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

All right. Thanks for joining us.

Let's start kind of big picture a little bit, like we have Cyber Week -- like how did that play out for you guys? Like just more end demand question?

Yes, I'd say, by and large, we're off to a good start on the quarter. I want to see where the quarter finishes up. I mean some quarters are interesting where we have really, really heavy on Friday or it stretches across the Cyber 5. Sometimes it's really good a little bit after. I want to wait and see how we get through the full holiday season, but I'd say so far, so good. Nothing nothing so different to kind of changes in my thinking about where we were from an overall guidance perspective for the quarter. So I'd say off to a good start.

And then the -- what do you -- are there any kind of new trends or things you see in terms of industry, not so much about you now, but like what your customers are saying, seeing?

Yes. I think this has been a really fascinating year because I feel like it's almost like back being in another case study class in business school about how emerging technology can affect an industry in a really, really quick way. I think in a lot of ways, this year, at the start of the year, I thought this was going to be a year about tariffs. And actually, in a lot of ways, I feel what it actually ended up is a year about technology-changing discoverability traffic and I would say for the LLM and all this type of stuff. I feel like the adoption of the technology by the consumer has gone faster than the e-commerce industry's ability to actually help our customers be able to understand where the traffic is going, moving from and how to optimize that. And so I think it made it very interesting from a holiday traffic perspective because I feel that for a lot of merchants, they're seeing traffic coming in, but they have lost visibility to where some of that traffic is coming from because they don't have the same pixel tracking that they had from Google and other places. And also discoverability in agentic commerce is very different from Checkout in agentic commerce. So I feel like right now, to be honest in the industry, I feel like it's almost like a press release war, where the substance is not always there because the tech is still sorting itself out. But it's ended to being a very interesting year because a lot of brands are having to scramble and figure out what are we going to do about this area. In some ways, I think it's made the demand environment a little different than I expected at the beginning of the year, I had some concerns about to what extent would tariffs become very inflationary across the year. We haven't seen a lot of really negative signs in that area. There may also just be absence of data or maybe early. It's hard to say. It's hard for me to, at least in the U.S. domestic market for tariff increases as much to not become inflationary. So let me injury in out on that. But I think that's been a little bit less of an effect on the absolute demand environment on the platform side -- as much as I think a lot of just the oxygen in the room has been really kind of sucked out and sent towards concerns about traffic shift changes and stuff on the agentic side of things. So I mean if you're a brand that's got a substantial change in traffic sourcing. If your Google search traffic is going down 20% or 30%, and you don't necessarily see that much of a drop in top of funnel, but you've lost visibility to where a lot of that is coming from. That's a very immediate problem that you want to sort out and think through, and that's something where Feedonomics can actually be quite helpful. So it's an opportunity area for our business in particular. But I think a lot of the real focus this year has shifted to that. And it's kind of if you're doing a geeking out on a Michael Porter's 5 forces analysis, it's like this great example of where like a new technology really affects barriers to entry in an interesting way and then having that all rush right up to a holiday period. It's been kind of an interesting thing to watch for sure.

Yes. I can't imagine it. Is that -- by the way, like it's slightly off topic, but -- is that something for you as well? Like if you look search optimization was kind of -- and I don't know how much of your kind of prospect customers you get from that sort of stuff. But is that something that you guys have to think about?

Yes, we've seen it too, even within our own marketing department. We split our group from just search engine optimization and now we have generative engine optimizations. We actually have the GEO team and the SEO team. Which by the way, is probably just by putting GEO in your job title, you probably are entitled to higher than what you've had before being in SEO. But we've seen the same thing in our own business, right? Where you're just saying, okay, we're not seeing that change in search traffic, but where it's coming from, it's just it's made certainly marketers life a little bit more of a headache going into the holiday period than where I thought it would be at the beginning of the year. It's moved very quickly.

Yes, yes, yes. Yes, it's a fascinating world. And the -- let's talk about commerce a little bit. The 1 big thing for you guys is besides a new name is kind of the big transformation plan just to get everyone on the same page, like can you kind of frame a little bit like what you're trying to do?

