Commerce.com, Inc. (CMRC) Earnings Call Transcript & Summary

All right. Great. Thanks, everyone. Welcome back, and we're very pleased to have with us BigCommerce. I'm Colin Sebastian, senior research analyst at Baird, and we're very lucky to have Brent Bellm, CEO; and Robert Alvarez, R.A., who is CFO of BigCommerce. Very excited about this presentation, BigCommerce is in a very exciting part of e-commerce and technology. So Brent and R.A., thanks so much for joining us today.

Thanks for having us, Colin.

Thanks, Colin.

So maybe just to kick things off here. Hopefully, you guys can spend a couple of minutes just reviewing BigCommerce for those who might not be as familiar with the space or the name. Brent, I remember running into you a number of times over the years. I think most often at trade shows. And having covered the e-commerce software space for now more than a decade, I have pretty distinct memories of seeing this gutsy upstart BigCommerce right there in the middle of the convention room floor and a sea of booze with big names like Oracle and SAP and Salesforce, and there was always BigCommerce right there. So maybe give a little bit of background on BigCommerce, and then we'll shoot right into the questions.

Yes. Great. So the basics are that we're a software platform that businesses use to create and run their e-commerce stores. Whether those stores are B2C or B2B stores, we serve them all. What differentiates us from all the other e-commerce platforms out there is that we are what we call open SaaS. Open SaaS, really, 2 key concepts. One is that we're obviously software-as-a-service, multi-tenant software-as-a-service that has all of the built-in performance advantages, ease-of-use advantages, cost advantages, continuous updating, security advantages that the legacy model of on-premise software does not have. And so when you talk about BigCommerce being at these trade shows and having confidence that we would disrupt and ultimately replace a lot of the competition, that's because so much of that competition was on-premise software, whether it was open source on-premise like Magento, now owned by Adobe; or it was the legacy outdated monolith owned by IBM and Oracle and SAP; or the hundreds of now archaic downloadable shopping cards that serves so many SMBs back in the day. We knew that SaaS was a better model for 80% of businesses. And we, therefore, we're competing from an enormous set of competitive advantages. But then the other part of open SaaS is the open part. And that's what differentiates us from our 2 main SaaS competitors. At the lower end of the market, Shopify. And at the high end of the market, Salesforce, which was formerly Demandware. Both of those companies are selling what we would call a closed SaaS model, meaning what they're trying to sell a company is a complete infrastructure or operating system in Shopify's terms, that it's not just their proprietary e-comm platform. But in Shopify's terms, also their proprietary payments, shipping, fulfillment, lending, fraud, point-of-sale, e-mail marketing, and ever larger number of components that they create in a one-size-fits-all in competition with the world's leaders in each of those individual verticals. We're open. We have 1 product. It's our core e-commerce platform. 100% of my mind share, R.A.'s and every person's at BigCommerce, goes exclusively into making our platform the most powerful, high-performing and best value in the world. And then in all of those other categories, where entire industries and ecosystems exists, we're partner-centric and we have strategic partnerships and integrations with the best in every one of those categories. And so we end up being the better option, the best option for businesses, small, medium or large, who want to optimize their e-commerce for their needs, their category, their legacy systems, the segments they sell into. And then the competition will be better for businesses who say, just give it, as much as possible, to me on a silver platter. Make it easy for me. I'll follow your playbook, I'll do things your way. There are better solutions for that type of company. The world doesn't consist of only one type of company. There's a great diversity. As the only ones doing open SaaS, we think we're the best platform in the world for any business who really wants to optimize their approach to e-commerce around their business.

And then maybe I don't know if you could describe qualitatively or even quantitatively what the cost advantages or the savings are, the speed to market, for example, that make BigCommerce special?

Yes. I mean we have a lot of agency partners who built their business originally before BigCommerce on competitive platforms like Magento. They will generally say that the total cost of implementation for mid-market or above business on BigCommerce is 50% to 75% lower than it would be on on-premise software, whether it's Magento or some of the other legacy systems like Oracle and SAP. The time to market in terms of like when you pick a platform to when your site is live is oftentimes 50% or more faster as well. And that's true on BigCommerce against not just the on-premise software competition, but also Salesforce and Demandware, which is both more expensive and takes a lot more time to implement than does BigCommerce. And so cost and time are really important. There's also a giant advantage that we have in terms of once live, the speed of iteration and nimbleness. We have really great customers on BigCommerce who came to us from Salesforce, leading brands like Skullcandy, Gillette, who I think a major reason that they left and came to us is because their marketers and their merchandisers wanted to lead with a lot of iteration and change, new offers, product offers, marketing offers, and they found that BigCommerce unleashed their speed of innovation, whereas they were held back on legacy SaaS.

