BigCommerce Q3 2022 Earnings Last Week Show Big Losses

It appears to me that SaaS companies have much belt-tightening to do.

Shopify moved from flat to negative 25% net operating margin with their latest quarter. Just to give you some comparison.

This post is about BigCommerce, however. The below figures are based on the same quarter a year ago:

* BigCommerce grew revenue by 22% year over year.

(Their revenue is not dependent on GMV)

Subscription revenue is up 26%. Shopify's subscription revenue is growing approximately 12% y/y at the moment. Now on a much larger base!

Shopify subscription revenue is ~9x BigCommerce.

* Their cost of revenue grew 41% y/y. Expense lines grew to:

- sales and marketing grew 31%

- R&D grew 35%

- G&A grew 42%

Yes, Shopify had large expense growth, but BigCommerce was already historically hovered where Shopify is now -- near -22%.

With these new expense gains, Bigcommerce is now at -42% net operating margin, which is just a tremendous number in this environment for a SaaS company not growing over 30% y/y.

So what does it mean?

1 - Shopify and BigCommerce need to either find a large source of margin dollars (think on the order of Amazon's ad business), or you will likely see significant price increases over the next year.

I would be shocked to see both BigCommerce and Shopify NOT raise prices by 30%+. When was the last time these platforms truly raised prices a significant amount?

I suspect this is being planned.

2 - Shopify is in a different place than BigCommerce since they have already (recently) demonstrated net operating margin potential. I expect a price hike plus a restructure could get them back to more normal numbers, where that might be -5% net operating margins, for instance.

3 - BigCommerce, I think, has other challenges.

- While subscription revenue is growing faster than Shopify, total revenue is growing slower.

Ultimately this means the company is under-monetized.

Witness, Shopify revenue is about 18x BigCommerce this quarter.

However, Shopify's profit dollars are 37x BigCommerce.

Since BigCommerce subscription growth is healthy, this is one of the reasons I predict prices will go up.

I also think BigCommerce could be a significant take-private opportunity, similar to what happened recently with Avalara (who was also growing similarly but also -25% net operating margin).

I do not see why BigCommerce needs to be a public company in these markets, and I would not be surprised if private equity sees the same thing.