BILL reports their Fiscal Q2

Investment Analysis Clubs Saul’s Investing Discussions
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firstly I did show a chart of snow vs bill and that clearly shows that snow is in very “strong” uptrend vs bill right now.

i think i have mentioned in past that stock prices also follow newton’s first law equivalent and that is stock price will remain in uniform motion in straight line unless external force changes it and that force is either ER or Macro.

I will tell you how I am navigating this environment. After getting hurt by upst I have learned that this is dangerous environment and to hold maximum 5 to 8% in stock prior to ER and decide what to do with it after ER. Prior to ER I shift money into far out ER companies.

so for example prior to bill/ddog/net ER…i trimmed all those and shifted most of that money into S and Snow as their ER is much far out and they were in uptrend as well. once er from these 3 conclude…based on good or bad results, i will be moving money back from snow and s into these 3. bill failed to earn that.

I know this board is not about portfolio management but given how difficult these times are I hope this help someone out there.

Stock price really matters silviocast…this is why we are investing and I will share my painful lesson from year 2000. I owned intel stock at 75 and on ER day it plunged to 48. for next 20 years that was best price for that stock. no matter intel was dominant company all this time but it didn’t pay me and main lesson was that big money sold on that fateful day. I don’t think this is case for BILL but for now it is worst of the bunch stock performance wise.

I don’t put out my monthly reports but I am down 63% from november 2021 high.

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Sorry for going slightly off topic, but I wanted to address this as it has been a popular argument by many bears over the last year to refer to Intel, Cisco, Microsoft and others where it took more than a decade to get back to their ‘‘dot com highs’’. Well, let me show you something. This is the revenue growth of Intel in the 90s and 00s:

[Album] imgur.com

The blue line is mine. So yes, from 1993 - 2000, Intel was a growth stock, consistently growing revenue year after year. However, starting in 2000, the growth rates went negative and it took them a decade, until 2010, to get sustainably higher revenue than in 2000. No wonder that Intel never recovered, they didn’t grow revenue for 10 years!!!

Are we seeing anything like this with our stocks here? What I am seeing is that in the worst selling environment for software since 2009, these companies are still expected to grow at least by 30% in 2023. Similarly in 2000, there were other companies like eBay that continued to grow revenue post 2000 and guess that, they recovered their dot com high in 3 years, but of course these bears won’t mention eBay!

The lesson is not that big money sold on that fateful day. The lesson is that over the long term, stock price will roughly follow the growth in FCF per share (or the FCF that can be expected when they are mature and prioritize FCF). Sometimes the market gets overexcited like in 2021, or too pessimistic, but over the long term this is roughly the path.

If there is no growth in FCF per share, the stock price won’t move either. That’s why we are focussed here on companies that are growing revenue and (expected) FCF. And if the same would happen to our stocks as what happened to Intel, we will move on to the next set of interesting growth stocks and capture that growth in revenue and FCF.

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I don’t own this stock, but all that happened is that it dropped to the same point it was at a month ago - and it held that low. So far, it’s not looking so bad to me. I would personally wait a couple more days before buying if I was interested in it (3-day rule). I don’t have anything against BILL, I just have not taken the time to research it.

Personally, I think comparing this (and other growth stocks) to Cisco and Intel at this point is not a fair comparison. The right time to make that comparison would have been when BILL was $340. FWIW I was a Cisco owner when it peaked in 2000. It took 2.5 years before it bottomed. I don’t want to be negative (I have been slowly buying other stocks recently, and I’m actually leaning more bullish overall), but I think it’s important to realize that there are still a lot of things that could keep stocks down for a while. I’m not predicting that, just saying that we all need to manage our emotions and not expect that things are going to immediately go back to the way they were a couple years ago. It’s probably going to be a grind if I had to guess.

2/23 - I’m editing this post that I made shortly after the ER. I originally said that the drop did not look that bad as it initially held above the recent lows. That is no longer true, and I retract my original statement. I’ll leave my original comment in the post, but I no longer agree with what I said at that time. If someone feels that this is off topic and wants to delete it, that’s fine. I just did not want my original post to remain without this additional comment.

Peace

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Thanks all for the great threat!

In good, as well as in tough times, it is easy to get caught up. That’s why I thought back to last quarter when BILL was reporting a more positive picture. Something I wrote back then in more positive sentiment and not yet knowing it would show as much this quarter :frowning:

Payment/Transaction volume revenue is a double-edged sword: It can bring the company (and us fellow investors) a lot of joy, but it is also more volatile and prone to macro softness than subscription revenue.