That's helpful. And for those listening in, feel free as well to submit questions, which you can do, and that will get sent directly to me, and I'll ask anonymously, and we have. So how large is this market that sits between the integrated SMB platforms like Shopify and the more custom-built enterprise offerings?

It's been a couple of years since Forrester last broke up the global e-commerce platform market into SMB versus mid-market versus large enterprise. At the time they did it, it was 30% SMB, 30% mid-market, 40% large enterprise. But the bottom 2 are growing faster. So today, it's probably 1/3, 1/3, 1/3 in terms of the actual revenue made by platforms, selling themselves as platforms. And you're talking in particular about that segment in the middle, the mid-market, which is really sort of our target segment. We compete in all 3. We're arguably second biggest SaaS platform for small business after Shopify. But we've got a very much enterprise focus in the capabilities that we're building into our platform. And so it's that mid-market where historically, Magento was the 800-pound gorilla. And again, that's about 1/3 of the market. So think of our core competitor at the small end being Shopify. In the mid-market, it's historically Magento. And at the high end of the market, you're now talking about the legacy Oracles and SAPs and Salesforces of the world. But the 2 biggest, even at the high end, are going to be Magento still and custom builds.

One thing we've seen over the last year or 18 months is just a tremendous amount of entrepreneurship and a lot of new businesses created, online e-commerce businesses. Is that something that you think is going -- is that becoming an opportunity for BigCommerce as the most successful of those newer e-commerce sites and merchants grow that they will need to adopt a platform like an open SaaS platform like BigCommerce?

Most of the world's established businesses are complex. They sell oftentimes through multiple channels online and offline with multiple brands to different segments, B2B, B2C, and in different geographies. Just because a business -- there's one dimension that you're asking about, which are new businesses starting from scratch. And you got to start somewhere. But then over time, you add those complexities and you become complex, but the established businesses of the world who are driving the vast majority of GDP in every country are already complex. And just because a single division or a few divisions are doing e-commerce, doesn't mean they have completely digitally transformed. Digital -- real digital transformation means that the majority, the vast majority of what you do has been e-commerce enabled. And e-commerce enabled in a way that is integrated and consistent with what you had been doing in the offline world historically. The easiest way to get your head around this as, I think, an investor or anybody looking at the industry, is not to fixate on all the individual use cases, but just look at the aggregate. And in the aggregate, whether you're talking U.S. or global, whether you're talking B2C or B2B, everybody that I have seen estimates the total amount of consumer and business expenditure that is online as under 20%. Most of them current -- I mean they range from 13% to 18%, but it's under 20%. However, the trend lines have been accelerating in terms of that online share adoption even before the pandemic happen. The pandemic, obviously, was a onetime step change function up. But the trend lines had accelerated before the pandemic. And it's certainly our belief that the under 20% B2B and B2C online is going to go to 25%, 30%, 35%, 40%, 45%, 50% over time. You'll reach some asymptote at some point. But if you look over the next 10, 15 years, when has there ever been a bigger, no-brainer global industry trend to bet on than this one? It's one of the many reasons why I'm so excited to be here at BigCommerce is because we're basically committed to a mission that makes us the most innovative and best platform in the world, helping businesses to succeed in that digital transformation for each of them.

So given that, what does the sales cycle look like today versus pre-pandemic? And then as we look over the next few years, given this business development pipeline, how should we think about growth in ARR as we -- especially as we emerge from this hyper growth period? But as e-commerce penetration increases, so we see continued growth here on out.

