The stock market has crushed technology investors in 2022 with the Nasdaq 100 index officially in a bear market, losing 23% from its all-time high. But many individual stocks have fared much worse, sitting deep in the red with losses of 50% or more from their lofty levels reached in 2021.
Small-business software provider Bill.com (BILL 2.32%) is one of them, having declined 68% from its November high. But the company just reported its earnings report for the third quarter of fiscal 2022 (ended March 31) and it revealed a whopping 179% year-over-year increase in sales. It raises the question: Has the drop in Bill.com stock gone too far given the company's soaring growth rate?
Bill.com creates enormous value
Ninety percent of all businesses in the U.S. are categorized as small or medium-sized, and they're often referred to as the backbone of the economy because they create over 60% of all jobs. Thanks to two key acquisitions of software companies Divvy and Invoice2go, Bill.com has grown to become a one-stop shop for all things related to business-to-business payments.
Its flagship platform hosts a digital inbox in the cloud, which aggregates incoming invoices and allows simple, one-click payments to suppliers. Then, it automatically records transactions in the books through integrations with major accounting software providers, streamlining the payables process from end to end. By adding Invoice2go, Bill.com offers businesses a way to create invoices and receive payments, and with Divvy, businesses can manage their budgets and expenses.
Across all platforms, Bill.com served 386,100 customers in fiscal Q3 2022 and processed over $55 billion in transaction volume from 15.4 million transactions. Transaction volume was up 57% year over year and is the driver of Bill.com's business model because the company earns fees each time its customers make payments. This accounts for 68% of total revenue, with the remainder coming from subscriptions to its software platforms.
It's a growth story
The result of Bill.com's surging transaction volume is more revenue, which has grown comfortably by triple-digit percentage points in three consecutive quarters thanks in part to the inclusion of sales from Invoice2go and Divvy.
Even discounting the contributions of Bill.com's two acquisitions, its organic revenue grew by a powerful 74% in Q3. That made up $102 million of the $167 million result.
Though Divvy, for example, offered a solid 155% increase in sales on its own, so its inclusion is incredibly valuable.
For investors, the picture continues to look rosier. In fiscal Q4 2021, Bill.com told the market it expected to generate up to $480 million in revenue for the full-year fiscal 2022. But it has raised that forecast significantly in every single quarter since, with the figure most recently sitting at $625 million. If the company delivers, it would represent a whopping 162% growth rate compared to the fiscal 2021 full year.
But it might get better
Bill.com's lofty sales increases are less surprising when considering the company's estimated total addressable market. For example, Bill.com's domestic opportunity could be as large as $25 trillion in annual payment volume from 32 million business customers. But globally, those figures soar to $125 trillion from 70 million business customers, highlighting an even greater potential.
It makes the company's current customer base of 386,100 businesses feel like a drop in the bucket by comparison. But more importantly, it provides some context around Bill.com's growth and its possible upside from here.
Bill.com has generated $520 million in revenue over the last 12 months, placing its stock at a price-to-sales multiple of 24. By comparison, small-business accounting software provider Intuit trades at a multiple of around 11, which makes Bill.com look expensive at more than twice the valuation.
But Intuit is a mature company expected to grow revenue by just 27% in 2022, which doesn't come close to Bill.com's estimate of a 162% growth rate. Nonetheless, in the current market with interest rates rising and economic growth potentially slowing, 24 times sales isn't cheap.
However, if Bill.com's business continues to expand at the current pace, its multiple will shrink considerably in the next couple of years, which makes the case for a long-term investment right now -- especially on the back of a 68% decline in the company's stock.