BigCommerce Updated S1: $18 - $20 Price Range Implies $1.4B Valuation
A few weeks ago BigCommerce filed their initial S1 with the SEC. They’ve since updated that filing to include an expected price range ($18 - $20). In a standard IPO process each company will now kick off their roadshow and spend roughly 10 days traveling the country (and sometimes the world) meeting with large institutional investors (mutual funds and hedge funds) to pitch them on why they should invest in their business at the IPO with a goal of trading on the open market by next Friday (8/7). One thing to keep in mind - most SaaS businesses end up raising the initial price range (>70% of SaaS companies to go public in the last 3 years have provided a revised, increased range at some point on their roadshow).
Let’s dive into the implications of the announced share price range. In the table below you can see implied valuations (post offering fully diluted market cap) and revenue multiples at different share prices. At the end of this article I’ll explain what each column in the valuation matrix means in greater detail.
Commentary on Implied Multiples
As you can see from the data above, the midpoint of the range implies a forward revenue multiple of roughly 9.3x, assuming a forward growth rate of 20%. For context, BigCommerce grew 26% over the last 12 months (updated with June 30th financials). It’s normal to see some decelerating revenue growth at this scale so I’d expect the forward growth to be <26% (Shopify, albeit at a much larger scale, is decelerating according to consensus estimates from 46% LTM growth, to 38% NTM growth). We won’t know the exact forward revenue estimates until public research is available a few weeks after BigCommerce starts trading. You can see from my charts below that the median SaaS forward revenue multiple is 13.3x and the median forward revenue multiple for mid growth SaaS businesses is 14.0x. So this 9.3x implied multiple comes in at a discount to the median SaaS mid growth multiples (justifiably so).
BigCommerce in Context of Other SaaS Businesses
Below I’ve created two different comp buckets for BigCommerce:
Shopify: Since BigCommerce will be compared so heavily to Shopify, they get their own category!
Mid Growth SaaS: This bucket has a similar LTM growth rate to BigCommerce (mid 20’s)
LTM Rev
BigCommerce is on the smaller end of public SaaS companies. With $120M of LTM revenue their’s only a few smaller SaaS businesses. And it’s quite smaller than Shopify :)
LTM Growth Rate
BigCommerce is squarely in the “mid growth” bucket, and based on projections may fall on the lower end of that spectrum. The overall median LTM growth rate for the entire SaaS universe is 31%, and BigCommerce is below this.
Gross Margin
Operating Margin
Valuation Matrix Detail
Column A - Share Price
Column A is simply the share price, and I’ve highlighted the expected price range the company has provided. Most (but not all) of the columns to the right are derived from the share price. I’ve provided a few share prices that are above the range so we can see how things like valuation are impacted with a different share prices.
Column B - Primary Shares Issued
Column B represents the new (primary) shares a company is issuing and selling as part of the IPO. These are shares that did not exist before the offering, and are dilutive to existing shareholders (ie they decrease the ownership of existing shareholders). Primary shares are offered as a way to raise money - the procedes from the sale of these new shares go straight to the companies balance sheet. It’s the same as any fundraising process (Series A, Series B, etc)
Column C - Secondary Shares Offered
As part of an IPO companies can also elect to allow existing shareholders to sell some of their shares. This is not as typical, and is generally a much smaller component of the total IPO size then the primary shares offered. Because no new shares are offered as part of secondary sales this is non-dilutive. The proceeds from secondary sales go directly to the bank accounts of the individuals selling, and the company receives no proceeds from them.
Column D - Primary Dollars Raised
This is simply the result of multiplying the share price by the number of primary shares issued (Column A x Column B), and represents the gross proceeds (proceeds before fees and transaction costs) that the company receives as part of their IPO.
Column E - Secondary Dollars Sold
This is simply the result of multiplying the share price by the number of secondary shares shares (Column A x Column C), and represents the aggregate proceeds that the selling shareholders receive as part of the IPO.
