What happened

Shares of BigCommerce (BIGC -4.85%) sank on Thursday after the e-commerce software provider reported its second-quarter results. While it beat analyst expectations across the board, some red flags along with a lofty valuation gave investors plenty of reasons to push down the stock. Shares were down around 6.8% at 11:40 a.m. EDT today after being down as much as 12% earlier in the day.

So what

BigCommerce reported second-quarter revenue of $36.3 million, up 33% year over year and about $700,000 higher than the average analyst estimate. The total annual revenue run-rate rose 32% to $151.8 million.

A declining chart.

Image source: Getty Images.

This revenue growth was driven largely by existing users expanding their spending. For accounts with annual contract value greater than $2,000, average revenue per account rose 29% in the second quarter. The number of those large accounts increased by just 7%, a sign that the company may be having trouble scoring new customers.

Adjusted earnings per share came in at a loss of $0.38, better than a loss of $0.58 in the prior-year period and $0.05 better than analysts were expecting. Despite the sluggish pace of customer additions, BigCommerce spent around 46% of its revenue on sales and marketing.

Now what

For the third quarter, management expects to produce revenue between $35.9 million and $36.3 million, representing a small sequential decline at the midpoint. For the full year, the company sees revenue between $142.5 million and $143.3 million. An adjusted operating loss is expected between $10.1 million and $10.4 million for the third quarter, and between $32.9 million and $33.5 million for 2020.

BigCommerce is now valued at around $5.75 billion, putting the price-to-sales ratio based on the company's guidance at 40. Given the so-so revenue growth rate (at least in the world of software-as-a-service stocks) and the fact that the customer base is growing at a middling pace, it's difficult to justify such a sky-high valuation.

The company should be well suited to benefit from the accelerated shift to e-commerce driven by the pandemic. Unfortunately for investors, its second-quarter results left a lot to be desired.