Bill.com (BILL) Soars Following Remarkable Beat-And-Raise Report as SMBs Flock To Its Cloud Software
3:35 pm Friday, February 04th, 2022
There have been plenty of strong earnings reports over the past two weeks — Apple (AAPL), Google (GOOG), and Snap (SNAP) are a few that come to mind — but one of the most impressive reports belongs to Bill.com (NYSE:BILL). Fueled by a pair of shrewd acquisitions and burgeoning demand for its back-office focused software, BILL posted exceptional results that easily beat expectations. The company’s eye-popping growth is really what stands out, as core revenue (subscriptions and transaction fess) soared by 197% yr/yr to $155.5 mln.
BILL’s phenomenal revenue growth, coupled with a 870 bps surge in Non-GAAP gross margin to 85.3%, enabled the company to breakeven on the bottom-line. That’s quite an accomplishment for an up-and-coming cloud software developer. During the earnings conference call, CEO Rene Lacerte commented that the company achieved this feat much faster than anticipated.
To attain this high level of performance, a number of positive factors must be working together, which was indeed the case for BILL. The most prominent components driving its momentum include the following items:
BILL’s software simplifies, digitizes, and automates many complicated, time-consuming financial tasks. Within the company’s bread-and-butter SMB market, many businesses are still using outdated manual processes that are inefficient and burdensome. As SMBs turn their attention towards digital transformation efforts, BILL’s offering frees up time and capital to help accelerate that transition.
Adoption of its offering has been robust with BILL adding 8,100 net new customers during Q2, for a total of 135,000 users.
Financially-speaking, the acquisitions have been a boon, adding $58.8 mln in revenue (38% of total revenue) this quarter, up 55% sequentially.
Looking ahead to Q3, Divvy’s spend management revenue growth is expected to be a meteoric 132%.
The icing on the cake is that rising interest rates will actually boost BILL’s revenue. That’s because the company generates float revenue, which is interest earned from customer funds while transactions are clearing.
In Q2, float revenue totaled just $1.0 mln. However, with the prospects of higher interest rates looming in the near-future, float revenue could become a more meaningful contributor.
For perspective, if the federal funds rate climbs to 100 bps (its currently at 25 bps), BILL’s annual float revenue would jump to $30-$35 mln.
The main takeaway is that BILL is firing on all cylinders as demand from SMBs takes off. Not even the prospects of rising interest rates should harm this growth stock because the company generates more float revenue as rates climb. The biggest concern is the stock’s sky-high valuation. With a forward P/S approaching 40x, BILL is priced for perfection. While the company’s Q2 performance was virtually perfect, it will need to continue that excellence in order to avoid a let-down.
