AI Commerce And Embedded Payments Will Gradually Reshape Earnings Despite Near-Term Headwinds

Catalysts

About Commerce.com

Commerce.com provides an open, modular ecommerce platform and data infrastructure that powers AI driven product discovery, storefront experiences and payments for B2B and B2C merchants.

What are the underlying business or industry changes driving this perspective?

• Although AI led product discovery is expanding the addressable market for structured product data, the company must still prove that new AI centric offerings like Feedonomics Surface and AI readiness tools can materially reaccelerate ARR growth beyond the current low single digit rate. This will be critical for sustained revenue expansion.
• While partnerships with PayPal, Microsoft, Google and Shopify broaden distribution for Feedonomics and embedded payments, any slowdown in partner driven volumes or unfavorable economics on renewals could limit the step up in high margin revenue share and constrain improvements in net margins.
• Although product led growth motions aimed at tens of thousands of SMB and mid market customers create a pathway to higher average revenue per account, slower than expected adoption of paid tiers or feature upgrades would leave net revenue retention near flat and cap earnings growth.
• Despite strong B2B traction and third party validation of the platform’s ROI, a persistently tougher replatforming environment for large B2C merchants and continued delays in commerce stack modernization would keep enterprise ARR growth muted and reduce operating leverage.
• While the rise of agent driven shopping journeys increases the strategic value of unified feed to fulfillment and order orchestration capabilities, growing complexity across channels and potential commoditization of data syndication could pressure pricing power and limit future gross margin expansion.

Assumptions

This narrative explores a more pessimistic perspective on Commerce.com compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Commerce.com's revenue will grow by 4.3% annually over the next 3 years.
• The bearish analysts are not forecasting that Commerce.com will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Commerce.com's profit margin will increase from -3.9% to the average US IT industry of 7.0% in 3 years.
• If Commerce.com's profit margin were to converge on the industry average, you could expect earnings to reach $26.9 million (and earnings per share of $0.3) by about December 2028, up from $-13.4 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.4x on those 2028 earnings, up from -27.7x today. This future PE is lower than the current PE for the US IT industry at 31.1x.
• The bearish analysts expect the number of shares outstanding to grow by 3.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.37%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• AI driven discovery and agentic commerce could materially accelerate demand for Commerce.com's Feedonomics and Makeswift offerings, lifting subscription revenue growth well above the current low single digit rate and driving faster expansion in earnings.
• The new embedded payments initiative with PayPal and the unbundling of Feedonomics order orchestration may generate high margin revenue share and cross sell uplift, structurally improving net margins and overall profitability more than expected.
• Strong third party validation of the platform's ROI including a 391% three year return for B2B Edition customers and rising average revenue per account across all segments could support sustained pricing power and higher long term revenue growth.
• Product led growth motions such as Feedonomics Surface, which is already the most downloaded app in the company’s ecosystem, may significantly increase adoption among SMB and mid market merchants, raising net revenue retention and accelerating earnings growth.
• Expanding platform agnostic partnerships with major ecosystems such as Shopify, Google, Microsoft, OpenAI and global system integrators like Accenture could deepen Commerce.com's role in the commerce data stack, boosting high quality bookings, deferred revenue and long term operating leverage.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Commerce.com is $5.0, which represents up to two standard deviations below the consensus price target of $7.14. This valuation is based on what can be assumed as the expectations of Commerce.com's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $11.0, and the most bearish reporting a price target of just $5.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $385.8 million, earnings will come to $26.9 million, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 10.4%.
  
• Given the current share price of $4.55, the analyst price target of $5.0 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.