Stock Pitch: The Small Business Champion, Bill.com (BILL)

Introduction

Welcome back to another stock pitch by yours truly. In this post, I’ll be diving deep into Bill.com — sharing with you why I’m optimistic about the company’s future.

I’m going to explain:

• Who Bill.com (BILL) is and how they make their money

• How they’ve grown, specifically since the pandemic

• What their future could look like

• Why I’m adding them to my portfolio

If you enjoy these deep dives or have a question, be sure to comment below.

Who is Bill.com (BILL)?

I’ll first let the company introduce itself — then add my own words.

Essentially, if you’re running a SMB, Bill.com wants to be the software your accounts payable and accounts receivable teams use. Through their financial software platform, their SMB customers are able to..

• Generate and process invoices

• Streamline the approval process

• Make and receive payments

• Sync with their existing accounting system

• Manage their cash flow

In June of 2021, Bill.com acquired Divvy — a venture-backed spend management application.

With Divvy in their ecosystem, Bill.com’s service offerings have now expanded to include payment and subscription, employee spending, and budgeting management.

In July of 2021, Bill.com went on another buying spree and acquired Invoice2go — a mobile-first company that provides accounts receivable software for freelancers and SMBs. Invoice2go specifically enabled these folks to grow their client base, manage invoicing and payments, and build their brand.

With two massive acquisitions under their belt, Bill.com is building a robust ecosystem of products and tools for the entire spectrum of entrepreneurship. Allowing folks to get paid, pay others, and track everything along the way.

The company makes money in a pretty straightforward manner — they charge subscription and transaction fees.

These subscription fees are charged on either a monthly or annual basis, depending on the need. Their website offers three main pricing models — pay bills & get paid, pay bills, and get paid.

The price ranges from $39 to the $69 figure you see above.

How They’ve Grown, Specifically Since the Pandemic

If you’d like the follow along, here is a link to their S-1 filed with the SEC on November 15, 2019.

I don’t know about you, but when Bill.com filed to go public with the SEC I wasn’t hearing about it on CNBC or other major news outlets. At the time, the company was doing about $100M in annual revenue (pretty small), had about 77K customers, and processed about 20M transactions that year.

Fast forward to their recent quarterly earnings release and we’ll see the company did $156M in revenue, has 135K core customers (another +15.5K through Divvy and +223K through Invoice2go), and processes about 10M transactions.

To better put this exponential growth in perspective, I’ve shared a chronological breakdown of the before-mentioned figures.

2019 —

• Revenue: $108.3 million

• Customer Count: 77K

• Transactions Processed: 20M

2020 —

• Revenue: $183.5 million

• Customer Count: 98K

• Transactions Processed: 24M

2021 —

• Revenue: $410.9 million

• Customer Count: 373K

• Transactions Processed: 33M

While reading their most recent earnings call, their CFO mentioned a few things that really drove this growth higher —

• Customer engagement

• Expansion in share of wallet given more payment choices

• Spend management solution momentum

• Larger average customer size

This quarter also marks the 5th consecutive quarter of growing their average total processing volume (TPV) per customer — simply put, this means they’re taking market share while moving up market.

Bill.com broke out a few interesting statistics between Divvy and Invoice2go — but Divvy just seemed more interesting to me.

During the quarter, Divvy was able to grow their TPV by +27% which exceeds Bill.com’s organic +20%. Considering Divvy isn’t yet fully integrated within Bill.com’s ecosystem, this is incredibly promising.

How I understand it, Bill.com can take a financial peek at people’s businesses and by leveraging artificial intelligence can see if they’d be a successful (and profitable) Divvy customer — then recommend the product to them.

This is advantageous for Bill.com because Divvy’s take rate on TPV is 2.6%, much higher than Bill.com’s 0.1%.

What Their (Exciting) Future Could Look Like

Bill.com has a few very important things going for them at make this company incredibly special — if executed upon properly.

— Artificial Intelligence to Upsell

Starting with the before-mentioned artificial intelligence play — Bill.com mentioned in their recent earnings call their continued tweaking of their AI as it relates to underwriting potential customers for new financial products.

Think of it like this, you know how Credit Karma’s app can tell you stuff like “Your $1,504 mortgage payment seems high, we think we can save you $294 each month if you refinance.” Their app is able to tell you those things because it knows your credit score, payment history, and credit utilization — then cross-references that against existing loan offers given to other people with similar characteristics.

Because Bill.com is running the show here — they know your bank balance, your ability to pay invoices on time, your ability to generate revenue on a monthly basis, your ability to run effective payroll, etc.

“Great work getting this paid! Have you thought about opening an account with Divvy, our spend management subsidiary? With Divvy, you’ll be able to automatically build a budget for projects like X and Y. Click here to apply!”

And considering Divvy’s take rate on TPV is 2.6%, Bill.com will make more money from this existing customer.

— Network Effects

Let’s pretend you’re me — you’re a creator who does brand deals on TikTok for supplemental income. You’ve done the video and you’re ready to be paid. The company says “We’ll pay you through Bill.com — they’re who we use for everything, thanks!”

You’re sent an email prompting you to click a link resulting in you getting paid. You click the link, quickly make an account, drop in your banking info, and you’re then paid a few days later.

This is the reality for thousands of freelancers, creators, and other entrepreneurs. I’ve personally been paid through Bill.com now by three separate companies. Where do the network effects come in? Simple.

This is Bill.com’s reality, and across their core customers’ buyers and suppliers is 3.2 million more entities ripe to become customers.

Then once these new folks have onboarded their systems into Bill.com’s ecosystem, Bill.com is then back to leverage their artificial intelligence to upsell them on new products and services (as described above).

— International Expansion

As we take a look at a recent graph shared to us in Bill.com’s investor presentation, we see the final growth lever to pull on their roadmap is international expansion.

Bill.com supports payments across 130 countries around the world, with Invoice2go supporting payments across 150 countries. Bill.com also does not charge a wire fee when someone pays a vendor in their local currency.

Bill.com is laying the ground work for their customers — assuming at some point they’ll become larger businesses that will eventually scale their operations internationally.

Why I’m Adding Them to My Portfolio

At $23.5 billion, this company is frothy. They’ll do $820M in revenue next year, which means the market is still putting a ~28X multiple on CY2023 revenue — pretty crazy.

However, the company is consolidating the SMB payments market, has a clear runway for growth (AI, network effects, international expansion), and is boasting an 85% gross profit margin on their revenue. During fiscal year 2024 the company will eclipse $1 billion in annual revenue, flip free cash flow positive, and likely will have acquired another competitor.

There’s a lot to get excited about with this company, especially as they continue to scale up market.

I’m going to add them to my “Mid-Cap” portfolio with a target to purchase a bulk of my position under $200 / share. I’d love to see this stock begin trading around 16-18X forward revenue ($120-150 / share), still giving them the premium they deserve while keeping in mind macro-market dynamics.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.