While in good times, it is easy to overlook that BILL is not as stable as a full SaaS business since its revenue is 65% powered by transactions, it is also easy to be overly pessimistic about the core business in tough times.

BILL is having several headwinds right now:

  • TPV slow-down affecting roughly 2/3 of their revenue. While 80% of their transactions are recurring, this does not mean that 80% or their TPV is recurring. Many significant amounts spent, like on Google Ads etc., can easily be tuned down in terms of the actual $$$ amount. And this is what we are seeing with their TPV right now.

  • BILL also offers seat-based pricing, so additionally, I assume they are impacted by the layoffs we are seeing these days.

  • General prudence in SMBs, also for new deals

On the bright side:

  • Strong profitability (I won’t add any duplicate thoughts or numbers here, there were great comments on that already)

  • BILL is still deeply integrated into the company’s core finance processes and beyond, and retention rates continue to be strong (comment from John Rettig)

  • BILL has a strong ecosystem and diverse go-to-market strategy

  • BILL’s non-GAAP gross margin improved further to 86.7% - that is pretty awesome!

  • I expect a strong TPV rebound, once the macro effects fade. I found this overview slide in their recent investor presentation and find it quite nice: While the number of transactions increased by 34%, the payment volume increased only by 15%, which implies for me that customers continue to process more transactions, but in significantly smaller amounts (See screenshot). Ofc, I don’t want to claim these numbers should align perfectly, but this large discrepancy implies buried potential that will uncover once SMBs spend more confidently again.

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  • I can definitely see the large opportunity in front of them, and I think the pen & paper and Excel finance solutions, which are still being used, will be digitized more and more. And bill is in a nice position to do that.

I am not sure yet what I will do with my now 10-ish % position. I will wait for some more earnings to get a better grasp of the overall situation and sentiment before doing anything.

Overall, I think bill is healthy and I am not seeing a general, major issue. It is facing many headwinds right now. What I was not so fond of is that somehow it seems management was caught a bit off-guard, even though they claim to have very good insights into the market and their business… (from Rene Lacerte: "So we feel like we have the insights to be able to really understand what is happening with businesses at the time, and that’s how we create and form the guidance that we provide today".)

Besides that, I would also have liked to hear some more updates on the product front – beyond their extensions of instant payment methods. This would seem to be a perfect time to invest in R&D, e.g. into the promised unification of bill and divvy into one platform.

FWIW, I am not overly worried, but also not overly excited about the past earnings. I am curious about the upcoming ones. Where else to put the money in case I trim bill? I wish I knew, so let’s see what Feb and March will bring for our other companies.

Good luck to all of you!

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Informative discussion thus far about Bill.com. Here’s an additional perspective that I don’t believe has been touched upon.

I believe their product roadmap is showing early signs of stagnation.

Their solution is usually used as an add-on to an SMB’s current accounting system (Quickbooks, Excel etc.) because they do not have a full suite of accounting functionality that an SMB can solely depend on. They are a business payments solution.

They have been “buying” growth and adding to their product suite via acquisition, however this is not easily done in the current rate environment and with their stock down almost 75% from their highs.

Every time they acquire a company, they see a bump up in customer growth and revenue growth. But the acquisition also comes with further shareholder dilution and the need to integrate the acquired company into their core platform and operations.

They will have to raise cash to get that next jump in revenue growth. Markets are not going to treat the stock well if and when a secondary offering is announced.

The other option is to do nothing, ride out the macro challenges and wait for a turnaround…leading to a less dynamic product trajectory.

P.S. And please do not tell me that shareholder dilution is good, that ballooning SBC is good as long as revenue growth is 2x, 3x or whatever multiple. That’s just hopium math.

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27

Sorry Beachman, but I have to strongly disagree. It’s almost as if you haven’t read up on the company at all. They have $2.1 billion in cash. If they want to buy another little company, why in the world would they need to raise cash. And they brought in about $50 million in FCF last quarter. And don’t forget, the stock price of the little company they want to buy will be way down in this environment too.

What a joke! They just announced a $300 million stock buyback, and you are worrying about a secondary.

As I remember they had 31% dilution in two years. In the same two years revenue grew to 500% of what it had been back two years ago. That’s massively more revenue per share than they had two years ago, and far from being dilution, that’s about as anti-dilution as I could imagine!