Yes. So I get this question a lot because in a lot of ways, we're a company that's going through a lot of transformation right now. Now I think it's helpful to understand a little bit of the history and what exactly is going through and changing. In a lot of ways, and I mean, just as a side, I tend to be very blunt, very direct, that you and I talk about this all time. I'm as straightforward and honest about the places where we need to make operational improvements as the areas where I feel like we're doing really, really well. There are some things, I think, over the years that we haven't done the right way that we're in the process of getting corrected. A few examples of this would be we did acquisitions, but didn't fully integrate the assets, right? So as an example, BigCommerce is a platform company, primary customers, mid-market and maybe the lower end of enterprise. Growing disproportionately in B2B, but we have B2B and B2C success, obviously. We buy Feedonomics. Feedonomics is probably the world's best data enrichment platform to get product data, unstructured and structured data syndicated into channels and optimized. It's a premium price point, right? If you look at -- there's a lot of managed service aspects to that. We intended to release a self-serve version of Feedonomics to our base so that we can get it to a price point that the BigCommerce customer could pay -- and I think we're 2 years later than we should have been in actually doing that. We're in the process of releasing that now. So if I think about just overall, where are we from a transformation perspective, all of that has been kind of symptomatic of what I would describe as a bit of an overreliance on sales-led growth, right? If you are Salesforce or SAP or these really, really large companies, well, I have in negotiations with Salesforce all the time, and we also buy Tableau, and we also buy Slack and all these other things. Our average customer size is not that gigantic by comparison. And so being very sales reliant has made it to where when you don't have enough just new accounts to drive the growth rate, you need a lot more ways on a cost-effective way to expand the base. And I think some of our competitors transparently have done a better job than we have from a growth model perspective, and having ways to expand and monetize the space. And so if you look at a lot of the product initiatives that we're coming out with, these are not rocket science things that we're doing. We're probably the only platform provider that didn't have a branded payments product. As 1 example I can give you the history on the thinking on why I wish we would have made the change earlier. But okay, we can do that. It captures incremental economics, start heading in that direction, bake it into our core platform pricing. And it creates ways to expand our base in a way that's much healthier. And so there's kind of a multistep process that we've been going through from a transformation side of things since Travis took over as CEO in Q4 of last year, he wanted to start with the leadership team and say, okay, do we have a lot of commerce expertise, a lot of SaaS expertise to kind of move where he wants it to go. And with the exception of myself and a couple of other people, he turned over almost the entire senior leadership team. The folks we had before were great, great individuals. He just wanted to slightly different profile in a few areas. So you want to start on the human capital side. Next wanted to move to branding. Why did we rebrand? Well, 1 simple reason for that. We had top of funnel Feedonomics opportunities that would be slowed down because they were confused by the fact they were owned by BigCommerce. And they're a Shopify customer that may be totally happy on Shopify and things they, therefore, can't use Feedonomics because it's owned by BigCommerce. Oh, I have to replatform with BigCommerce. No, you don't, but the brand is confusing, right? So okay, we'll fix that problem. And now it's looking into saying, okay, we're transforming a lot of stuff on the go-to-market side and the business model to have a lot more product-led growth motion. So none of this is new to the world revolutionary stuff and what we're doing as a business. It's a lot of within our control basics, so to speak, a lot of basics that can get that's where I think we can go -- to get to an appropriate growth rate for the business, which I don't believe we've delivered in the last couple of years.

So going back to your point in terms of sales led growth. So -- if I look at the market or other pieces, like basically, you have like 1 new module after a number coming and then you go back and you cross-sell, you engage the customer. That's kind of the motion that -- the motion I was missing?

Yes. So even if you look at Feedonomics Surface is a product that we just launched in the last 3 months. All it is a freemium business model, version of Feedonomics that can hit a lower price point because it has more back-end automation. So okay, starting features, you can do data transformations to Google and Meta, and we're going to be releasing many more paid channels in Q1 and Q2 of next year. Okay, you would like to add that channel. It cost you this much extra per month. We charge you on a per SKU basis for the number of SKUs you send to the transformation engines. The more channels you are sending those SKUs to the you pay extra a little extra for the channel, and you're paying more for the SKUs. Again, this is not revolutionary. This is the introduction of a freemium model, which everybody in SaaS has had, we just haven't had enough of them. And so when I look at it from the operator point of view, not as a product guy, and I say, okay, look at all of the things that we are launching -- they are exciting. They're really good for our customers. I get very excited about them though because it's very easy for me to see a line between that product launch and how it hits the P&L in a good way for our shareholders by introducing ways to expand customers in a much more cost-effective way than what we've been doing. And I think if you look at just some of our efficiency metrics, I'm really proud of what we've done with profit and cash flow, but I still think there's a lot of opportunities where we need to get significantly more efficient in what we're spending to drive growth and where we've been for the last 2 years.

