will be available for the company’s future growth initiatives.

The firm’s financials indicate it is growing topline revenue at an accelerating rate; gross profit and gross margin have increased, although operating profit has been highly variable.

Sales and marketing expenses as a percentage of total revenue have been uneven as revenues have increased; the firm’s sales and marketing efficiency ratio has improved.

The company's net dollar retention rate is above 100%, a positive signal that indicates it is garnering more revenue from the same cohort over time, i.e., negative net churn.

The market opportunity for providing a SaaS e-commerce solution is large and likely to grow at a significant rate in the coming years, so the company enjoys a robust industry growth dynamic.

That growth potential will no doubt be assisted further by the Covid19 pandemic and its effects on businesses seeking to produce more of their revenue from digital sources.

Morgan Stanley is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 60.7% since their IPO. This is a top-tier performance for all major underwriters during the period.

As a comparable-based valuation to a basket of public Internet application providers compiled by the NYU Stern School which had an EV/Revenue multiple of 7.64x in January 2020, BIGC’s proposed EV/Revenue multiple of 12.66x is certainly higher.

However, the firm’s revenue growth rate of nearly 30% is likely higher than the comparable basket, so I view the IPO as reasonably valued.

Given BIGC’s growth trajectory and reasonable valuation at IPO, my opinion on the IPO is a BUY at up to $19.00 per share.

Expected IPO Pricing Date: August 4, 2020.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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