Bill.com (NYSE: BILL), which provides cloud-based payments technology for small and midsize (SMB) businesses to use for back office operations, is trading at 53.6x forward sales. The company is losing money, and may not be consistently profitable for another couple of years.
That said, Bill.com has the potential to become one of the better-performing stocks of the decade.
Just Scratching the Surface
Bill.com IPO’d in December 2019. In its S-1, the fintech pointed to two statistics that spell out the massive growth opportunity in its industry:
- According to a survey by the SMB Technology Adoption Index, more than 90% of SMBs still rely on paper checks.
- There are 20 million SMBs globally and 6 million domestically.
Bill.com has A LOT of potential customers, and right now, it is only scratching the surface; the company currently has over 103,600 customers, which is around one-half of one percent its massive total addressable market.
In is S-1, Bill.com noted that if the average customer generates $1,500 in revenue, its total addressable market would be worth $30 billion. The company’s market cap is just over one-third that number right now.
Bill.com is Growing Quickly, But Has a Ways to Go
In its most recent quarter, Q1 2021 (the period ending September 30, 2020), Bill.com showed that it’s growing rapidly:
- Total revenue of $46.2 million was up 31% yoy.
- Core revenue grew 53% yoy to $43.8 million.
- Total payment volume (TPV) of $28.8 billion was up 31% yoy.
- The company’s 103,600 customer base is up 27% yoy. In Q1 alone, the company added 5,500 net new customers.
- The number of Bill.com mobile app downloads nearly doubled yoy.
Management also cited a couple of surveys that give BILL shareholders reason for optimism:
- “We recently surveyed over 900 Bill.com customers using a third-party firm. Survey respondents represented a broad spectrum of company sizes, industries and product usage. The results really showcased Bill.com's strong value proposition with 97% of respondents noting that Bill.com allows them to operate their businesses remotely. The vast majority said that Bill.com enables them to digitize financial operations and described Bill.com as essential to their operations.” The 97% statistic is just what you want to see in the midst of a remote work boom.
- A recent survey by MasterCard (NYSE: MA) and PYMNTS.com found that 72% of companies intend to adopt real-time payments within the next three years. If the survey is accurate and these companies follow through on their intentions, a large percentage of those 20 million SMBs could move from paper checks to digital payments over the next three years, which could result in a revenue surge for Bill.com.
What About the Competition?
Bill.com’s target market is SMBs – larger institutions don’t usually bother with SMBs because the revenue per customer is lower and it is harder to serve them profitably. Last quarter, for example, Bill.com made an average of $445.95 per customer ($46.2 million in revenue / 103,600 customers). That comes out to a little under $1,800 per year. Bill.com recorded a net loss of $2.8 million in Q1.
Square (NYSE: SQ) is another company that markets itself as a payment tech solution for small businesses. It too has struggled with profitability.
The bulls will argue that Bill.com (and Square for that matter) is in its growth phase and is focused on revenue above all. Once the company matures, it will focus on maximizing earnings. There is a lot of validity to that argument. Moreover, Bill.com’s revenue was less than two-tenths of one-percent of its TPV, which indicates that it could increase its subscription prices by a decent amount.
How Should You Play Bill.com?
There’s no way to sugarcoat this: an investment in Bill.com is risky. This company could take 20% (or more) of its total addressable market and double prices without a hitch. Or competition could increase and growth could decelerate to low double-digits in a couple of years.
The bear case seems to be dominating the minds of market participants right now, with shares dipping by more than 16% from their peak over the last couple of weeks. Shares dipped more than 7% yesterday alone.
Bill.com is not the type of company that you want to bet the house on. A small investment, however, is worth your time because it can turn into something a lot bigger. This pullback looks like it isn’t over yet, but consider initiating a small position in BILL if it stages a reversal.
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