Yes, I'll step in on that one. So Colin, I'll split out SMB versus enterprise. Most of our Standard and Plus plans are sold through self-serve, so very little sales cycle there. Where we deploy sales resources is really our higher-end retail plan, our Pro plan, and our enterprise accounts. I would say that on average, the enterprise accounts, I think the last number we had tracked was about 52 days, 53 days in terms of sales cycle. We may have larger deals. We -- as we mentioned in our last call, we're starting to get ads for larger and larger enterprise deals that could take longer. But on average, I'd say the sales cycles have actually come down a bit since our IPO. We actually have seen more leads come in at the beginning of the quarter and actually close in quarter than we did pre-IPO. When you think about our growth, what we're trying to set guidance around is growth in subscriptions and then growth in PSR. In a year like last year where we obviously saw a surge of GMV with online transactions that immediately impacted the rev share that we recognize on our partner and services revenue. But we've seen a great underlying growth and acceleration in subscriptions, really driven by our enterprise accounts. And in Q4, we grew enterprise accounts 51%. Q1, we grew it at 58%. That enterprise account ARR, it's now 57% of our ARR. So the underlying growth trends in subscriptions are really accelerating, not just in enterprise, they're actually accelerating in our retail SMB plans as well. And then we're also seeing great growth in subscriptions outside of the U.S. So if you look at our EMEA growth last quarter, it was over 80%, our growth in APAC was 46%. So we're seeing a lot of the segments that we're in growing really nicely.

Let's maybe unpack a couple of those in more detail, starting with enterprise. Maybe you could talk about the product and future development pipeline for that part of the business?

Yes. I would say that, today, we follow what's called the sort of theory of disruptive technology. And the whole concept, if you go back to Clay Christensen and his books, disruptive tech that always starts at the low end of the market with something simpler, faster, cheaper and easier, and then adds functionality over time. Moves into the mid-market next. And when it gets to the mid-market, it doesn't say, hey, look, I can do everything that the established market leader can do. I can do the 90% -- 80%, 90% that you care most about, and it's going to be a 20% the cost or something that's far easier for you to use. Does that meet your needs, right? You don't have to match them on every bell and whistle. You have to do what is essential and do it a lot better. And that's certainly where we are today, both in the mid-market and large enterprise areas where we're doing 80%, 90% of all the bells and whistles, but it's the stuff that most businesses need most, we do really well, at a total proposition that's better. In terms of like what's next, though, okay, so you're always closing gaps or creating new advantages and capabilities. The ones we've talked about most frequently are on the functionality side, native multi-store capability, meaning instead of as a company who wants to have lots of different stores for different brands, geographies, B2B, B2C, creating each of those individually, being able to do that from a single account, which is actually a very complex capability to create within a multi-tenant SaaS platform because it was originally designed for 1 store, 1 account. You have to make every area of the code base multi-store aware. So it's super complex. But we're far along in that process. We're in closed beta for non-transacting stores. And so next step is to open up for transacting stores and start testing. The functionality is mostly done. It's now about testing the scalability of it and how many stores, how many transactions can we pump through it because there'll be new pinch points in scalability. We'll have to test and lift over time. And then on the open side of SaaS, the 1 most important area of our APIs that we're working on is multi-location inventory. Now multi-location inventory is for complex businesses who either ship from multiple or lots of different warehouses and locations and you want to be able to know how much inventory for each product is in each location so that decisions within the checkout for shipping and tax and all of that can be optimally made. And/or folks with lots of points of presence in store-based retail. If you're doing buy online, pick up in store, buy online, local delivery, you can -- there are workarounds, of course, where you just ignore our single inventory count APIs and you go around us to enable those use cases. But then having our own native multi-location inventory APIs is, I think, the last major area of the platform to open up. And again, we're trying to compete as the most open of all SaaS platforms. We didn't begin that way. We began like most SaaS platforms as a relatively closed platform, meaning most of the functionality that you can access over the web is what you're limited to. Yes, there are APIs, but they're sort of hardwired in the background to take that type of a SaaS or on-premise model, who can break it up into micro services with their own APIs and SDK layers is a very different approach than what SaaS companies have done historically. And when we say we're open SaaS, that means we are at the forefront of a company whose strategy and offering has truly broken itself into micro services to allow that ultimate level of flexibility and customization that some businesses want to go.

How does that work from a practical perspective when an enterprise client has an RFP, and I presume they want, as you said, a lot of customization. And do you have teams of -- project teams or development teams that just focus on that one site launch and build that out customized to the clients' needs or...

That question really gets at the heart of our competitive advantage, both in terms of a platform and in terms of our sales, solutioning and service to prospects. So if you had asked that same question of Shopify's leadership, they have Harley, the Head of Shopify Plus, have many times in the past boasted on stage, they don't reply to RFPs when a complex cut, then has a whole list of requirements and say, we don't have the time for that. And if that's what you're looking for, that's not what we are. We are not enterprise software. If you need software that adapts to your requirements and capabilities, we're not the right solution for you. You should do it our way. That's what all the cool kids are doing and then they go on a list of the cool kids who do it their way, and they've got many of them. In contrast to that, nothing makes me happier than receiving an RFP, having the opportunity to compete. Because I know 2 things then happen: number one, we get to demonstrate and showcase the flexibility of our platform and how it, plus third-party partners, can better solve a merchant's problems than any other platform out there; and number two, we have, I think, a really talented, dedicated and merchant-centric sales and solutions engineering teams who put really great expertise, thought and care into RFP responses in order to, in essence, be that thought partner to the merchant prospect and oftentimes the agency partner that they might be working with or we might be competing with. We love RFPs because they show off the strength and flexibility and power of our platform and they give us a chance to compete on the service and solutioning end of things, too.

