Is BigCommerce Really the 'Next Shopify' for Investors?

There seems to be an insatiable appetite from the investing community for the great growth stories in America. Earnings and dividends almost seem to not even have any place at all when it comes to speculating on the great growth stocks. After all, the companies can always raise more cash if needed.

Now that Shopify Inc. (NYSE: SHOP) has seen its shares surge from its ability to deliver retail and service companies the ability to adapt their businesses to the COVID-19 pandemic, its stock has somehow grown to a massive $130 billion in market cap. Analysts keep chasing their price targets higher and higher. It hardly seems to matter that Shopify generated less than $1.6 billion in 2019 and that it is expected to see sales of $2.6 billion in 2020 and $3.4 billion in 2021.

The investing community is really looking out to how large Shopify can be several years out at this point in the game, and that is a similar evaluation of how they viewed the mighty Inc. (NASDAQ: AMZN) for the better part of two decades.

One strategy that investors have used for years is to find “the next greatest thing.” That means “the next Shopify” or “the next Amazon.” BigCommerce Holdings, Inc. (NASDAQ: BIGC) is a recent initial public offering that may end up being “the next Shopify.” This is still far from certain, but its shares have literally doubled in the last two trading days and trading volume has been incredible.

The driving force behind the doubling of BigCommerce was an announcement that its ecommerce platform was available for checkout on Instagram with eligible U.S. merchants. The company said that its merchants can be among the first to adopt the new feature to purchase products that are discovered on Instagram. Facebook Inc. (NASDAQ: FB) acquired Instagram and the platform growth has been incredible.

BigCommerce is a platform that helps merchants of all sizes and all stages of growth sell their goods on all major online destinations. That’s on Amazon, eBay, Facebook, Google and on the Square POS. The one key aspect that has to be looked at is how much the company is actually doing in business. Its sales in 2018 were $91.87 million and then $112.10 million in 2019. The sales in the first quarter of 2020 were $33.17 million, versus $25.58 million in the first quarter of 2019. The company is losing money at this time with net losses reported as -$42.59 million in 2019 and -$4.02 million in the first quarter of 2020.

BigCommerce’s IPO priced at the start of August above the original range. It sold more than 10 million shares in total at $24 per share in its IPO, the stock traded above $90 on its debut and above $100 the second day of trading. Its shares were under $80 on Monday morning, but the stock closed at $104.09 on Monday and Tuesday’s gain was up over 35% at $141.50 in late afternoon trading.

What is amazing about BigCommerce at this stage is that it now has a market cap of $9.5 billion. If this company manages to grow sales to nearly $200 million in 2020, which certainly seems doable in the major online push in the COVID-19 recession, than this stock would be valued at close to 50 times revenues.

The analyst community keeps loading up on Shopify’s price targets, but Shopify is actually valued at about 50 times expected current year revenues as well. Shopify has a solid lead over BigCommerce, but BigCommerce already claims to have tens-of-thousands (60,000 according to its IPO document) of B2B and B2C companies as platform users across 120 countries which have used it to create attractive and engaging online stores. Some of BigCommerce’s listed customers include the likes of Avery Dennison, Ben & Jerry’s, Burrow, SC Johnson, SkullCandy, Sony, and Woolrich.

What is interesting about Tuesday’s follow-on move is not just the percentage gain. It’s that this is one new feature that created so much buzz when it already allows its merchants to sell on so many other venues. There is obviously excitement that Facebook and Instagram are just at the very beginnings of developing into destinations where commerce actually takes place.

One more likely consideration that the investing community will likely fixate on is that the market cap here is less than $10 billion. At that level, with the mega-cap valuations of other online commerce giants, investors are assuming that the upside growth is still exponential over the coming years just because of the size today being small.

BigCommerce’s IPO documents included a note that its business has benefited from this shift to online buying under the pandemic, and the company has been seeing accelerated sales growth for its existing customers’ stores and in the sales of new store subscriptions to customers. The company also noted that it had closed it main offices in Austin, San Francisco, Sydney, and London and adopted a work-from-home model; but it had begun reopening its Austin offices in June.

As for the total market opportunity, BigCommerce’s IPO filing included some references using IDC estimates. The company noted that the global market for digital commerce applications was $4.7 billion in 2019 and that the total market should grow at a 11% compound annual growth rate to reach $7.8 billion in 2024.

BigCommerce’s IPO documents noted that the company faces strong competition. In the mid-market and large enterprise segments it faces against Magento (Adobe), Salesforce Commerce Cloud (formerly Demandware), and Shopify Plus. In the SMB segment, its primary competitors are Shopify and WooCommerce. The company also noted that BuiltWith has identified more than 500 platforms of various sizes around the world.

At the end of 2019, BigCommerce had 690 full-time employees. This included 190 in R&D, 181 in sales and marketing, and 319 employees in professional services and customer support. Some 592 of those employees were in the United States and 98 were in international locations. As of the end of 2019, Shopify counted more than 5,000 employees and contractors worldwide.

One last note is that BigCommerce’s underwriting syndicate firms have yet to issue their analyst initiations. It’s hard to imagine that the analyst community will be negative on the stock, but what happens when an IPO prices at $24 and then runs to $90 and $100 immediately, pulls back to under $80 and then goes on a massive surge to above $140?

The underwriting syndicate for Big Commerce included Morgan Stanley, Barclays, Jefferies and KeyBanc Capital Markets as the lead underwriters. Additional firms in the syndicate included Canaccord Genuity, Needham & Company, Raymond James and Truist Securities (formerly SunTrust Robinson Humphrey).

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