A a little over a year ago, Focus on industry Host Jason Moser called Bill.com (NYSE: BILL) as a fintech action on its radar. It has more than doubled since. In this fool live Video clip, recorded on November 22, Moser, and Fool.com contributor Matt Frankel discuss why Bill has performed so well and if there could be more benefits to come.
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Jason Moser: Remember, Bill.com is a cloud-based software company. It digitizes and automates back office financial operations, primarily for small and medium businesses around the world. Shares are up over 220%, so around 220% since the show, and I think that has a lot to do with ultimately, if we are talking about insurance as such a huge market opportunity. .
Obviously, fintech has offered all kinds of different ways to disrupt and improve the system. Bill.com, they say their vision is to be the all-in-one financial operations platform for small and medium businesses. It’s not a small vision, it’s obviously a really big vision that they have, and I think they’ve made a few acquisitions here along the way that are consistent with that vision. They recently acquired Invoice2go, they also acquired Divvy as they continue to integrate more services and products into their SaaS business. That’s what they do, they run this SaaS business model where customers pay monthly subscription fees.
They also benefit from transactions that go through this platform. So you see network effects that build up here over time as they attract more businesses there and more customers take those payments. It gets easier and easier over time. Convenience is obviously a big selling point in this line of work. In like Lemonade, Bill.com’s special sauce, they see it as their AI, their artificial intelligence-based platform. Ultimately, it’s something that makes their network smarter, faster, more reliable, and reduces fraud.
Over time ideally you want to see these network effects continue to develop which can lead to good switching costs which can also lead to some pricing power down the line. But overall it really feels like the business is basically continuing to do very well. I don’t know if I would consider this a game of value, Matt.
Matt Frankel: This is fair enough. I just watched this while you were talking. By the time we made those additional calls, Bill’s market cap was roughly double that of Lemonade. Today, Bill.com’s market cap is approximately 10 times that of Lemonade.
Moser: Yes. It’s up there, man. I am going to tell you. I understand the excitement, but when we were talking about these last year in what to watch, I mean back then stocks were trading, stocks were valued at around 48 times sales. Now it is a new company that is still working on this profitability. But I think the reliable nature of the business model means that the market will give them a little leeway to make it happen. But at that point I said that this is really one of the biggest risks here, beyond just whether they can perform or not, is that you pay a lot even in this environment. where 30 times sales, it’s basically like the new P / E, 48 times sales stretch.
Now if we look to today, recently they just set expectations for the coming year and they call for revenues in the range of $ 538 million to $ 541 million. If you look at where the company is today, the revenue it is claiming for fiscal 2022, you now have this stock valued more than about 60 times expectations for the entire year. It hasn’t gotten any cheaper, but it might be with a winner who looks like he’s just about to keep winning.
Frankel: The margins are fantastic. I’ll give it to him. One thing I dispute with Bill is that when they cite their market opportunity, I have to wonder how over the top of it throughout the year. In the United States, 6 million small and medium businesses, 26 million sole proprietorships, $ 25 trillion in B2B payment volume, technically that is all correct. But think of it this way. I am technically a sole proprietor, I would have no use for Bill’s products.
Moser: To the right.
Frankel: All Uber driver, each DoorDash driver, every Instacart buyer, there are all unique owners and they would use these products.
Frankel: It’s really hard to quantify. What I mean is that there is definitely a huge market opportunity here. It is really difficult to quantify its size.
Moser: I think this is a good point. I think that often it’s worth remembering, too, for listeners. There is a difference between this total addressable market, this TAM, and the usable addressable market, the SAM. There are two very different things and I understand that companies like to quote this TAM because it’s usually the most number, but you have to do a bit of homework to really get to the heart of what SAM is because that’s really what matters. So for a company like Bill.com, I would agree. I think it’s even more crucial.
Frankel: How many of those 26 million unique owners would actually have a reason to use the Bill.com platform? I don’t know the answer, maybe a lot. But the point is, I don’t know.
Moser: Well, I think it’s probably reasonable to take this with a little bit of caution. This is where you come in there. You start to discount some of these predictions, some of these expectations in order to paint a picture that perhaps represents a more realistic picture.
Frankel: I’m not trying to speak negatively just because it was your stock. If you look at some of these numbers, you know why it’s done so well. The margins are fantastic, 83% gross margin. Lemonade, does not have a gross margin of 83%, a revenue retention of 124%. It’s just that the average customer who has been with the business for over a year spends 24% more than a year ago. They obviously find a ton of value in the product, 126,000 customers, that’s a big customer base and continues to grow. Revenue has increased 150% year over year, which is a bad comparison due to COVID. But many people believed incomes were going to suffer in the long run because of COVID. Because in general, they focus on companies with a physical presence. The company has performed phenomenally, especially compared to what people thought it would be at the height of the COVID pandemic like in August when we made the calls.
Moser: I think this has really benefited from the move towards the digital economy. I mean, I really think this is one of those companies that has definitely benefited from it. There were a lot of tailwinds. You mentioned that the revenue growth, which is even more impressive to me is that even the organic core revenue growth has increased by 78%, so they made a few acquisitions along the way and that’s something to keep in mind too. The companies that make these acquisitions, these acquisitions carry risk and you need to make sure that they can integrate them into the business in a transparent way.
But overall, it feels like we’ve benefited from a lot of tailwinds. Surprised that we haven’t seen maybe some profit taking, some sales like we’ve seen with some of these other companies that have benefited so much over the last year and a half. As we have gone digital. But maybe that’s really a testament to the progress the company has made.
I think whatever, a very competitive space, I mean you have companies like Square out there that help all kinds of physical businesses. Companies like Coupa software generally concentrated in the same market. It’s good to see Bill.com continue to thrive there. They have recently established a neat relationship with Marqueta, which is an issuer for a modern day card issuance. This is also a positive point, but it is not a stock that has gotten cheaper and as to whether I would buy this stock today, honestly I feel like this is one of those I would like to add. I would feel comfortable adding to my position today because when I first bought the shares I approached it with the idea that I’ll start with a small position to see where it’s okay and if this is a business that continues to be successful i would be more than happy to add to this winner.
Jason moser owns shares of Bill.com Holdings, Inc., Marqeta, Inc. and Square. Matthew Frankel, CFPÂ® owns shares of Lemonade, Inc. and Square. The Motley Fool owns stock and recommends Bill.com Holdings, Inc., Coupa Software, Lemonade, Inc. and Square. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.