November 14th, 2022: Stripe’s layoffs, BigCommerce Q3 Results, UPS and Overstock launch pilot program, Google launches shopping updates
It’s November 14th, 2022 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Stripe Laying Off 14% of Workers
BigCommerce Q3 2022 Results Show Profitability and Sustainability Concerns
UPS and Overstock Launch Returns Pilot Program
Google Launches New Deals-Focused Shopping Updates
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
==
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
==
[PAUSE]
BUT FIRST in our shopping cart full of news….
Stripe Laying Off 14% of Workers
In pretty surprising news to me, payments giant Stripe has decided to lay off 14% of its staff. At the outset, more than a few people in my network are completely surprised that Stripe has not yet gone public, as they are large enough to do so.
CEO Patrick Collison wrote an extremely thoughtful note, and I thought I would detail a few of its points here:
The company is laying off about 11,00 workers, and the cuts will affect most of the company’s divisions.
The company claimed it made two huge mistakes, both of which sound extremely familiar if you listen to the layoff messages of other startups.
First, they overestimated the growth in eCommerce this year and next year coming out of COVID, and
Second, they grew operating expenses too quickly to fuel their growth.
The company is paying for 14 weeks of severance, which is above average, in addition to paying out bonuses, offering placement assistance, and accelerated vesting.
The company does say that its priorities will shift and that it will be releasing edits to its roadmap soon.
Speaking of major edits to its roadmap, Facebook’s 11,000 layoffs will also create pretty significant roadmap changes don’t you think?
Back to Stripe though… Overall, I don’t expect this to affect Stripe’s business significantly. I’m struck that this is typical of what is happening in the venture-backed startup software scene. Some of these concepts may not survive.
One final note about Stripe? Shopify owns 22% of Stripe, and Stripe payments is the linchpin of the fastest-growing part of Shopify’s business — payments. I don’t expect this to have a big impact on Shopify, however, as Stripe isn’t going anywhere for a while.
[References:]
Our Second Story
BigCommerce Q3 2022 Results Show Profitability and Sustainability Concerns
So it appears to me that SaaS companies have so much belt-tightening to do.
While this part of the podcast is about BigCommerce, as a comparison, Shopify moved from flat to negative 25% net operating margin with their latest quarter.
The below figures were based on the same quarter a year ago:
* BigCommerce grew revenue by 22% year over year.
Keep in mind their revenue is not dependent on GMV.
Subscription revenue is up 26%. As a comparison point, Shopify's subscription revenue is currently growing 12% y/y. So over twice as fast for BigCommerce here.
* BigCommerce cost of revenue grew 41% y/y. Expense lines as well. Here they are:
- sales and marketing grew 31%
- R&D grew 35%
- G&A grew 42%
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? A few things I think.
First, both 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?
Before you say there is no way their market would bear it, I beg to differ. BigCommerce makes most of its revenue from larger companies. As an example, if a Fortune 500 company is paying $1,000 a month or $1,300 per month for a cloud-based platform is not going to amount to much difference.
It could keep the low tiers less if it wants, or perhaps should probably abandon its low tier altogether.
Either way, I suspect the price increases are already being planned.
Second, back to Shopify for a moment. Shopify is in a different place than BigCommerce since they have already demonstrated net operating margin potential in recent years. 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.
Third, BigCommerce, I think, has other challenges.
- While BigCommerce subscription revenue is growing faster than Shopify, total revenue is growing slower than Shopify.
Ultimately this means that BigCommerce is severely under-monetized.
Just to give you some ideas. Shopify’s 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.
Finally, in my hot take of the week, 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.
[References:]
Our Third Story
UPS and Overstock Launch Returns Pilot Program
According to Max Garland from Supply Chain Dive, on Overstock’s recent earnings report they discussed a new pilot returns program with UPS that begins in Q4.
Here are some details from Overstock:
There will be simpler home pickup options for returns that do not require reboxing of the product.
The two companies will closely monitor the customer’s experience and behavior in response to these new offerings.