Makes sense. Helpful. And then maybe moving over to the international opportunity. I know this is -- you mentioned this has been a focus as well. Maybe talk about the successes today, the go-to-market strategy and the competitive landscape, if you could.

Yes. It is the case that if you go around the world, you won't find maybe 1 or 2 other countries that have home-built platforms whose capabilities and value proposition and compete with the best platforms on a global basis. When I say best platforms, I'm talking about us, and I'm talking about Shopify, I'm talking about Magento, I'm talking about Salesforce. The only exceptions, in my opinion, around the world, are Germany, which has a couple of local ones that are individually competitive, and Brazil has VTEX. But other than that, when you go to any other country around the world, in the long run, it's going to be that same competitive set battling it out if that competitive set each has localized its capabilities. Localizing its capabilities means am I usable in the native language? Do I have support for the local payment processors that merchants want to use? Do I have integrations into local shipping or other popular apps and necessary extensions? And so as we look around the world, we view almost every country and region in the long run as really attractive for us. And I don't just mean the big obvious stuff like, oh, we already talked about that spectacular growth we have out of our U.K. office in Northern Europe. I don't just mean Continental Europe. I mean the Middle East, I mean big countries across Africa, ultimately, South Africa, Nigeria, Kenya, the Northern African countries. I'm talking all of Latin America, Mexico all the way down to Argentina, and of course, across Asia, where a lot of the individual markets are very different than their neighbors next door. Over time, It will be a constant story of our enhancing the localization capabilities in different geographies of the platform. That's the product part of it. And then the nice thing is that a lot of the growth for us doesn't require a giant investment in sales and marketing. Why? Because on the low end, we're natively self-serve, right? The vast majority of our SMB customers, that can even include giant companies, they come in and create a store on their own. They don't have to be sold. They don't have to be marketed. They don't have to be assisted because we were originally designed as a self-serve platform. And at the high end, in enterprise, 80% of companies are going to use an agency to help them strategize, design and/or system integrate and implement, and the agencies who are local will kind of lead us in. And so I couldn't be more excited about all of this. My background is international tech growth. I ran PayPal Europe for 4 years, helped take it global. HomeAway was a roll-up of vacation rental websites around the world that we then bought, integrated and converted into e-commerce, marketplaces for vacation rentals, and this is the same thing. I think international expansion will be one of the most exciting and impactful drivers of our growth for decades to come.

And I think we have time for one question. I'm going to try to sneak in a question we received from the audience, which was related to Apple and privacy and IDFA. But maybe the bigger question is as platforms, well, like Apple, in a sense, put restrictions on what businesses can do, but also as more platforms, including Facebook and Google and Pinterest and others, as they seek to have more of a transactional part of a transactional flow, and this is relevant more to your clients, obviously, but do you view these platforms as partners or potential competition over time?

They are all partners. I mean, our partnership with Google is across a half dozen major meaningful things, from hosting, to apps, to data and reporting. Our partnership with Facebook, there are lots of announcements of all the things we've done with Facebook and Instagram over the last 3, 4, 5 years. We're partners with Apple, we're partners with Amazon, we're partners with eBay. Every one of these are big, meaningful partners of ours. However, new rules and changes, whether driven by the major tech companies or driven by legislation like GDPR and California regulations, are things that are going to be constantly changing and is stuff we have to invest to stay compliant in. The nice thing for our merchants is because it's multi-tenant SaaS, the burden on compliance falls on us, not on them, and that's scaled across all of our 60,000-plus merchants, we do it once and then they all get the benefit of it. So it's one of the sort of the economies of scale advantages we have is multi-tenant SaaS.

That's great. Congrats on the IPO again. This has been great stuff. Look forward to talking to you again. And otherwise for the audience, you should have the schedule of the next presentations. Otherwise, thanks very much for joining us.

Thanks, Colin, and all who listened in.