What happened
Shares of Bill Holdings (BILL -0.40%) took a dive last month after the software-as-a-service company posted disappointing guidance in its fiscal second-quarter earnings report early in February. The stock drifted lower over the remainder of the month on concerns about rising interest rates as data showed that inflation remainined elevated.
According to S&P Global Market Intelligence, the stock fell 27% last month.
As the chart below shows, the stock trended lower for nearly the entire month after the earnings report came out.
So what
Bill, which specializes in back-office payments for small and medium-sized businesses, said revenue in the quarter jumped 66% to $260 million, led by 49% growth in core revenue, which includes subscription revenue and transaction revenue. That easily outpaced analyst expectations at $243.5 million.
Its bottom-line performance was also strong with adjusted earnings per share of $0.42, breezing past the consensus of $0.13. On a generally accepted accounting principles (GAAP) basis, the company is still unprofitable as it spent nearly $120 million on stock-based compensation in the quarter.
Despite the strong quarter, the stock still fell 27% on Feb. 3 as Bill's guidance indicated it expected its growth to slow. For the current quarter, Bill forecast revenue growth of 47% to 49% to between $245 million and $248 million, a significant deceleration from the fiscal second quarter, and it expects adjusted earnings per share of $0.22 to $0.25. That compares to analyst estimates for revenue of $250.8 million and adjusted earnings per share of $0.12.
Over the rest of the month, the stock drifted lower on concerns that the Federal Reserve would continue raising interest rates as January retail sales were stronger than expected. The Personal Consumption Expenditures report at the end of February, the Fed's favorite inflation gauge, was also hotter than expected, showing inflation accelerated from December to January.
Now what
Bill stock has been under pressure in a rising interest rate environment because the stock is expensive and the company is unprofitable on a GAAP basis.
It currently trades at a price-to-sales multiple of 9.4 based on its revenue guidance for the fiscal year.
Unlike most software stocks, Bill does have a hedge on higher interest rates because the company collects interest on the funds it holds between collection and disbursement.
That "float revenue" increased substantially as interest rates rose, reaching $28.9 million in the second quarter, and it could be a significant profit driver for the company if interest rates continue to rise.
Keep an eye on float revenue over the next few quarters.
