Thanks for sharing your thoughts! Maybe I can add some thoughts from a product/strategy perspective, especially regarding point 1 and 4.
If we are going to see a strong recession, my prediction is that SMBs still stay on board the core platform, but we will see lower transactions volume.
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. I think this is what we are seeing in BILL now and also what they factored in for next year’s guidance. I assume float tailwinds won’t fully offset the downturn in TPV revenue, especially since transaction revenue currently accounts for 68% of total revenue, while float accounts for 7%.
From the CC:
In today’s climate, businesses are looking for ways to do more with less. While these trends may lead to moderated payment volume growth near term, our platform has never been more relevant.
Most likely, transaction volumes will be more heavily impacted by macro, while the core platform will still be high in demand. This aligns with my personal experience: Card payments and transactions from SMBs are often significant for e.g., Google Ads spend, and these costs are some of the first to be cut in a poor macro environment. But then, there are also many fixed costs that just cannot be cut and will continue to produce transaction revenue for BILL. Additionally, a finance operations solution like theirs is so deeply embedded into the customer’s business and system landscape, it is very hard to get out of these lock-in effects. But still, transaction revenue =! subscription revenue and does have its pitfalls.
On the bright side, they did deliver a really strong quarter and claim to not be seeing change or softness in the demand or new customer added to their core platform. Actually, they had a record add of net new customers and also went Non-GAAP profitable for the first time. Therefore, I remain very confident, even if transaction revenue will be impacted by macro. I have to add, though, that I won’t build BILL as big as a DDOG or SNOW position, since the large share of transaction revenue is holding me back.
BILL has acquired and keeps acquiring new companies. That makes a lot of sense and contributes to an overall great product suite and growth momentum (once properly integrated).
- BILL seeks to consolidate the standalone platform and Divvy, which is very important
- I’d hope for a proper integration of invoice2go as well, since this would nicely play into their AR part of the core platform and can provide nice cross-sell opportunities
Upcoming acquisition of finmark: makes a lot of sense to me because it allows them to additionally streamline cashflow planning and liquidity in their solution. Cash management is what glues accounts payable & accounts receivable together. finmark’s capabilities can also strengthen momentum with accounting firms because the data insights will help accountants provide better service to their customers.
However, I am not so fond of the challenges that come with so many acquisitions, the need to integrate all products to provide a “unified platform experience, our #1 priority for fiscal 2023.”, gives me some headache (speaking as a product manager at a similar company). They also need to repeat integrations for every acquisition they make. On the other hand, they can create great solutions faster, and harness cross-selling opportunities, since the choice of acquired products is nice (but also slightly annoying for us investors to get oriented in the different revenue and product streams).
All in all, I think BILL is doing fine, and I am positively surprised that their core subscription demand seems untouched by macro. Transaction revenue is IMO most guilty of the somewhat disappointing FY23 guidance, plus tough comps from the previous quarters with Divvy included into total revenue metrics.
Final remark: I really love their market opportunity and ecosystem with strong lock-in effects:
- Once embedded, very hard to remove from accounting processes
Synergetic products (data, transactions, AR & AP, spend, invoicing, and soon to come: cashflow planning)
Proprietary network for customers and suppliers
Multi-funnel GTM approach with a lot of partner focus through accounting firms and Financial institutions (these can create a heavy customer pull!)
Different revenue streams create diversified, but also more volatile revenue as I understand
- BILL’s biggest competitors are paper, and Excel. So, I believe they can still harness lots of opportunities in a large, global TAM. According to my experience, Finance is the department that probably stick to Excel or paper the most, so there is a lot of potential to catch up to the digitization level of other business functions like R&D, Sales, HR, etc. (Thought on global expansion: Localization of accounting is painful, very fractional and local accounting tools in Europe, different legal obligations, numerous third-party providers all make the product expansion very complex.)
All in all, I am looking forward to see BILL to creating that deflationary momentum in times of inflation and will watch core and customer growth closely going forward.