I spent several hours this weekend deep-diving into BILL to learn more about their business and future prospects. I have been putting off this exercise thinking that they were a complicated company to understand. However once I looked under the hood, it seems that BILL is not that complex after all.
They sell cloud-based accounting software similar to Quickbooks Online.
If I am an SMB, they help me invoice my customers, collect payments from them, receive invoices from my vendors, make payments to them, manage my business’ cash coming in, manage my expenses and make accounting updates to my business’ books of record. All this is very standard accounting software/process stuff.
Here is how I laid out their financials to step back and take 10,000 foot view of how the business is performing:
I currently still have some open questions that I need to look further into:
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What happens when the US economy is hit with a recession or a slowdown in 2023? It is coming. The debate is not if, but how deep or shallow it will be. How will SMBs get impacted with the impending slowdown and how does this translate into BILL’s 2023 prospects? According to the NY Fed, SMBs have typically seen a 20% decline in business during recessions.
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BILL seems to be on the cusp of a topline slowdown. Both subscription growth and transaction fee growth has been declining for three quarters. Similarly total payment $ volume has been growing slower for 3 quarters. Perhaps these are leading signs of #1?
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Total customer growth had a major slowdown in Q3 - is this a one-time anamoly? To be fair and to eliminate acquisition related comps, I am comparing Q3 2022 all customer growth rate (15%) to the Q2 2021 (24%) and Q1 2021 (27%) growth rates.
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With each of the recent acquisitions, there was a 7-10% shareholder dilution event. One could argue that BILL has been step-ramping up it’s growth via acquisition of features/services that add onto it’s core AP/AR platform. Is acquisition their product strategy going forward or does their current platform have enough self-sustaining competence to become a market leader in this space?
Like I said, I still have questions and my research continues…
Cheers
Beachman