Yes. Okay. Perfect. And then how do you think about when you start on this journey of looking how you can change the organization, what was the envelope for use in terms of the growth that I'm kind of working towards? Like what was it like the bigger thinking like, okay, and maybe start like the growth rates now versus like where it should be or where you want to see it eventually?

Yes. So I -- in the last 2 years, our net revenue retention rate for our largest accounts are accounts buying our enterprise plans has been right around 100%. That's nowhere close to where it should be. I think minimum for a good B2B SaaS company should be a 105% to 108% probably. And that's really like your floor growth rate. What we talked about at our Investor Day in New York back in March. On the platform business, the BigCommerce business, probably 2/3 of that ARR is sitting in accounts that are either mid-market accounts or the upper end of small business. But a lot of where we've been focusing our R&D investment has been on landing new, very large enterprise accounts. And we want to continue to do that, but I don't want to do that to the detriment of that floor growth rate that the business can generate by having NRR in a better place on the core business. And so as we're kind of lining up AOV for next year, as I'm going through and making approvals on where we're going to allocate capital, the first question I'm asking are product teams and our engineering teams when they're talking about the things that they're going to release as. Walk me through how our existing customers can use this fast, easy, very simple to migrate to this if it requires a migration. Let's talk later about what this means with new accounts. We already have a lot of features that are allowing us to sell up into new accounts. It's just from a growth algorithm basis, just very normal way of thinking about them starting with gross retention, saying, how do we just make our current customer base happier and stickier? How can we expand them better? The more healthy, retained expanding customers the much easier it becomes to land new customers because you have a lot more virality and positive reputation that leads to a lower cost of acquisition of new accounts, right?

Yes. So product is 1 thing, and I'm going to ask about payment in a second. The other thing is like is the organization in terms of like tracking renewals, fee, like is the customer happy, et cetera? Are you doing any changes on that side as well?

Yes. We're focused -- we're going to be focusing more and more on renewal and also getting ahead of those renewals by trying to make sure customers are getting full and growing utilization of the dollars that they're spending with us. And we have different vendors that I work with, I think, do a really nice job on this and say, look, you're spending this amount of money you're not using quite as much of this product as you thought you were going to. Let me get you into this product as well for the same amount and just getting very -- I think some of our vendors are really good job being proactive to make sure, frankly, that I feel good about the money that I'm spending with them, if I'm not, I'm going to cut them off and they know that and thinking the same way about things with our merchants.

Yes, yes, yes. Okay. And if you think about it like so now let's go -- I don't know, if you can or want to talk about payment, but you and I have been talking for years now and -- that was always like 1 of those, why not?

