Not long after filing its initial S-1 Registration Statement with the SEC, e-commerce upstart BigCommerce is increasing its anticipated IPO pricing range. Last week, BigCommerce expected that the deal would price at $18 to $20. This week, the company boosted that range to $21 to $23. The COVID-19 pandemic has driven a boom in e-commerce demand as consumers shift purchasing behavior to online platforms.
Here's what prospective investors need to know.
Image source: Getty Images.
Targeting a $1.5 billion valuation
Larger e-commerce companies Amazon.com (AMZN +0.32%) and Shopify (SHOP 5.99%) both reported stellar results for the second quarter. Amazon's Q2 revenue skyrocketed 40% to $88.9 billion, while Shopify's top line nearly doubled to $714.3 million.
BigCommerce is significantly smaller than either of those companies, with revenue in the second quarter estimated at $35.5 million to $35.8 million, according to an amended S-1 filed last week. That represents growth of around 30% to 31%. Based on the midpoint of that range, BigCommerce has generated trailing-12-month (TTM) revenue of about $128.1 million.
The company expects to have approximately 65.8 million to 66.9 million shares outstanding (including both Series 1 and Series 2 shares) after the offering, depending on whether underwriters exercise options to purchase additional shares. That would put BigCommerce's total valuation at roughly $1.5 billion at the midpoint of the expected pricing range.
In other words, the e-commerce platform would be valued at around 11.5 times sales. That's quite a bit cheaper than Shopify, which currently trades at nearly 70 times sales. Amazon's sales multiple is just under 5, in part due to the tech juggernaut's sheer size and scale.
BigCommerce is highlighting to investors its annual revenue run rate (ARR), which was between $150.9 million and $151.2 million at the end of the second quarter -- meaningfully higher than reported revenue. Roughly half of ARR comes from larger enterprise customers as of the end of 2019, according to the filings.
However, it's worth noting that the way BigCommerce calculates ARR is somewhat peculiar. The company defines ARR as the sum of monthly recurring revenue multiplied by 12, plus trailing-12-month (TTM) partner and services revenue, which may include non-recurring sales and other one-time fees. It's a little strange that BigCommerce is essentially combining a forward-looking metric (annualized monthly recurring revenue) with a backward-looking one (TTM partner and services revenue), particularly when run-rate metrics are fundamentally forward-looking in nature.
In contrast, Shopify reports monthly recurring revenue (MRR) in a more straightforward way: Multiplying the number of merchants by the average subscription plan fee. Amazon has no comparable financial metric.
Still, BigCommerce seems to be taking advantage of the current environment of investors becoming increasingly bullish on e-commerce and software-as-a-service (SaaS) companies during the pandemic.
