Home Nike store Why BigCommerce’s stock crashed today

Why BigCommerce’s stock crashed today


What happened

Shares of BigCommerce ( BIGC -2.81% ) sank on Thursday after the e-commerce software provider released its second-quarter results. Although it beat analysts’ expectations across the board, some red flags along with a high valuation gave investors plenty of reason to drive the stock down. Shares were down about 6.8% at 11:40 a.m. EDT today after falling 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 above the average analyst estimate. Total annual revenue increased 32% to $151.8 million.

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This revenue growth is largely driven by increased spending by existing users. For accounts with an annual contract value greater than $2,000, average revenue per account increased 29% in the second quarter. The number of such large accounts only increased by 7%, a sign that the company may be struggling to find new customers.

Adjusted earnings per share posted a loss of $0.38, better than a loss of $0.58 in the year-ago period and $0.05 better than analysts expected. Despite the slow pace of customer additions, BigCommerce spent about 46% of its revenue on sales and marketing.

Now what

For the third quarter, management expects to generate revenue between $35.9 million and $36.3 million, representing a slight sequential decline at the midpoint. For the full year, the company reported revenues 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, which puts the price-to-sales ratio based on company forecasts at 40. Given the average revenue growth rate (at least in the stock world of software as a service) and the fact that the customer base is growing at an average rate, it is difficult to justify such a high valuation.

The company should be well positioned to benefit from the accelerated transition to e-commerce driven by the pandemic. Unfortunately for investors, its second quarter results left much to be desired.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.