Commerce (CMRC) Q3 2026 earnings review
Commerce raises its profit plan, but customer retention drops
Commerce, the software company behind the BigCommerce online store platform, is cutting costs to protect profit while its sales shrink. Third-quarter revenue fell 2% from a year ago even as merchant checkout volume grew 14%. Chief executive Travis Hess raised the full-year profit outlook and promised an operating margin of at least 20% in 2027 on $60 million to $80 million of yearly cost cuts.
| Revenue | $84.2M -2.1% from a year ago |
|---|---|
| Gross merchandise volume | $9.0B +14% from a year ago |
| Net revenue retention | 94.7% down from 95.8% last quarter |
| Full-year operating profit outlook, excluding one-offs | Raised $5.3M 2027 margin target: at least 20% |
⚖️ Verdict: 🔴 Bearish
The story got worse because the recovery in customer retention broke and recurring revenue contracted from last quarter. For three quarters, rising retention suggested existing merchants were spending more; this quarter retention dropped to 94.7%, gross margin fell 4 percentage points, and the finance and operating chief announced his departure. The brighter side: Commerce held its full-year revenue midpoint steady and beat its profit plan again by cutting sales costs.
The question now is whether slashing $60 million to $80 million in annual costs will starve the business of the sales and engineering support needed to stop customer churn. If the new AI catalog tools sell themselves, margins will double as planned; if they require sales staff, revenue will keep sliding. Fourth-quarter retention and recurring revenue will give the first read early next year.
🐂 Bull Case
Sales Cuts Fund a Higher Profit Plan
Commerce is squeezing more profit from a smaller revenue base by shrinking its sales department. Chief executive Travis Hess said "the strategic operating plan we initiated in September is driving greater efficiency and profitability while protecting investments in our highest-impact growth areas". Excluding one-offs, operating income held steady at $8.0 million, well above the $3.3–5.3 million plan.
- Sales and marketing, excluding one-offs: 29.6% of revenue, down 10.6 percentage points from a year ago
- Research and development, excluding one-offs: 21.4% of revenue, up 3.5 percentage points
- General and administrative, excluding one-offs: 14.1% of revenue, up 2.4 percentage points
- Stock-based pay and related taxes: $4.4 million, down from $6.4 million a year ago
The company beat its quarterly profit range for a sixth time in seven quarters and lifted its full-year profit outlook by $5.3 million at the middle of the range. It also set a "target of full-year Non-GAAP operating margin of at least 20% beginning in 2027", up from 9.5% this quarter. That target relies on "estimated annualized Non-GAAP operating cost reductions of $60 million to $80 million under our strategic operating plan".
What to watch: first-quarter 2027 operating expenses when Commerce reports fourth-quarter results early next year. Deep cuts to sales staff can starve future bookings, so rising profit alongside falling recurring revenue would show the savings are eating into the business.
New AI Catalog Tools Shipped on Schedule
Commerce wants its software to help online stores sell through artificial intelligence search tools, and it delivered the products it promised for the third quarter. In September it launched Feedonomics Enrichment, a tool that organises product data for shopping channels, and BigCommerce Catalog Enrichment for its core storefront software. These tools help merchants "transform their catalogs into richer, AI-ready product intelligence at scale".
In October the e-commerce software group partnered with Cloudflare on a feature that "lets AI agents in a customer’s web browser search, compare and shop directly on BigCommerce merchants’ online stores with no setup required". It also gave US merchants using Feedonomics early access to Amazon Shop Direct, which lets shoppers buy from brand websites inside Amazon's app. Because these tools launched in the past two months, they have not yet lifted subscription revenue.
What to watch: whether management discloses standalone revenue or customer adoption for Feedonomics Enrichment in the fourth-quarter report. Without separate numbers or faster subscription growth, investors cannot tell if merchants pay extra for these AI features.
Positives this quarter didn't test
Two standing growth drivers got no new numbers in the earnings release, while the balance sheet kept its cash cushion.
