CommerceHub Inc.

The stable outlook reflects our expectation that favorable e-commerce growth will support continued demand, a growing customer base, and higher transaction volumes that lead to low-single-digit percent revenue growth. We could lower the rating if a deterioration in operating performance or unforeseen liquidity pressures led to negative free operating cash flow (FOCF) or an unsustainable capital structure. In our downside scenario, we also contemplate that revenue contributions from new customers will be less than the company expects while the company also loses existing customers--perhaps from bankruptcy--as a recession takes hold. We are unlikely to consider an upgrade over the next 12 months given our expectation that the company's tolerance for high debt levels will result in elevated leverage. However, we

...Increased adoption of e-commerce by retail consumers has led to secular tailwinds for the industry. The COVID-19 pandemic and associated lockdowns have altered consumer habits, including an increased adoption of e-commerce. E-commerce retail sales has accelerated since the coronavirus outbreak (growing by about 44% in the second quarter of 2020 from the same quarter in 2019--U.S Dept. of Commerce) disrupting traditional brick and mortar retail and providing an impetus for secular tailwinds in the drop ship industry. Further, another round of the virus could lead to more social distancing restrictions, spurring a further uptick in online shopping activity given the upcoming holiday season. Despite the recent acquisition of Ds Co. (DSCO)., our view of CommerceHub's competitive position is muted by the dominance of larger well-funded e-commerce retailers. CommerceHub recently completed a tuck-in acquisition of DSCO, a cloud-based drop ship platform based in Lehi, Utah. The transaction was...

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