Bill Holdings (BILL 3.21%) stock hasn't lived up to investor expectations -- yet. It went public before the pandemic at a time of record initial public offering (IPO), when tech stocks were hot and valuations teetered on the unreasonable. It had a tough time proving itself in a long bear market when tech and growth stocks, as well as high valuations, went out of favor. Bill stock is now down 80% from its highs as the market is embracing tech stocks again. Is it the right time to buy?
Bill's large, niche opportunity
Bill provides financial automation software for small and medium-sized businesses. It concentrates all of a client's financial applications, such as accounts payables and receivables, spending, and payments, in one place, making it simple to manage, and it connects them with financial institutions for seamless transactions.
It counts more than 470,000 clients using its software-as-a-service plans, and it adds thousands of new clients all the time. It connects to 5.8 million network members, or companies that transact on its platform. These include more than 7,000 accounting firms and banks like JPMorgan Chase (NYSE: JPM). It benefits from strong network effects. The more clients that sign on, the more financial institutions want to partner with it, leading to more businesses being able to benefit from its platform.
The current client base represents a small fraction of Bill's addressable market. It counts 34 million small businesses and entrepreneurs in the U.S. as its market opportunity, with 70 million globally.
Management noted that today, there are still small businesses using manual payment processing and even writing checks. That's going to keep changing, and Bill is well-positioned to benefit from a huge opportunity.
The state of Bill
Bill Holdings generated excitement as a high-growth IPO stock, and it's been demonstrating increasing revenue since then. However, it's feeling the pinch of a pressured macroeconomy as business clients cut their budgets. As much as Bill's platform can save time and even money, small businesses are still in conservation mode.
There's a lot going on in this chart, but I think it gives an excellent idea of what's happening at Bill right now and how to see the bigger picture.
BILL Net Income (Quarterly) data by YCharts.
This goes back to Bill's IPO. You can see that revenue has increased quite steadily, and gross margin, while choppy, has also increased to a very high level. It's still struggling to become net profitable, but it's getting closer.
As for valuation, that's come down to its lowest-ever level, but it's still objectively high at a price-to-sales ratio of nearly 6. At the same time, sales growth is slowing down, and Bill can't necessarily carry a high multiple right now. Bill's revenue increased 65% year over year in fiscal 2023 (ended Jun. 30), but it only increased 22% in the 2024 fiscal second quarter. Management is expecting that to slow further and is guiding for revenue to increase by about 17% for the full fiscal year.
While it's feeling this pressure, it's focusing on efficiency and moving toward profitability. It cut staff and is prioritizing high-impact projects while downsizing high-investment projects. That should lead to better profitability right now, but it will likely need to return to higher growth in improved conditions to scale and become net profitable.
Should you buy Bill stock?
So where does that leave investors? Bill is an industry leader with an excellent product, and more small businesses are going to embrace it in the coming years. It's still reporting and expecting double-digit revenue growth, and profits are improving.
However, the stock isn't cheap, and the company should feel more pressure in the near term. If you're risk-tolerant and you have a long time horizon, you could take a small position right now. Most investors will want to take a wait-and-see approach and buy shares when there's more improvement.
