What happened
Shares of billing and spend management software company Bill.com Holdings (BILL 1.07%) skyrocketed 26.4% in February, according to data from S&P Global Market Intelligence. The high-growth software company had had a rough few months, as it, too, was a victim of the violent growth stock sell-off that began in November 2021 and carried into January 2022.
However, a massive beat on revenue and adjusted earnings in its February earnings report sent the stock back in the upward direction.
So what
In its fiscal second quarter ended in December, Bill.com reported stunning core revenue growth of 197% over the prior-year quarter. While some of that was due to the acquisition of Divvy last June, organic revenue outside of Divvy soared 85%, which is still awfully impressive. Both total revenue and non-GAAP (adjusted) earnings per share handily beat analyst expectations. In the release, CEO René Lacerte said, "We continued to see strong growth across our business in the second quarter and delivered accelerated revenue growth at a meaningful scale."
Bill.com is riding a nice wave of digitization among small and medium-sized businesses, as its solutions help digitize and automate billing, invoicing, spend management, and other cumbersome back-office tasks. While some investors may have fretted that the omicron coronavirus variant surge in the fourth quarter might have slowed down small business, that doesn't appear to be the case.
Image source: Getty Images.
Now what
Bill.com is one of the more impressive software-as-a-service companies to emerge over the past few years. Accelerating 85% organic growth is really impressive, and seems to indicate its software solutions are being embraced at greater scale by its target segment of small and medium-sized businesses.
Not only does the company generate recurring software revenue, but it also takes a small percentage of every transaction. That business model generates a nice win-win, in which Bill.com grows along with its customers. Currently, the company generates 68% of revenue from these transaction interchange fees, with 31% from subscriptions.
Still, the stock is expensive. Analysts expect about $600 million in fiscal 2022 revenue (ending in June), which means the stock trades around 40 times this year's projected sales. At that high a price, Bill.com's stock may have trouble getting back to its November all-time highs if interest rates rise meaningfully.
However, if rates don't rise as much as expected, or if the stock pulls back, it's certainly a name to watch, as its recent operating results have been terrific. The stock is new to me, but it's on my watch list now.