Column F - Total Offering Size
This is typically the headline value you’ll see in articles when reporters are talking about the total size of the IPO. It is calculated by adding the primary dollars raised to the secondary dollars sold (Column D + Column E). It represents the total amount of dollars institutional investors invested into the IPO
Column G - Post Offering Fully-Diluted Shares
This column represents the share count after the offering (and we use this later on to calculate the market cap, or valuation). It is calculated as:
Existing shares pre-offering + New Shares Issued + Dilutive Effect of Options
That last piece (dilutive effect of options) is what makes the share count “fully-diluted.” Without this we’d be looking at the “Basic Share Count.” The reason we do this is that it gives a more accurate picture of the valuation of the company. Once public, you can assume people with “in the money” (strike price is below current trading price) options will exercise them. An option is simply a “contract” that lets individuals buy stock at a pre-determined price. If that pre-determined price is below the current market price you’d buy (exercise) your option to accumulate shares (because it’s cheaper to do that then buy on the open market at the higher price). If the exercise price is above the current market price you wouldn’t buy (exercise) you’re option becasue you’d be better buying at the market price. So, if options are exercised the share count goes up, and we want to include these “shares” in our market cap calculation. In my analysis I’m using the treasury stock method to calculate exactly how many additional shares are created from options. If you’d like to read more about the specifics of the treasury stock method you find details here. At a high level it assumes that all in-the-money options will be exercised - meaning the individuals with the options will buy them at their exercise price. The company receives these proceeds and uses them to buy back existing shares on the market (at existing market prices). The difference between the number of options exercised and the number of shares bought back represents the net new shares added to the share count.
# Options - [# Options x (Exercise Price)] / Share Price
Column H - Post-Offering Market Cap
This is the probably the metric people care most about - the market cap! This represents the valuation that will be listed in almost every article headline. It is calculated by multiplying the share price by the fully-diluted share count (Column A x Column G)
Share Price x Fully-Diluted Share Count
Column I - Post-Offering Enterprise Value
Enterprise value is important to highlight because this is the metric we use when calculating valuation multiples (it is the numerator of multiples). In all of my articles you’ll hear me talk about “revenue multiples” quite frequently. This revenue multiple is really Enterprise Value / Revenue. For cloud and SaaS businesses that are generally not profitable, a revenue multiple is the most common (can’t assign a multiple to a negative figure like profit or FCF as it would imply a negative valuation!). Enterprise Value is calculated as:
Enterprise Value = Market Cap + Debt - Cash
We use enterprise value, and not market cap, for multiples because it gives a more appropriate true value of the business. Think about how an acquirer would value a business they want to buy. Not only would they be acquiring the shares, but they’d also be taking on the liability of the debt, and the benefit of the cash. We add that debt liability, and subtract the cash asset to get to the fair value of the company. To hit this point home - if you acquire a company for $1B, but that company has $900M of cash on the balance sheet (that you as the acquirer would get post acquisition), you are really only paying $100M, which would be the enterprise value.
Column J - Dilution
This column represents the incremental dilution the company takes on as a result of primary shares being sold in the offering. Typically this number is in-between 10%-15%. It is calculated by dividing the primary dollars raised by the eventual market cap (Column D / Column H)
Column K - LTM Revenue Multiple
The LTM revenue is the revenue the company generated over the last year (twelve months). The multiple is simply dividing the enterprise value (Column I) by this LTM revenue figure. Typically companies are valued off of forward revenue estimates, but since we don’t have the exact consensus forward estimates yet I’m also showing LTM
Column L - NTM Revenue Multiple
These three columns represent the implied NTM (next twelve months) revenue multiples at different projected growth rates. Since we don’t know what the exact consensus estimates are I’m showing a range of growth rates, and the multiples at each of these growth rates
Bigcommerce is now a $5.5B market cap company.. it may be great case study for either of “irrational exuberance” or “what were the IPO advisors thinking” or anything in between..