Of course, revenue growth slowed a bunch this quarter, as they decided to focus on profits and free cash flow and improving their offering, which was confusing and somewhat worrisome, but Beachman, you should be ashamed for posting the above nonsense.

Saul

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28

Here are my updated thoughts on Bill with a focus on Divvy and Customers:

  • Divvy revenue was $86.60, up 77.8% YoY, and 11% QoQ. → Great to see revenue from Divvy continuing to be strong.

Customers

  • Added 10,700 customers to bill standalone, an increase of 6.2 % quarter-over-quarter, in line with every Q2 in the past 4 years. → Looks strong, but is inflated by the increase of customers added to the Financial Institution segment. Without those FI customers, the actual QoQ customer growth was at 2.8%, down from 4+% in the previous quarters (4.9% → 4.2% → 4.2% → 2.8%). Unfortunatelly the total transactions of the FI segment is not growing much for a year now (quarterly FI transactions in millions: 0.8 → 0.8 → 0.9 → 0.9 → 1.0), while the number of FI customers more than doubled by 121.6% YoY to 52.3M. Why is this segment not gaining traction?
  • Revenue per Transaction from all customers was $7.31, a sequential increase of 3.5%. It’s good to see revenue per transaction increase in that environment, indicating customers continue to use their platform. Though it’s obviously slowing down due to macroeconomic conditions.
  • Added 1.900 customers to Divvy, up 59.4% YoY, 8.3% QoQ, now representing 24.700 Divvy customers. → Great to see still strong customer growth for Divvy, although it seems to decelerate since 4 quarters now (16.8% → 14.4% → 10.1% → 8.3%). This is most likely influenced by macro but the key metric I am going to watch since BILL is a Divvy-story, see more below.
  • Revenue per Transaction from Divvy customers was $9.21, in line with last year and up 1.9% QoQ → Divvy customers deliver the highest revenue per transaction. Since Bill seems to be a Divvy-story it’s good to see that the average transaction delivers the highest value for that segment.
  • Total transactions for Divvy was 9.4M, up 77.4% YoY, 10.6% QoQ → In contrast to FI customers, the Divvy customers seem to correlate directly to transactions which I like to see.

My take

I lost some of my confidence since my last update since Bill seems to be an M&A-Divvy story which slowly becomes too complicated for me:

  • Bill standalone is still growing, but one could expect more momentum with that smaller revenue base of $133.1M. Also, I don’t like to see organic revenue to be slowing down in general (now 37.1% YoY).
  • The divvy-number-of-transactions (11% QoQ) and the divvy revenue (11% QoQ) is still growing strong for Divvy, which gives me the confidence to hold.
  • Customer growth for divvy seems to decelerate (8.3% QoQ, 1.900 net adds), similar to all other customer segments (likely due to macro), but still acceptable, though the number to watch for me.
  • The revenue per transaction for Divvy is the highest at $9.21, followed by $8.04 for core customers (FI customers excluded).
  • FI customers are still growing the fastest (QoQ: 25.8% → 21.5% → 24.9% → 16%) but don’t contribute meaningfully. Although 6 of 10 top 10 banks in the U.S. are customers, the number of transactions is not moving the needle.: While FI customers more than doubled YoY (121.6%), the number of FI transactions increased by only 25%. → Does it take time to ramp FI customers up since FI customers have to take time to understand the value of Bill’s white-label offering through a bank? From the call: “We’ve proven through our direct business the ability to create value for buyers and suppliers that will play out in the financial institution channel as well.”

→ What we have now, is Divvy as the main contributor to future revenue growth. I assume it’s critical that divvy customer growth doesn’t slow down much further, but let’s not forget, it’s negatively influenced by macro and we have to see what other businesses are reporting. I assume customer growth won’t look great for them as well.

I believe it is important for us not to look at total customer growth (because FI customers are diluting that and we don’t know if/how they will bring revenue in the future) but to focus on the development of Divvy metrics (customer growth, revenue).

I am getting a bit tired of businesses that are either in the Fintech space due to their volatility or rely on mergers and acquisitions. Bill seems to be both, plus only 24% of revenue is subscription-based, which makes Bill more volatile to revenue growth and therefore less predictable.

I won’t let go of Bill, but adjust its position size to an appropriate allocation.

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