Bill.com (BILL 3.34%) is already a standout stock. After the IPO season in 2019 produced several duds, cloud software company Bill.com was able to surge more than 60% by the end of its first day of trading on Dec. 12. Why are investors scrambling to invest in this freshly public stock?
A modern payments solution for small businesses
Founded in 2006 by Rene Lacerte, Bill.com provides enterprise software that helps small and medium-sized businesses across all industries manage customer payments. Its mission is to eliminate inefficiencies in the payment process, such as the need to manually process checks. In its IPO prospectus, the company notes that more than 90% of small and medium-sized businesses still rely on paper checks to make and receive payments. Bill.com's software can streamline these processes, and make it easy for businesses to accept payments from major banks and card companies in a wide variety of forms.
The company has over 81,000 customers, and in 2019, it processed more than $70 billion in transactions. It has partnered with large financial institutions including JP Morgan and Mastercard to grow its network and add customers. Additionally, Bill.com has partnered with 70 of the 100 largest accounting firms in the United States.
Through its sleek software suite and large financial network, Bill.com saves business owners time, prevents errors that can be caused by manual processes, makes transactions more transparent, and improves financial cybersecurity.
Bill.com aims to solve critical problems for businesses, and its growth reflects the success of those efforts to date. The company grew its top line 67% in its fiscal 2019.
While Bill.com is still unprofitable, it has reported a gross margin in excess of 70%, which suggests that the contribution margin to the bottom line from revenue growth is high. In other words, Bill.com will most likely be able to show healthy profits once it achieves greater scale.
|Metrics||Fiscal 2018||Fiscal 2019||Last 12 Months|
|Revenue||$64.9 million||$108.4 million||$121.1 million|
|Gross Profit||$45.5 million||$78.4 million||$88.4 million|
|Operating Income||($7.8) million||($9.8) million||($14.9) million|
Supporting the company's growth is the fact that it has a huge market of potential customers. There are roughly 20 million small and medium-sized businesses in the United States, and all of them need to use a payment solution. The company estimates the size of the payments market for those businesses at $30 billion.
With such a large addressable market, it would be sensible to expect the company to maintain its growth momentum in the coming years.
Bill.com has an interesting business model, and a fast-growing top line, so as you might expect, the stock's valuation is fairly rich.
With a market capitalization of $2.7 billion, its price-to-sales ratio is roughly 22. Compare that to the P/S ratio of Paypal at 7.5 or the 6.7 of Square. That said, Bill.com is growing much more rapidly than those digital payments companies, and could even be acquired by one of them.
The IPO market in 2019 hasn't been the most forgiving. Several high-profile issues have left early investors holding the bag. At least at this very early stage, Bill.com is a standout winner, and it should continue to perform for investors as long as it continues to produce strong growth.