I fixed the formatting.
Gary, here are a couple comments on your post:
- Rapid Revenue Growth: yep, 46% (previous quarter compared to the same quarter a year ago).
I typically do a quick check to see if revenue growth is accelerating. In the case of BILL, it’s
not. at least not in the latest quarterly: YoY growth of the previous quarter compared to the same
quarter a year ago was 50%. That could change in the next quarter, of course.
BILL has 3 revenue sources: subscription, transaction and interest float. They call subscription and
transaction “core” revenue. When looking at revenue, I think you need to back out the interest float
revenue to get to the real growth numbers and prospects. The float revenue is basically just a nice
additional source of revenue that they get from the float of payments. (FWIW, they said it will be
very low next quarter due to low interest rates.) Nevertheless, here are the revenues numbers I have:
Revenues:
Q2 Q3 2Q-3Q 2Q(YOY) 3Q(YOY)
Core $33.0m $36.1m 9.5% 61% 63%
Interest $ 6.1m $ 5.1m -16.0% 10% -16%
Total $39.1m $41.2m 5.4% 50% 46%
First, keep in mind, the last few weeks of Q3 was impacted by Covid-19. With that said, they
did grow revenues 5.4% from 2nd to 3rd quarter. More importantly, their core revenue grew 9.5%
from Q2 to Q3 (even with some covid-19 disruption). Subscription made up $22.3 million of the core
revenue (+44% YOY). Transaction was $13.8 million (+106% YOY).
Unlike other companies at the height of Covid19, they did not withdraw guidance. Instead,
they gave covid-conservative estimates of $37-38.4 million total revenue and $34.8-35.6 core (-2.2%
Q3-Q4) and $2.6-$2.8 million of float (-47% Q3-Q4 due to interest rate).
Bottom line though, their core revenue is expanding and growing. They also announced in May a core
financial institution partner (likely Wells Fargo). That revenue will likely hit in 2021. So, they
now have JPM, Bank of America, Wells Fargo and American Express as heavy adopters of their
platform. Some of the biggest providers of SMBs.
- Special niche, moat, competitive advantage, etc.?: this is difficult to assess and has been
the subject of much debate on the definition of this attribute. BILL does have competition: Square
plays in this space and offers more financial services (according to an article in MF), but trades
at a lower multiple. But maybe BILL is trading higher because it’s a better company? I’d say this
is TBD.
So, I don’t think Square directly provides a back office account payable and receivable solution.
Square certainly provides solutions to SMBs, but I don’t think they have an AP/AR platform.
Quick books would seem like a natural competitor, but they actually use the BILL platform in their
software. I suppose payment processors might compete with generic electronic payments, but I think
BILL’s focus on the the back office solution is a bit unique. (I own PYPL, ADYEY, MELI, and SE in
the payment space as well.) On the electronic payment side, BILL mentioned one barrier and cost of
entry being qualifying as a payment processor in all 50 states and other jurisdictions.
Although a new IPO, BILL has been in business for 12+ years. They have substantial relationships
with accounting firms and big financial institutions serving SMBs - JPM, BOA, AXP and now Wells.
(Likely under a white label arrangement).
BILL says its biggest competition is SMBs using a manual process instead of a cloud based back
office solution. Their biggest R&D expense is focusing on continually improving their platform.
With that said, I think the biggest risk to long term multiple growth to an investor is BILL
being acquired by a company like Square or Intuit. (Note, the CEO/founder of BILL’s last company
was bought by Intuit.)
Covid-19 had me worried going into last quarter, but they seemed to do well. We will see how much
it impacts them this quarter ending 6/30. I don’t think the lock-up expiring hurt the stock price
at all.