This service builds on UPS’ recently announced logistics as a service initiative to improve delivery density, and visibility, and offer expanded reverse logistics services.
I like this idea for a few reasons.
First, it’s just a pilot so it’s low commitment from both sides.
Second, UPS already has the trucks on the road and right now they are shipping a lot of empty air back to their local facilities after dropping off a route, so there is capacity. The more things a truck can do on the same route, the more likely that route monetization can improve.
Third, UPS has home pickup options and over 5,000 UPS stores in the US, so it’s already known as a returns provider.
Fourth, there has been some startup activity in the space. App ReturnQueen is a consumer-focused app that I’ve seen advertised in subways that tells consumers they don’t need to box up anything and they will pick up and return their products to retailers for a fee. I’d rather trust UPS with this personally.
If you couldn’t tell, I’m a fan of this idea and expect that if consumers respond similarly, UPS will not have too much trouble selling this new service.
[References:]
[PAUSE]
And Our Last Story
Google Launches New Deals-Focused Shopping Updates
Google recently announced new shopping updates with a deal-focused angle in time for the holiday season. What does it mean for buyers and merchants? Shashi Thakur published a blog post on it.
First, the facts:
If you’re shopping and an item is on promotion, there is a new promotions badge that shows up in search results with a SALE or SPECIAL OFFER badge on the product image.
Google will also show your product offers side by side with other retailers’ listings directly in search results.
Finally in what could be my favorite idea, Google is adding price history in the search results so you can see whether the product is a good value based on it’s intelligence from across the web.
For consumers, this sounds useful and will help with my holiday shopping - as long as I can trust the available products I’m viewing. Especially price history, which Google also does for flights, I find this extremely valuable, and frankly, I’m shocked that it took Google so long to add this useful feature.
For brands this holiday season, it probably makes sense. If Google is consistently the second or third eCommerce shopping search, it doesn’t pay to be there. However, if you are a premium brand, it doesn’t pay to be in a promotional race to the bottom either. Google is responding to the prevailing mood but ultimately, what it could do is help retailers lose margin dollars faster than before.
[References:]
https://www.retaildive.com/news/google-shopping-updates-deals-discounts-price-comparison/635424
https://blog.google/products/shopping/holiday-shopping-deals/
[PAUSE]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Ernesta, a direct-to-consumer custom rug manufacturer, raises $25 million dollars to elevate interior spaces
This one is interesting as John Foley the former CEO of Peloton and my former boss at Barnes & Noble is the founder, and he is bringing most of the former Peloton gang along with him.
I truly don’t know a thing about the rug market, so hard to comment on this one other than best wishes to John on the new journey!
Second
Shippeo raises $40M to further supply chain visibility platform expansion
The company provides visibility into the transportation journey of your product as it moves between your suppliers and the customer, whether that journey is by boat, using trains, or on trucks. The company claims to be tracking more than 28 million loads of products per year.
Third
Gearflow, a Chicago-based equipment parts marketplace platform Receives $5.5M
The company started in the SMB space into more of an enterprise parts marketplace in what is expected to be a fast-growing market over the next decade. Visibility in the procurement process in this industry is one of the biggest challenges they are looking to solve.
Link: https://www.enr.com/articles/55134-parts-matching-platform-gearflow-receives-55m-led-by-brick-mortar
Fourth
Israeli-based Trigo Raises $100M to Scale Its Grocery Retail Platform
This is a serious investment in this space and a sign that there is a big opportunity here. Platforms like Instacart that are pivoting should be worried since they are going to be running head-first into companies like Mercatus and now Trigo. Grocery is starting to modernize.
AND FINALLY …
Mason, a commerce engine Accel backs startup offering ‘Amazon-grade’ commerce engine to online sellers around the world
With respect to what I’m sure are great founders at Mason, the TechCrunch article characterizes the solution as quote “Amazon Grade eCommerce”.
They have raised $7.5 million. Do I need to say anything else?
[PAUSE]
That’s all for this week! Till next time Watsonians.....
[PAUSE]
Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is CitizenRacecar. The show is produced by Alex Brouwer; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.