The S&P 500 continues its rally as we get closer to the end of the year, and as of this writing it's up 19% in 2023. Tech stocks have also been making a comeback this year after getting beaten down in 2022, and the Nasdaq-100 tech index is up 52% so far this year.

But not all stocks are having an up year. Bill Holdings (BILL 3.21%) is down 35% so far in 2023 and 80% off its high. Wall Street analysts think it can bounce back in 2024, but does that assessment make the stock a buy now?

Macro headwinds are slowing down this small-business management superstar

Bill sells financial software packages to smaller businesses. Its services automate things like accounts payable, receivables, and payments, as well as compile data for evaluation and management. It targets micro, small, and medium-sized businesses, and it has partnerships with large financial institutions to integrate its software with their systems.

Bill makes it easier for these smaller businesses to run efficiently, and it counts nearly 500,000 paying subscribers as well as almost 6 million network members that can send and receive money through its platform.

Revenue growth has been slowing as clients cut their budgets due to inflation pressures. Fiscal 2023 revenue increased 65% year over year, but revenue increased only 33% in the FY 2024 fiscal first quarter (ended Sept. 30). Management is guiding for second-quarter growth of about 15% and full-year growth of about 16%.

Management is focusing on improving profitability. That's a smart pivot in an time when customers are slowing down spending since, right now, Bill would have to work harder to drive growth. Total expenses increased only 11% in the third quarter, with marketing expenses staying flat, while revenue increased 33%. That led to a decrease in operating loss from $88 million to $57 million.

A compelling long-term story

There are several features that make Bill look like a compelling long-term story. It has high gross margins that have surpassed 80% with scale, with an asset-light design that makes more money as customers sign up without adding heavy costs. It has a recurring revenue model, which means that revenue is reliable. It has a network effect as new clients sign up and it adds more financial institutions into its ecosystem to facilitate transactions. Subscription revenue accounts for 20% of the total, but transaction-based revenue accounts for 66%, and bringing players into the ecosystem could drive much higher growth.

It has a large addressable market of 34 million U.S. small businesses and 70 million global small businesses with almost $500 billion in software spend. It has a tiny fraction of that and is growing, and as it solves real pain points for smaller companies, it has the opportunity to win clients and loyalty, grow recurring revenue, and become profitable at scale.

Is the market getting it wrong?

Wall Street analysts see Bill turning around in 2024. The average consensus price target is a 23% increase over today's prices over the next 12 months, while the highest estimate is for a 91% jump.

Can Bill's stock get back on its feet? Harsh macro conditions are ongoing, but there are indications that they could be easing. The Federal Reserve's interest rate hikes are still on pause, and companies have reported increased spending by business customers. 

Bill is using this time to become more efficient and position itself to become profitable when revenue growth speeds up again. It will have to prove itself over time with continued improvements in operating loss, and Bill stock is only for risk-tolerant investors right now. But if it sustains these patterns, Bill stock could start to soar in 2024.