No, let's talk about it. So for folks that may be new to the story, what's been different about BigCommerce in the past is that we have not had a branded payment solution. I've gotten so many questions about this over the years. Why are we not doing that? Does that make sense? And I would say the following. We've been focused very much on landing larger and larger accounts and landing new and larger accounts. For a lot of those multinational companies, multi-geography companies, they may want to use payments provider, a, in North America and payments provider b, in Europe. We will keep the ability for them to do that. We're never going to not let them use the provider of their choice. The change in philosophy with change in some of the leadership team that would be to say, okay, for a lot of our existing customer base and small business and mid-market, they don't have necessarily the complexity that would require them in order to need multiple payment providers, what they need is a very simple and integrated solution. I think, Wix has done a good job with this. I think Shopify has done a good job with this. And so as we evaluated this, we said, okay, we want to be true to our ethos as a company to say, "Look, the customer needs to have the freedom to pick who they want to use from a technology stack point of view." But we can also benefit merchants by making it easier for them to integrate and see payments and the actual platform to be able to say what's the status of not just the orders, but the payments and the charge backs and all the rest of it. And so just under new leadership, it's just a very different philosophy and how we thought about that. Travis feels very different about this than maybe some of the ways we've thought about it in the past. We brought on a new Chief Product Officer 6 months ago, named Vipal Shah, who's outstanding. He comes from JPMorgan and PayPal. Obviously, so he knows a lot about this area as well. Our focus very much is on how can we continue to have openness and flexibility, which I think differentiates us and market, but do so in a way that makes the product simpler and easier to use I think we've had some of our competitors, I think, just frankly, are just a little bit from a user interface perspective, that's a little easier to use and set up, and I think we can make some improvements in that area. And in doing that, can that unlock additional expansion revenue opportunities such as payments. I'm going to jump on those opportunities all day long. So for us, we're not going to become a payment service provider at day 1. Might we head down that path in the future? Yes, we might. I think from my perspective, in the past, on the payment side, we were essentially a risk-free recipient of referral revenue share from our payments partners. Kind of the next step up from that was to become a VAR and say, look, we're going to get a buy rate, we're going to take on the pricing risk. We're going to bundle this into our core packaging and get to know how this part of the business works. Might we evolve in the future into a place where we take on know your customer and charge back risk and credit risk. And then you end up with different accounting treatment when you go down on that path. Might we head down that way? Absolutely. I mean that's definitely on the table. It's just not something we're going to be doing in our initial launch. I didn't think that was prudent from a balance sheet risk management perspective. 1 step at a time and then see where this goes.

And if you think about it, like the there are certain aspects on broadening out where you think like, do you need to do fulfillment, like debatable like and probably for you, not like -- but if you think about like Feedonomics is one, and you got that for the acquisitions, payment an obvious one, how do you think about like that's kind of going broader versus deeper?

I would say I am most -- this is an M&A question, how -- what's the aperture on M&A and what circumstances and how...

Not necessarily because you could develop it as well.

I was going to say, it's built by partners. And how does M&A fit into that? From my perspective, from a use of capital point of view, M&A is not something I'm going to be focusing on very much. Prohibitively dilutive for you to issue equity and not something that I want to spend a lot of cash on. So that leaves build and partner. I want to focus, build on the core products and the core offering, and I want to have partnerships that are so tight. If they are so well integrated with a smaller number of partners than what we've done in the past, that it looks almost as if there's been M&A that has occurred. I would much rather have a very small list of partners and say, look, we're going to focus on recommending this list of 10 to 15 partners, not take away customers flexibility to pick somebody outside of that strike zone, but say, look, these are our premier partners, right? We have the best integrations with these partners and focus on those areas and use that as a way of kind of expanding the product offering. And frankly, I think we can move faster that way, then we would by trying to build everything ourselves. We're not so big. We don't have the scale that I want to go out and what I'm going to try to invent a new tax solution. No, I'm just going to integrate with Avalara. It doesn't make any sense.

Yes, yes. And then on that development side, like the world is changing with AI. We have AI commerce now, et cetera. Like how do you think about that what you need to deliver through the platform versus actually it's more on a kind of marketing kind of agency side because they need to kind of do the path towards buying differently, like talk me through that dynamic is changing a lot.

Yes. Well, that's where the changes in the technology look very interesting. So -- if you look at our partnership with Accenture as an example, which is in early phases of what we're evaluating, we're not trying to become a services business. But what does that do? Well, Accenture has a tremendous capability to lead client transformations and technology transformations. They have big brands and clients that are saying, look, I want to be ahead of the curve in where things are going with LLM from a discoverability perspective and potentially a checkout perspective as well. And so we are partnering with them, bundling our -- the Feedonomics asset into their services offering. So they can say, "Look, we can help run a transformation of which Feedonomics is a core part of this to say, look, you need to do data transformations to get them into all these different channels." Let me work with you about how your data is set up, how your branding is set up around that and everything else. And then we use commerce for the pieces that we can connect as a part of that. I'm not trying to compete with them. I would rather just say, look, if you're going to own that services delivery part of it, I think that's great. But I think there's a number of ways where we need to invest in the core platform itself, where there are certain features that are just going to be expected to work out of the box. So if you look as an example today, not even using Feedonomics like with Perplexity through our partnership with Perplexity and PayPal, BigCommerce merchants today can actually do a genetic checkout through Perplexity without even using Feedonomics, if you look at Franklin Planners as an example, is 1 of the clients that's already doing this. Were you actually go into Perplexity search. You see that in discovery, and click immediately in the window from Perplexity and do checkout. That is kind of using a partnership, whereas something that's native on the platform. They're just going to expect to be able to use AI features to do page design, site build and construction to build out product descriptions. And I think there's opportunities through the Feedonomics asset to also have paid features to do data transformations native in the BigCommerce catalog. Click here to have Feedonomics optimize and transform your catalog and send it to these channels for you. That's what the surface is aiming to do. So what I would say is I am very focused on directing capital towards those features that I feel merchants are going to expect the platform to have natively and stop there. Once you get past that line, we're going to be partner first. We're not going to go build our own competing model for commerce that doesn't make any sense or to say, look, there's 4 primary ones that are doing very well. We're going to partner with all 4 of them and try to be the pipes of preference so to speak.