- Business-to-business (B2B) storefront demand: Commerce named new B2B stores for Bici Escapa, Simply Thank You and RatioParts, but the quarterly filing or call must show whether B2B checkout volume held its 17% growth rate.
- BigCommerce Payments, its built-in PayPal payment processor: not mentioned in the release; the call or filing must show whether payment volume stayed ahead of management's internal plan and expanded to the UK.
- Net cash position: cash and securities of $162.8 million exceeded total convertible debt of $156.3 million by $6.5 million by our math, keeping the balance sheet net debt-free for a third quarter.
🐻 Bear Case
Customer Retention Turned Back Down
Commerce has argued that selling extra tools to existing merchants would restart growth, and for three quarters its customer retention metric backed that up. In the third quarter that recovery broke. Net revenue retention (NRR), which tracks what existing customers spend over twelve months compared with the prior year, fell 1.1 percentage points from the second quarter to 94.7%. Because the figure sits below 100%, the existing customer base is shrinking.
- Net revenue retention: 94.7%, down from 95.8% in the second quarter and 95.4% in the first
- Annual revenue run-rate (ARR), the yearly value of recurring revenue plus trailing variable fees: $357.6 million, up 0.5% from a year ago
- Quarterly change in ARR: down $2.9 million from the second quarter by our math, against a $1.1 million gain a year ago
- Subscription solutions revenue: $64.7 million, up 0.1% from a year ago
Falling retention alongside shrinking recurring revenue cuts against Hess's claim that the company is protecting its growth areas. Management also kept its full-year revenue outlook at $339.0–342.0 million, so the fourth-quarter plan points to a 5.2% revenue drop from a year ago at the middle of the range.
What to watch: fourth-quarter net revenue retention and sequential ARR change early next year. A second straight drop in both metrics would show that deep sales cuts are worsening customer churn rather than just trimming overhead.
Rising Checkout Volume Fails to Lift Sales
Merchants are selling more goods through Commerce's software, but the company is keeping a smaller slice of every dollar. Gross merchandise volume (GMV), the total dollar value of orders completed on its platform, grew 14% from a year ago to $9.0 billion. Over the same period, total revenue fell 2.1% to $84.2 million.
By our math, revenue divided by checkout volume fell to 0.94%, down from 1.09% a year ago and 0.96% in the second quarter. The gap widened because partner and services revenue — which includes revenue-sharing fees from payment and technology partners — dropped 8.5% from a year ago to $19.5 million. Business-to-business merchants also generate lower card payment fees than consumer stores, so their growth dilutes what Commerce earns per dollar of volume.
What to watch: partner and services revenue in the fourth quarter, when holiday shopping normally lifts transaction fees. If partner revenue keeps falling while checkout volume grows above 10%, the new payment tools are not offsetting the lost partner fees.
Higher Server Bills Cut Into Gross Margin
While Commerce cut its sales budget, the direct cost of running its software climbed. Gross margin excluding one-offs fell 4 percentage points from a year ago to 75%, and slipped from 75.7% in the second quarter. On a reported basis, gross margin also dropped 4 percentage points to 74%.
Cost of revenue excluding one-offs — the hosting, bandwidth and support expenses needed to keep online stores running — rose 4.6 percentage points of revenue from a year ago to 25.5%. In the third quarter, Commerce opened its merchants' stores by default to web-browser AI agents through Cloudflare. Letting automated bots browse and compare store catalogs increases server traffic without guaranteeing a checkout fee.
What to watch: gross margin excluding one-offs in the fourth quarter during the holiday traffic peak. Another drop below 75% would show that hosting AI shopping bots is permanently raising the cost of serving merchants.
Finance Chief Departs Amid Major Cost Cuts
Chief financial officer and chief operating officer Daniel Lentz will "depart the Company effective November 13, 2026 to pursue another opportunity" after eight years at the business. Senior vice president of finance Tyler Duncan will step in as interim finance chief, while other executives split the operating role until the board finds permanent replacements.
