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Why BigCommerce Stock Slumped Today

By Timothy Green – Sep 10, 2020 at 12:15PM

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The software-as-a-service provider didn't exactly impress investors with its results.

What happened

Shares of BigCommerce (BIGC 1.80%) 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.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

BigCommerce Stock Quote
$9.61 (1.80%) $0.17

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