Yes. Okay. The other question on that subject is like do you think that your market in terms of competition will fundamentally change? Because yes, you had a couple of big folks, but like this is like a new world and that changeover usually causes disruption. So how do you think about that kind of...

So this gets into barriers to entry in the individual lanes through which folks make money within e-commerce. 3 primary lanes in which people make money in e-commerce today. You've got the discoverability lane typically monetized through ad revenue. You've got the merchant of record lane, where people are making money by processing orders and then you've got the fintech role where folks are making money by processing payments. For the most part, those lanes are pretty well defined. And there's regulatory requirements and compliance requirements that tends to have people land in 1 lane or another. So today, if you look at the LOMs are taking share from traditional search in a really fast way. In my opinion, it's a superior search experience. I would expect them to continue gaining share over time. Today, the main LOMs don't have an ad revenue model. They're burning a lot of cash. They're going to have to figure that out. They're going to have to build a revenue model somehow, okay? Have I seen evidence that they're wanting to get into the merchant of record order processing lane. No, I haven't seen that. That's catalog management and tax compliance and all of the stuff that, okay, today, that's where BigCommerce or Magento or Salesforce Commerce Cloud or Shopify or Wix or others, that's how they're driving a lot of their money. You go to the payment side of things, could I picture the barriers to entry changing such that new AI entrants would come in, in the payments world. I could see them becoming PSPs, maybe taking on white label solutions, but it's hard for me to imagine them wanting to take on the financial visibility responsibilities of actually becoming a payments provider really. And so I think a lot of this is very unsettled. I think for all the different players, including us, we're all saying, okay, this is the lane. This is where we have compliance. We all need each other to figure out the tech, right? If you are a merchant, for example, an example I always use, like let's say you're going on a hiking trip and you go into a search in a normal Google search and you say hiking boots, and it's just going to pop up a bunch of search results above the fold, probably the first 3 or 4 spots are going to be SEM, probably not even all that relevant. Right. I don't even have you started on the payout on SEM, don't love it. Okay. You go into an LLM -- you say, "Well, I'm going on a trip to this place. In this amount of time, here's my budget." Based on what you know about me, what would you recommend? Well, the that's a way more complex algorithm search than what just a traditional search term is. Okay. Well, then when that result pops up, how do those 3 lanes play themselves out in that experience, okay, the LLM are the discoverability part. How are they going to introduce an ad revenue part without their users being like, "Oh, wait a minute, I thought this was an unbiased search result." Well, we got over it in Google. Google search, I'm sure they will figure out a way to help everybody get over that on the LLM side of the right? Okay. Well, now you pop up a result and say, well, well, here are the 3 boots I would recommend for you, Daniel, as you go on your trip. You could click on the boot and out click directly to a branded website, in which case their normal platform is processing the orders, the payments processors going through there. You could do an agentic check out and say, would you like me to purchase it for you. Okay. Well, if it pops up with a PayPal button or a strike button or something like that, do you trust your PayPal wallet to buy it on your behalf. Sure. The order is still going to route to whoever that boot is platform that they are on, right? So I think in a lot of ways, these lanes are fairly defined. It's the partnership and collaboration between the different players within those lane. That's interesting. The example I gave about Franklin Planners, I think, is an interesting one. In order to make that happen, it took BigCommerce as the merchant of record, PayPal as the payments provider and Perplexity as a search engine to put together a package to enable people to go in and search and just click a button within the Perplexity discovery result and actually transact stated within that. So I don't know if that's a brand new entrance, but there's lots of people that have been in businesses before that said, no, there's no what me worry? There's always a way that people can be disintermediated. I haven't seen evidence of it. I think the mix shift may take its own form though. I think that who ends up winning, like who ends up taking a lot of the share from Google Search? As that progresses, I think you may see a lot of changes in that area. I don't know that it means you're going to end up with a completely new entrant, but we'll see.