Lentz is leaving just two months after Commerce started a restructuring plan that aims to remove $60 million to $80 million in yearly operating costs and double its operating margin by 2027. The incoming finance chief also inherits $152.2 million of long-term convertible notes held by a related party. Over the first nine months of 2026, interest expense of $7.5 million exceeded interest income of $3.7 million by $3.7 million by our math.
What to watch: whether the board names a permanent finance and operating chief before the fourth-quarter report, and whether the new leader keeps the 20% margin target for 2027.
👓 Other Themes
September Restructuring Pushed GAAP Results Into Loss
After two quarters of reported profit, Commerce swung back to a GAAP net loss of $3.2 million and an operating loss of $1.8 million in the third quarter. The swing came from $4.0 million of restructuring charges — severance and office lease write-offs tied to the September cost plan — up from $83,000 a year ago. Excluding those restructuring charges, reported operating income was $2.2 million by our math.
💲 Other KPIs
Deferred revenue — cash customers have paid upfront for subscriptions not yet delivered — rose 16.3% from a year ago by our math, outpacing reported sales. However, the balance slipped $0.9 million from the second quarter, its first sequential drop in a year, reducing the cash inflow from upfront billings.
Free cash flow — operating cash flow minus capital spending on software and equipment — fell 24.4% from $7.6 million a year ago, though it rebounded from $0.05 million in the second quarter. Capital spending rose to $3.6 million, or 4.3% of revenue, up from $3.0 million a year earlier.
Sales slowed across every region in the third quarter. Europe, the Middle East and Africa (EMEA) remained the sole growing market at $11.3 million, up 6.9% from a year ago after 12.3% growth in the second quarter. US sales fell 2.6% to $63.5 million, while Asia-Pacific dropped 8.8% to $5.7 million.
🔮 Guidance
Unchanged against what the prior full-year plan implied. The outlook calls for sales to fall 5.2% from a year ago at the middle of the range, a steeper drop than the 2.1% decline in the third quarter. The comparison is tough because the fourth quarter of 2025 was the software provider's highest revenue quarter on record at $89.5 million.
Unchanged at the middle of the range. Commerce narrowed the band by $2.5 million on each side, leaving the $340.5 million midpoint down 0.5% from 2025. After cutting the full-year midpoint by $18.0 million three months ago, holding the target steady prevented a second straight downgrade.
New. The plan puts fourth-quarter profit excluding one-offs up 5.1% from a year ago at the middle of the range, and down 2.3% from the third quarter. That equals a 9.2% operating margin at the midpoint, compared with 9.5% this quarter. Over the past three quarters, actual profit beat the midpoint by an average of 64%.
Raised. The middle of the range moved up $5.3 million to $36.3 million, or 30.7% growth from 2025, after the third-quarter beat. That reverses almost half of the $12.5 million cut the e-commerce group made in the second quarter, and puts the full-year operating margin at 10.7% at the midpoint before the planned jump to at least 20% in 2027.
❓ Key Questions
What happened to remaining performance obligations in Q3?
Total remaining performance obligations — contracted future revenue not yet recognised — grew 11% from a year ago to $200.9 million in the second quarter. The third-quarter release omitted the figure; the quarterly filing will show whether contracted backlog held up as recurring revenue shrank.
Why did net revenue retention drop 1.1 points?
Net revenue retention fell to 94.7% after rising for three straight quarters. Investors need to know whether existing merchants downgraded their subscription plans, left the platform, or generated less partner revenue share.
Where will the $60–80 million in cost cuts come from?
Operating expenses excluding one-offs totalled $54.8 million in the third quarter, or about $219 million a year. Removing $60–80 million is a cut of roughly one-third, and management has not said how much comes from sales, engineering or hosting.
How much revenue do Feedonomics and BigCommerce Payments generate?
Commerce launched new AI catalog tools for Feedonomics and relies on BigCommerce Payments to lift its share of checkout volume, but it has not disclosed revenue or growth rates for either product.
Why is the finance and operating chief leaving now?
Daniel Lentz is departing on November 13, just two months after launching the company's largest restructuring plan and before naming a permanent replacement for either of his two roles.