When BigCommerce, the Texas-based Shopify competitor, first announced an IPO price range, the numbers looked a little light.
With a range of just $18 to $20 per share, it appeared that the firm was targeting a valuation of around $1.18 billion to $1.31 billion. Given that BigCommerce had revenue of “between $35.5 million and $35.8 million” in Q2 2020, up a little over 30% from the year-ago period (and better margins than Shopify) its implied revenue multiple that its IPO price range indicated felt low.
At the time, TechCrunch wrote that “BigCommerce feels cheap at its current multiple,” and that if you added “recent market exuberance for cloud shares that we’ve see in other IPOs … it feels even more underpriced.”
Those feelings have been borne out. Today, BigCommerce announced a new, higher IPO price range. The firm now intends to price its IPO between $21 and $23 per share. Let’s calculate its new valuation, compare that to its preliminary Q2 results to get new multiples for the impending e-commerce software IPO, and figure how its most recent investors are set to fare in its impending debut.
By moving its pricing up from $18 to $20 to $21 to $23, BigCommerce boosted its IPO range by 16.7% at its lower end and 15% at the upper end. At its new prices BigCommerce is worth between $1.38 billion and $1.51 billion.
BigCommerce, similar to public market darling Shopify, provides e-commerce services to merchants. Given how enamored public investors are with its Canadian rival, the timing of BigCommerce’s debut is utterly unsurprising and is prima facie intelligent.
Of course, we’ll know more when it prices. Today, however, the timing appears fortuitous.
BigCommerce is a SaaS business, meaning that it sells a digital service for a recurring payment. For more on how it derives revenue from customers, head here. For our purposes what matters is that public investors will classify it along with a very popular — today’s trading notwithstanding — market segment.
Starting with broad strokes, here’s how the company performed in 2019 compared to 2018, and Q1 2020 in contrast to Q1 2019:
In 2019, BigCommerce’s revenue grew to $112.1 million, a gain of around 22% from its 2018 result of $91.9 million.
In Q1 2020, BigCommerce’s revenue grew to $33.2 million, up around 30% from its Q1 2019 result of $25.6 million.
BigCommerce didn’t grow too quickly in 2019, but its Q1 2020 expansion pace is much better. BigCommerce will file an S-1/A with more information in Q2 2020, we expect; it can’t go public without sharing more about its recent financial performance.
If the company’s revenue growth acceleration continues in the most recent period — bearing in mind that e-commerce as a segment has proven attractive to many businesses during the COVID-19 pandemic — BigCommerce’s IPO timing would appear even more intelligent than it did at first blush. Investors love growth acceleration.
Moving from revenue growth to revenue quality, BigCommerce’s Q1 2020 gross margins came in at 77.5%, a solid SaaS result. In Q1 2019 its gross margin was 76.8%, a slightly worse figure. Still, improving gross margins are popular as they indicate that future cash flows will grow at a faster clip than revenues, all else held equal.
In 2018 BigCommerce lost $38.9 million on a GAAP basis. Its net loss expanded modestly to $42.6 million in 2020, a larger dollar figure in gross terms, but a slimmer percent of its yearly top line. You can read those results however you’d like. In Q1 2020, however, things got better, as the company’s GAAP net loss fell to $4 million from its year-ago Q1 result of $10.5 million.
The BigCommerce big commerce business is growing more slowly than I had anticipated, but its overall operational health is better than I expected.
A few other notes, before we tear deeper into its S-1 filing tomorrow morning. BigCommerce’s adjusted EBITDA, a metric that gives a distorted, partial view of a company’s profitability, improved along similar lines to its net income, falling from -$9.2 million in Q1 2019 to -$5.7 million in Q1 2020.
The company’s cash flow is, akin to its adjusted EBITDA, worse than its net loss figures would have you guess. BigCommerce’s operating activities consumed $10 million in Q1 2020, an improvement from its Q1 2019 operating cash burn of $11.1 million.
The company is further in debt than many SaaS companies, but not so far as to be a problem. BigCommerce’s long-term debt, net of its current portion, was just over $69 million at the end of Q1 2020. It’s not a nice figure, per se, but it is one small enough that a good IPO haul could sharply reduce while still providing good amounts of working capital for the business.
Investors listed in its IPO document include Revolution, General Catalyst, GGV Capital, and SoftBank.
Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
Today we need to talk about what we’re hearing from the private markets and the public markets, and how different their messages seem to be.
The public markets through yesterday were on the bounce, rising sharply from recent lows, driven by negative news concerning COVID-19 and its ensuing economic damage. As TechCrunch noted yesterday, major American indices had seen their value sharply recover from lows recorded earlier in the year. This was odd, as the news from COVID-19 is far from good — America is still the country with the highest rate of new, confirmed infections and related deaths by some margin — and the economic damage stemming from the nation’s belated efforts to stem the pandemic at home piles up.
You can easily read optimism in the stock market: that the COVID-19 infection footprint at home isn’t as bad as some models indicated, that social distancing is working, and that the economy will quickly rebound from this bother. Ask around the private markets, however, and you’ll hear a very different narrative.
Yesterday while kicking over the business-focused modern software market (enterprise SaaS, if you prefer) with Shasta Ventures‘ Jason Pressman, we discussed the state of affairs for private companies that he’s seeing from his perch inside the startup machine. Taking his notes into account, along with those of other investors that we’ve spoken to recently, it’s hard to understand the level of optimism that public markets are signaling.
Not that Pressman is a pessimist, it would be difficult to be a net-gloomy venture capitalist on the whole, given the risk profile of the investments they make. But some VCs who have invested through prior downturns are comfortable being candid about what they are seeing from private companies, those inside their portfolios and out.
This morning let’s explore the public-private optimism gap for the second time. The last time we undertook this particular theme, public investors were being pessimists and private investors appeared unseasonably bullish. It’s unlikely that there is room for both views to be correct.