Just How Overvalued Did BigCommerce Actually Become?

The market is infatuated with growth, and using traditional valuation metrics and ratios against earnings, sales, EBITDA cash flow and so on has become so 20th century. The proof is in the pudding too after you look at the multiples that the market is paying for the top growth stocks today. Apparently, some sanity can still come into play and valuing a young emerging company based on potential 2025 in a highly competitive space.

BigCommerce Holdings Inc. (NASDAQ: BIGC) had a highly successful initial public offering this summer. It rapidly ascended above $100 before pulling back to under $80, but signing a deal with Facebook Inc. (NASDAQ: FB) to allow merchants to sell directly via Instagram sent this stock into the stratosphere. Its shares briefly went above $160 in the past week, and its stock closed last Friday at $130.98, with a market cap near $9 billion.

The analyst community at the underwriting syndicate firms has been freed up to issue formal coverage, now that BigCommerce’s quiet period has expired. The reality is that most of the firms like this company and its growth potential. Despite being touted as the “next Shopify,” the analyst community just cannot recommend buying the stock anywhere close to the current stock price.

Some firms are willing to keep their formal target prices close. Truist Securities (formerly SunTrust Robinson Humphrey) had the current highest target price we have seen so far. The firm set a $132 price target, but it comes with a Hold rating. Terry Tillman of Truist believes the company has a differentiated open software as a service e-commerce platform that has made growth investments and has seen market share gains. Tillman also sees sustained and improved topline growth, but the current valuations come with less favorable risk-reward metrics compared to other companies in the space. Its 2022 revenue forecasts are just above $200 million.

Canaccord Genuity sounds positive by identifying secular tailwinds and its unique positioning coming with a big opportunity, but the firm highlighted “a valuation that reflects it.” This firm issued a Hold rating and a $125 target price.

Jefferies has a Hold rating and its target is $130. Also, Barclays issued an Equal Weight rating and a $128 price target. Raymond James initiated coverage as Market Perform but no price target data was seen.

One firm that issued a Buy rating is Needham, but its $132 price target is hardly a screaming buy, even after close to a 10% drop. Does 10% upside based on a hot IPO that went hypersonic because of an Instagram deal seem worth the risk versus reward when the stock market is also back at all-time highs?

The largest cautionary research report came from Morgan Stanley. The firm issued an Underweight rating that is the same as a Sell rating elsewhere. Morgan Stanley also has a mere $52 price target.

24/7 Wall St. evaluated the company’s actual revenues and where the platform already points. BigCommerce helps merchants of all sizes and all stages sell their goods on all major online destinations, and its published reports count roughly 60,000 customers. It already helps merchants sell on Amazon, eBay, Facebook, Google and on the Square POS. Its revenues in 2018 were $91.87 million, and then $112.10 million in 2019. The sales in the first quarter of 2020 were $33.17 million, compared with $25.58 million in the first quarter of 2019. The company is losing money at this time, with net losses reported as $42.59 million in 2019 and $4.02 million in the first quarter of 2020.

While it is absolutely acceptable to have losses at this stage of the cycle for a new IPO, what is a fair valuation against implied revenues in the years ahead? That is where the debate is.

BigCommerce’s IPO documents did of course come with the warnings and risks that it faces strong competition. In the mid-market and large enterprise segments, it faces against Magento (Adobe), Salesforce Commerce Cloud (formerly Demandware) and Shopify Plus. In the SMB segment, its primary competitors are Shopify and WooCommerce. The company also noted that BuiltWith has identified more than 500 platforms of various sizes around the world.

What Wall Street is now telling its clients is that BigCommerce is a great company that comes with great growth potential. The community is also telling its customers that there needs be a better rationale on its stock price before they buy the shares.

BigCommerce’s stock was down almost 12% at $115.50 on Monday afternoon. The lowest its stock price has traded since the IPO was $63.77, and its zenith was at $162.50.

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