Bill.com offers a one stop shop…

Bill.com (

BILL, Financial) offers a powerful payments platform which enables SMBs (small and medium-sized businesses) to improve their financial efficiency. The company was founded in 2006 and became publicly listed in 2019. Since the innitial listing, the share price is up by 342%, a rarity among recently-public tech stocks which really tells us a lot about how bullish investors are on this software platform.

Bill.com currently serves approximately 1.75% of the global SMB market, which means there is a large growth runway ahead that could be valued at as much as $239 billion by my calculations. Let’s take a look at why I believe this company has what it takes to take the SMB fintech space by storm.

Business model

The company offers a one stop shop for SMB financial operations. Their cloud-based software automates the complex back office of businesses. Their main services include helping SMBs to automate their accounts payable and accounts receivable. Ultimately the idea is to “free up” small business owners’ time so they can focus on business strategy and stay compliant.

Source: Bill.com investor materials

Bill.com also uses Artificial Intelligence (AI) to leverage the unique business data they have to offer embedded financial services. The platform also integrates with over 200 apps, which enables accounting databases to be in-sync and organized in real-time. Their platform has a high NPS (Net Promoter Score) of 81, which indicates customers find value in the platform. Bill.com also benefits from expanding network effects as more customers produce more data which can further improve the product and thus entice more customers to buy.

Source: Bill.com investor materials

In 2021, the company made two acquisitions: Divvy and Invoice2go. Divvy is an expense management platform which enables companies to easily issue employees with corporate credit cards and track expenses.

In terms of moat protection, the company has 10 patents, which should enable it to keep its offerings proprietary.

Growing financials

Bill.com has achieved very strong revenue growth, up 51% between 2020 and 2021. Quarterly growth has been accelerating as well, up 77% in the most recent quarter and generating $412 million in the trailing 12 months.

They have a $600 million revenue run rate with an annual growth rate execceding 100% (if we include acquisitions). In terms of margins, Bill.com has a high gross margin of 74%, which makes sense as a software business. However, their operating margin is negative as the company invests a lot ($402 million in the trailing 12 months) on sales and marketing to drive new customer acquisition.

They have a strong balance sheet with $2.79 billion in cash, $1.13 billion in current debt and $1.77 in long-term debt. Their 124% dollar-based net retention rate is above the industry average, which indicates customers are staying and increasing their spending.

Valuation

The company has a very high valuation despite the recent correction. The stock still trades at a price-sales ratio of 39. This is higher than many other companies in the industry, such as Block (

SQ, Financial) and Intuit (INTU, Financial), which owns Quickbooks. To put things into perspective, the company’s market cap is $19 billion, yet it only generates revenue of ~$400 million currently. Thus, the market is already pricing in the future growth potential.

Nevertheless, it is still attracting growth stock investors.

Ron Baron (Trades, Portfolio) of Baron Capital, a true “growth stock” investor, was buying shares in the fourth quarter of 2021, during which the average stock price was $282 per share. Shares are down about 38% from that level as of this writing. Overall, gurus have been selling and buying the stock in roughly equal measure over the past four quarters.

Bill.com is a fantastic company which offers a popular SMB financial platform. They have high retention, a strong NPS score and high revenue growth rates. However, their valuation is ridiculously high in my view, especially given the rising interest rate environment that is compressing growth stock valuation multiples substantially. For me, this company is a great one to add to the watch list for a more reasonable entry point, given the plethora of value opportunities in the market today.