What we think about Bill.com
Bill.com in Three Words: SaaSy, Modern, Accounting
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Background
Bill.com dropped the “.com” and is now just friendly old Bill, sharpening its precise branding even further.
Bill is a financial management platform that helps businesses manage their bills and invoices. It provides features such as electronic bill payment, automated workflows for approving and paying bills, and integration with accounting software. This can help businesses save time and reduce the risk of errors in their financial processes.
It has a three-part revenue model: subscription to its SaaS payments platform; collecting transaction fees from Divvy, its cash management card; and the float interest fees it receives, especially when interest rates are rising.
Despite a return to earth from the exceedingly high growth in ’21, Bill still boasts a 75% 5 year CAGR, which is nothing to scoff at. I think the stock’s decline over the past couple years has a lot to do with higher interest rates that affect small businesses quite impactfully, as they try to cost-cut to stay afloat.
I think Bill will see strong tailwinds to its business once the rate cycle turns. It’s P/S over last year’s revenues is at 4.3, compared to 72 from June of ’21. My intuition tells me that Bill was much more rate-sensitive than I suspected, and that the SaaS part of its business could not keep up with the income from its money payment divisions. Lower interests will accelerate its cash cow.
Secondly, Bill is renegotiating terms with Bank of America, one of its main financial institution partners from whom it draws clients and accounts. According to the latest earnings call, we need to wait longer for an update. But the stock definitely seems to be pricing in a pessimistic outcome; I’m not sure how likely that is, hence the uncertainty and my decision to keep Bill on Hold for now until the evidence of a shift is beyond conjecture.
From last time:
- Growth rates year-over-year came in at 19% way down from the lofty highs from a few years ago. So while no longer a hyper-growth company, it achieved Net income of almost 32 million.
- Margins were up a smidge as well, always a good sign.
- Full-year guidance ending in the June quarter was for 20% while Q4 revenue guidance was for a much lower 8-11% range.
The extent of sandbagging here is unclear to me. At the moment, the business is fine, but my expectations were much higher. It still continues to solve a big problem for small and medium-sized businesses and I like the product suite it has. I just can’t tell whether macro conditions and the AI revolution will help or hinder its growth in coming years.
While not quite there yet, Bill is now on a possibility as a potential sell if only because the strong growth of the past might have been a temporary blip rather than a trend. Nothing wrong with the company itself. But the stock is a different story. Its subscription SaaSy revenue is now only 20% of the revenue, which makes it less of a SaaS model and more of a fintech.
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