Yes, yes. Okay. The last few minutes, I wanted to talk about like margins -- like -- and I think a lot of that is your achievement like you guys turned it from kind of cash burning, negative margins kind of around very quickly. And it's tough to do, and I'm sure they would like trade-offs -- like how do you think about that journey? And where do you go from here?

Yes. If I look at where we are from a profile point of view right now, financially, we're very healthy. Balance sheet is in a really good place. We don't have excessive debt. We're profitable. We're cash flowing. But relative to the amount that we are spending to fund growth, we're not growing fast enough. Is reality of it. Pick any metric you want to look at, whether it's magic number of sales and marketing efficiency, we need to make a lot of improvements in that area. So you could beg the question and say, "Well, did you cut too much? Or did you limit growth too much?"

Yes.

No. I have this conversation with my peers all the time. The issue is not money, there's plenty of money. Look at the efficiency. We need to have lower customer acquisition cost ways of expanding revenue than always needing to have it go salespeople that gets back to the product-led growth discussion that I started with. The root of what I look -- when I look at our P&L and getting to a better growth rate at better profitability, that's a lot of the root of the issue that we need to get to. So I actually think that there's a lot of opportunities for us to actually make some changes within the cost structure and still show the type of growth that we've been showing and do some optimization there. Like my #1 focus is just improving the value of the asset. The #1 thing that our investors want to see is higher growth. That's the #1 thing. With the type of growth that we're posting, I think our investors also want to see better generation of profit and cash and have better just efficiency of capital and where it's going into the business. We haven't set up any of our plans for next year. It's still just stuff that we're kind of working through, but I think that we can definitely do both. I wanted us to be further along at this point in the year from a growth rate perspective and a setup for next year than where we are. I mentioned that on call I've already talked about that in public settings before. And I tend to be pretty conservative. So we'll think more about guidance and what that means as it goes into next year and as we locked down plans. But I don't think that we've taken up too much. I think we've done a really good job. I mean, while not getting to the top line targets, we want it, we still wiped out over 90% of our net debt in the last 18 months, which I think is pretty outstanding. But ultimately, we need to deliver both better profit and cash growth and better top line growth. And I actually think we can improve that by getting more focused and more disciplined, not by having to add a ton back in.

I mean, like let's how I enjoy our conversation like listening to you, like it seems like you're very metric-driven. It's not like you're kind of counting for the sake of it. You kind of know where you talk magic numbers, which is kind of music to my ears.

Well, I just -- I mean every quarter, internally, I do in all hands, I call it investor insights. Where I go through quarterly scorecard of everything, how we're doing, I actually will sometimes take sell-side quotes to explain like what's the feedback and how things are going. Ostensibly, it's about that, but it's really my opportunity to talk about the metrics in the numbers and help our employees understand, these are why we are directing capital in the areas that we are because to your original question, we've got -- we're going through a lot of transformation. And I think it's just really helpful context for employees to see that. And I see the same metrics in our business that our investors do. Like if I look at -- I know the business is capable of growing faster than what we have posted. And I know the building blocks that are necessary in order to get that turned around. It's not going to be chasing silver bullets, like this 1 thing is going to get out there and then I'm jumping into agenetic bingo, where I've got like a list of 20 terms that I'm just trying to drop into every conversation, what do I want to see? I want to see improving gross retention, improving net retention and I want to see a lower customer acquisition cost. I think we do all of those things, the growth rate is better, profitability and cash flow better and we're going to be delivering better returns for the shareholders.

Yes. Good closing statement. Yes. Thank you. Daniel, good to see you here. Thank you