Thanks FinallyFoolin, I have the same numbers written in my spreadsheet, but in my other post reply (https://discussion.fool.com/my-biggest-concern-with-bill-is-divv…) I had transcribed the wrong set (I wrote out total divvy revenue which included subscription revenue, and not the divvy transaction fee revenue numbers that you have).
I also found the divvy transaction number that I previously said I could not find: it was 5.9 million, up 11.3% QoQ from 5.3 million.
Anyway, I will write in here my last thoughts on BILL:
Stock investing is all about looking forward. As usual, BILL management said that their forecast assumes no forward negative macro impact.
We have to consider: what if there is a macro impact down the line? While BILL is not consumer facing like UPST, in my opinion BILL’s macro risk due to exposure to SMBs is substantially heightened versus other companies like CRWD, NET, DDOG who focus on large enterprises.
We know that wall street is currently freaking out over a possible growth slowdown or recession. Will it happen? We can’t know in advance, but it really is a larger, actual risk here with rates/yields climbing and Fed quantitative tightening than compared to, say, one year ago.
If the market has a perception that within the next year, there is a 50% chance of recession (https://www.cnbc.com/2022/03/15/forecasters-sees-growing-cha…) then stocks with outsized macro exposure will likely be assigned a lower valuation multiple than others. In order to fight this lower valuation multiple, BILL must grow much faster than the market expects, and avoid any rapid deceleration in growth.
This is why for my portfolio, I have a higher bar to keep fintech related companies like BILL, even if 80% of their business is about repeat transactions between suppliers.
It means I have very high expectations.
BILL must prove to me they have very high and durable growth rates beyond what I’d expect for a pure SaaS business. And if numbers miss my expectation (as Divvy’s lackluster growth did in this report), I have a lower threshold to cut BILL loose than my cloud/security businesses.
I believe BILL did not meet my bar this quarter: I wanted Divvy to add over 6M more in revenue than they actually did (we got 54.4M instead of 61M) which would have resulted in 10% beat on their total revenue guidance and thus a flat or mild acceleration in total revenue YoY growth from prior quarter.
BILL already has customer gross retention rates in the 80% range during good macro times. Its product is just not as well loved as its competitors, or as sticky as the very best SaaS.
What happens to that during a recession? Some of its small, medium sized businesses will actually go bankrupt. BILL’s customers are not the typical very large enterprises that are less likely to fail (like for example, SNOW’s fortune 500 clients).
And an actual recession means BILL will face credit losses, which will eat into profitability.
Not only that, but BILL’s underwriting during a true recession will also tighten up even more, causing Divvy to slow down growth badly, as more and more credit applications are rejected.
For my investment in DDOG, ZS, CRWD etc I am not anywhere near as concerned about a recession impact, versus for BILL. A recession will definitely slow their growth down too and certainly punish their stock price further, but in these businesses, their customers are larger/less likely to bankrupt, their customers’ spending are tied to mission critical infrastructure or security (retention rates should still stay elevated), and they simply aren’t loaning credit card money out to their customers to spend (no credit risk!).
This translates to smaller risk of revenue decreasing (negative growth) from quarter to quarter, I’d instead expect their revenue to simply grow but do so slower (still positive growth).
During the brief COVID recession, BILL grew only +2% QoQ from Q3 2020 to Q4 2020. But that was when they didn’t have Divvy! Now with Divvy added as a substantial part of revenue, these are more volatile SMB credit card expenses - during a recession they likely will face overall negative QoQ rev growth.
I hope a significant economic growth slowdown or recession doesn’t happen at all. BILL looks poised to definitely keep expanding for a long time, and I can be very wrong about my decision here but I’m not willing to stick around if they decelerate already at this stage with an increasing macro risk.