In a world where businesses are constantly seeking ways to simplify their financial processes, one cloud-based software platform stands out as a game-changer: BILL Holdings. Founded in 2006, this fintech marvel has captured the hearts of companies everywhere by offering a streamlined solution to manage accounts payable, accounts receivable, and other financial operations with unparalleled efficiency.
However, can this interesting company be an investment grade stock? Let us find that out.
Business Offerings
At the heart of Bill.com's offerings lies a wide range of spend and expense management products, accompanied by cutting-edge cloud-based payment services and Software as a Service (SaaS) solutions. Heading this company is none other than the visionary fintech entrepreneur René Lacerte. With a passion for innovation and a keen eye for strategic partnerships, René collaborates with major banks and accounting firms to reimagine the landscape of corporate payments. It all began with his realization that business owners needed a solution to streamline payments, freeing up valuable time to focus on their core competencies.
How does Bill.com make money?
Well, it's pretty straightforward. Customers subscribe to the platform and pay a fixed monthly or annual amount per user, generating steady subscription revenue. Additionally, transaction revenue comes from fees and interchange profits, adding to the company's success. Cards are frequently used in these transactions, making the entire process smooth and user-friendly.
Fueling this vibrant ecosystem are the loyal customers, whose repeat transactions form the bedrock of BILL's success, ushering in the enchanting allure of recurring revenue.
Growth Prospects
Bill.com has some plans for the future. They're gearing up to enhance their accountant dashboard, making life even easier for their 6000-plus accounting firm partners. They are set to offer a diverse range of products, providing strategic value-added services to their esteemed clients.
With the help of AI, they are striving to create solutions that are more user-friendly, automated, and predictive. Already an early adopter of AI, Bill.com has harnessed its power to read invoices, detect risks, and manage documents. Now, they're exploring the thrilling possibilities of generative AI to take customer experiences to new heights!
Tough Financial Situation
As we dive into Bill.com's financial performance, in the fourth quarter of 2023, around 461k consumers employed their solutions, marking an 15% increase over the same period in 2022. Their revenue grew to $296 million, a growth of 48% from the same quarter in 2022. However, the company incurred loss from operations of $41.4 million, according to the Q4 2023 report. Also, they incurred a net loss of $15.9 million in the same quarter.
Talking about its debt position, BILL had total long term debt consisting of borrowings from a revolving credit facility and convertible senior notes of $1,838 million, which has soared by more than 200% from $609 million in one year. On the other hand, their cash has shrunk from $2,783 to $2,663 during the same period.
Furthermore, its annual FCF over past years has worsened from $(8.2) millions in FY 19 to $(33.7) million in FY 22 in three years, suggesting a shortage of cash. If the upcoming earnings lead to an improvement in performance, it would definitely be worth watching.
With rising debt, lowering free cash flows, and shrinking cash balances, Bill seems to be facing deteriorating financial position.
Extensive competition
Bill.com is not the only player in the industry. We are looking at extensive competition in the industry. In the scenarios of tough macroeconomic situations, demand could falter, and extensive competition could further create hurdles for the company.
Before we discuss competitors, let's check out how Bill Holdings is striving. The Q4 2023 PPT shows, with 461k consumers, BILL processed 23.4 million transactions whose payment volume was $69.1 billion. Out of the total customers, BILL standalone customers were just 201k, which is around 43% of the total customers. With reference to the above graph, it's worth noting the sluggish growth for standalone customers over the past quarters.
BILL is not alone in this fierce race; let's check some of the other players in this thrilling showdown!
First up, we have AvidXchange Holdings, a trailblazer in accounts payable automation and payment solutions. Their impressive second-quarter performance of 18.8 million transactions, coupled with a soaring total payment volume of $18.7 billion, speaks volumes of their unwavering ambition to conquer new heights, according to their website.
Next, Billtrust, the undisputed champion of accounts receivable automation, celebrated a momentous milestone in 2022 crossing the $100 billion payments volume mark with a staggering 35% year-over-year increase. Their website shows that, with over 2,400 customers globally and more than 423 million bills presented to 13 million buyers, their impact is simply awe-inspiring.
Fiserv Inc., an American multinational financial technology services provider with 10,000 financial institutions as clients, emerged as a formidable force with $267 billion Clover annualised GPV in Q2 2023. With more than 1,000 financial institutions connected on their NOW Network, their relentless pursuit of excellence shines through, experiencing a remarkable 29% growth in clients and a 44% increase in Zelle transactions, as per the latest Q2 2023 PPT.
In the realm of payment automation solutions, Tipalti dazzled with a remarkable 50% surge in transactions in 2022, amassing an annualized payment volume of $43 billion. As per Tilpalti’s official website, their cloud-based platform touches the lives of over 3,000 mid-market customers across a staggering 196 countries, making an indelible impact on the global stage.
Last but not least, we have Square Inc., boasting an impressive lineup that includes the Cash App, Square Point-of-Sale, and the popular TIDAL streaming service, their outstanding transaction-based revenue of $1.64 billion in Q2 2023 marks a 11% year-over-year increase. Square Inc. exemplifies the spirit of innovation and growth with more than 4 million sellers globally and $54.2 billion Square GPV as per the Q2 shareholder letter.
Valuation report
BILL’s Valuation ( as of August 28, 2023)
-50.49 | |
2.79 | |
-1.55 |
Source: Gurufocus
In the exciting world of software companies, BILL's lacklustre performance has failed to impress analysts and investors alike. With a PB Ratio of 2.79x that ranks below a dismal 2593 out of all companies, it remains far from enviable and struggles to keep up with its competitors.
Similarly, its ROE of -1.55% falls short, ranking below 2618, highlighting its tough position in the fierce market.
Summary
In an unpredictable market, BILL's performance is a clear case of missed opportunities and failed execution. Investors and observers are growing increasingly sceptical about their future prospects in the software industry.
BILL's journey has been filled with ups and downs, and yes, it has faced challenges. The past 5 years have seen increasing losses, with an annual rate of -65.7%. It seems that their resilience and ability to navigate financial waters have only led them to a prolonged period of unprofitability rather than genuine success.
Overall, a deteriorating balance sheet, high valuations, extensive competition, and a dull outlook perhaps make Bill.com not a great investment case.
Disclaimer/Disclosure
We do not have any long-term or short-term position in the shares of Bill.com either, through stock ownership, derivatives, or other instruments. We wrote this article to express our opinions and are not receiving compensation from any individual or entity for it.
It would be best if you did not treat any opinion expressed in this article as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of our opinion. This is not investment advice. Before you invest in anything you read in our articles or those of other people offering investment advice online, do research to verify the soundness of what you have read. Please consult your investment advisor before making any decisions.
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