The broader economy is tough to navigate right now. High inflation and rising interest rates are forcing companies to adjust their strategies to offset falling revenue, as consumers and businesses alike have cut back on their spending.
As a result, investors are closely monitoring the current earnings season for the quarter ended March 31. It's becoming clear that many companies have made hard but necessary decisions for the well-being of their businesses, which has caught the eye of Wall Street analysts.
Bill.com (BILL 0.24%) just reported its results, and it sacrificed some of its lightning-fast revenue growth to drastically improve its bottom-line losses, much to the delight of investors who sent its stock soaring 17% following the news. But there might be more upside ahead because one analyst on Wall Street thinks the stock could soar another 112%. Here's why.
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Bill.com is a dream for small businesses
No business owner enjoys managing incoming invoices or chasing up outstanding payments, particularly sole operators who have very little spare time. Bill.com is a dream in that respect because its core platforms are designed to streamline the accounts receivable and accounts payable processes.
Its flagship cloud-based digital inbox is designed to aggregate all outstanding invoices as they come in, which eliminates messy paper trails. Business owners can then make direct payments from the platform with a few clicks, and thanks to integrations with leading bookkeeping software providers, each transaction is automatically recorded.
Bill.com completed two key acquisitions in 2021. It purchased Invoice2go, which fulfilled the other side of the payments equation -- accounts receivable. It allows businesses to issue invoices and track incoming payments to help them stay on top of their cash flow. Bill.com also bought Divvy, an expense management platform that helps with budgeting and tracking employees' spending on corporate accounts.
Altogether, the company now serves 455,300 business customers, with 4.7 million businesses in its ecosystem that have either made or received payments through a Bill.com platform. The latter figure is key because the company generates 63% of its revenue by processing transactions.
Over 6,000 accounting firms and six of the top 10 U.S. financial institutions have partnered with the company, and they serve as key customer acquisition channels. When a business owner engages an accountant, for example, they'll likely be referred to Bill.com's software because it makes the accountant's job far simpler.
Bill.com is coming off an incredibly strong quarter
On May 4, Bill.com reported its financial results for the 2023 fiscal third quarter (ended March 31). It had previously told investors it expected to deliver $248 million in revenue, but it blew that guidance away with $272.6 million, representing 63% year-over-year growth.
That was slower than the 179% growth rate it delivered in fiscal Q3 last year, but it was enough for the company to raise its full-year revenue forecast to $1.04 billion from $1 billion previously.
Bill.com has invested less money in growth recently to improve its bottom-line results, and it's succeeding. It reports its profit and loss on both a generally accepted accounting principles (GAAP) basis, and a non-GAAP basis, which strips out one-off and non-cash expenses like stock-based compensation.
On a GAAP basis, Bill.com generated a net loss of $31.1 million, which was a substantial improvement from its $86.7 million loss at the same time last year.
On a non-GAAP basis, it crushed its estimate of $29.5 million in net income by delivering $58.7 million instead.
Those results were the main reason Bill.com stock soared 17% following its Q3 report. Investors are looking for companies trending toward profitability because they're deemed less risky in this economic climate, as it's very difficult to raise fresh capital if necessary.
Wall Street is very bullish on Bill.com's stock
The Wall Street Journal tracks 28 analysts covering Bill.com stock, and 21 of them have given it the highest possible buy rating. A further six recommend holding, and just one recommends selling.
They have a consensus price target of $118.53, which represents an upside of 26% from where the stock trades today. But given that the company is moving closer to GAAP profitability, it's likely to attract more analyst attention in the near future, so it's possible that the target will move higher.
Nonetheless, there's one analyst firm on the Street that's far more bullish than the rest. Needham has a $200 price target on Bill.com stock, which implies it could soar 112% over the next 12 to 18 months.
But the long term could be even more exciting. The company has barely scratched the surface of its opportunity; it estimates there are more than 70 million businesses in its addressable market worldwide, generating $125 trillion in payment volume. Investors might want to take Wall Street's lead on this one, especially those with the capacity to hold Bill.com stock for the next five to 10 years.
