Bill.com (symbol BILL) was an IPO on December 12, 2019. It opened at $37.25 and closed that day at $35.50. Traded flat until January 7 and now is at $50.32. I was interested in BILL because of their go-to-market strategy and I have been nibbling and my position is now 0.53%. My first purchase is up 40% and the entire position is up 24%.
What does Bill.com do? From their S-1:
Our mission is to make it simple to connect and do business.
We are champions of small and midsize businesses (SMBs). We are a leading provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for SMBs.
Back office operations are essentially accounts payable and accounts receivable.
How does BILL stack up against Saul’s criteria?
Rapid Revenue Growth. BILL revenue growth for full year 2019 was 67% versus 2018. Q3 2019 versus 2018 was 57%. Not world beating and apparently decelerating but it meets “35% and usually more”.
stock in a special niche, with something special about it. potential big future Well, not really. A/C and A/R are pretty pedestrian. But they are targeting 6 million of the 30 million SMB’s in the U.S. and BILL currently has only 81,000 customers. From the S-1:
We estimate the annual addressable market for the services we offer today to be $30 billion globally and $9 billion domestically. 2019 revenue for BILL was $181 million so there is a potential big future.
recurrent revenue…. usually means software, and a SaaS model
From the S-1. “We are a leading provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for SMBs.” And, yes, they tout AI features. All cloud based.
Rapidly improving metrics. With the first post-IPO quarterly report due February 6, there isn’t a lot of history on various metrics.
Dollar based retention rate of 100% and even 130%. The S-1 states 106% and 110% for 2018 and 2019, but I calculate 121% for the 2017 cohort.
And, they are founder led and I will wait for Q2 report on the 6th to see what the cash/debt numbers are. So, BILL passes the hurdles, even if some only marginally.
But how does BILL compare up on the go-to-market strategy that attracted me to the stock? And why is it important to me?
I distinctly dislike sales and marketing headwinds and execution issues. NTNX, for example. ZS’s top down, long sales cycle. That sort of thing. Give me a company where the customers are beating down the sales office’s door.
What is the narrative?
The sales channels are direct-to-customer; via “integration with banks’ online banking solutions (Bank of America, JPMorgan Chase, American Express); “partnering” with 70 of the top 100 accounting firms and 4,000 firms overall; and being integrated with Intuit Quickbooks. What I like about the direct-to-customer marketing is that their 81,000 current customers are networked with 1.8 million of their customers’ own customers and suppliers, BILL’s “network members”. Of course BILL has data on all of the network. These 1.8 million network members receive what is essentially a sales presentation everytime a bill is paid. BILL touts their efficient sales and marketing strategy. Do the numbers support the narrative? Maybe. Datadog supposedly has a good S&M story. Let’s look.
DDOG is spending 41% to 42% of revenue on sales and marketing for 88% growth. BILL is spending 28% to 29% of revenue for 67% revenue growth. I’d say that numbers match the narrative, but there might be better comparisons and more data points are needed to confirm the story.
I will wait for Q2 report to get data on EV to Sales, but BILL is certainly “overpriced”. One interesting aspect of BILL’s revenue is the astounding percent of revenue from interest. They annually process $70 billion of payments and my back-of-envelope calculation is that they have that float for an average of a little over 5 days. Interest received is 20% of total revenue. Imagine that! But faster ACM clearing could cut this dramatically.
Anyway, fire away. Any thoughts? Link to S-1: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001786352/b52fff9…