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About Bill.com
We should admit that we have a special affinity for companies that empower small businesses.
As they are truly the backbone of the American economy, many small business owners likely either fight technological change at the door and want to stick to the pencil and paper (which we surely understand) instead of staying “with the times,” we think it is a resounding net positive when platforms are created that are fairly simple to get the hang of, integrate and implement that benefits not only businesses but the overall increased time that they get to focus on their customers, who quite literally keep them in business at the end of the day.
Bill.com is one of those companies.
Founded in 2006 by serial tech entrepreneur René Lacerte, Bill.com is a cloud-based software as a service (SaaS) platform that simplifies many of the mission critical financial operations of a business, small or large.
Specifically, the company’s platform neatly compiles and manages customer invoices, accounts payable (AP), accounts receivable (AR) and other vitally important aspects related to businesses keeping their finances in order, intact and up to date.
The platform essentially automates much of the previously time-tolling tasks faced by businesses as well as accountants, as they spend much of their time tinkering with AP and AR.
Some might say that Bill.com’s platform is an accountant’s dream.
That being said, the company also does extensive business with premier accounting firms across the country, such as Baker Tilly, Eide Bailly LLP, Withum among many other staples and leaders in the accounting industry.
All in all, Bill.com is like most other SaaS companies in that it generates its revenue through subscription packages that once purchased allow customers access to the company’s software and aforementioned capabilities.
Or should we call it the aforementioned capa-bill-ities.
We need to be stopped.
This is a great time to transition into the company’s core financials in search of ultimately figuring out whether or not Bill.com’s stock (NYSE: BILL) is worth buying after its nearly 42% drop over this past one year’s span of time.
Bill.com’s stock financials
Kicking things off, Bill.com’s trading at a share price of nearly $104 with a market capitalization of $10.96 billion while not currently offering its shareholders an annual dividend along with the fact that Bill.com’s stock also doesn’t have a readily available price-to-earnings (P/E) ratio listed, which actually makes sense.
Why?
Well, as touched on in previous stock analysis articles, companies that are in (high) growth mode, particularly companies operating in the software as a service space are usually burning through stockpiles of cash in order to merely keep their doors open given all of the necessary, at times even aggressive investments needed to finance current and future growth and establish itself above the competition in absolutely any way that it possibly (legally, of course) can.
Thus, the company’s executive team seems keen on retaining any earnings and putting them back into the business.
We don’t knock Bill.com for not having a P/E ratio or not distributing a dividend; it just comes with the territory.
Scurrying along to the company’s balance sheet, Bill.com’s executives are responsible for overseeing and controlling around $9.2 billion in total assets as well as approximately $5.2 billion in total liabilities.
Given the current growth phase this company is in, Bill.com’s executive team has still been able to craft a fantastic, asset-heavy balance sheet.
We are particularly happy to see Bill.com’s balance sheet asset-heavy given the current macroeconomic setting and its accompanying headwinds. Namely, Bill.com appears to be prepared and well capitalized for the deepening of the current recession, which we love to see as it is also a sign that this company is run by prudent debt managers, which certainly invokes long-term confidence for prospective investors such as ourselves.
What also gives us confidence in companies such as Bill.com is proof that its target customers are both purchasing and staying with the company and its products, inherently giving them merit.
The market has proven (through Bill.com’s recent total revenue figures) this to be the case with the company in question.
Specifically, Bill.com’s total revenue sat at $65 million in 2018 and has since risen each year to its latest figure of $642 million, as reported in 2022.
The market has evidently ascribed to Bill.com’s products and offerings all while the company itself has seemingly been able to acquire and keep new customers.
Bill.com’s products are sticky.
No, they unfortunately aren’t drenched in caramel, although that does sound good.
What we mean is that once customers (primarily smaller and medium-sized businesses and accountants in the case of Bill.com) start working with the company’s products and software, it is very difficult to get off of them, intentionally so.
We’re just happy that this is proven to be the case with Bill.com and we expect the company’s total revenue figures to keep increasing, surpassing $1 billion in total annual revenue in the not so distant future.
Onto the company’s cash flow statement, the cash burn has been real but it hasn’t been as awful as initially expected, but given its current trend it likely isn’t ending in the next year or two.
Specifically, during 2018 and 2019 the company reported negative net incomes of -$7 million each year, which then stretched a bit higher to -$31 million the following year, ultimately rising to -$326 million as of its latest report in 2022.
In most of the cases that we’ve seen, this has been a primary concern as most younger SaaS companies aren’t as especially well capitalized (namely, referencing the overall total asset and total liability breakdown on the company’s balance sheet) and thus it raises concerns of whether or not the respective company will be able to afford the cash drain before it runs completely dry.
As pointed out in paragraphs above, however, Bill.com’s balance sheet says that they can afford to invest aggressively while simultaneously remaining financially prudent and value driven.
Bill.com’s executive team has allowed it so that the company can play offense while others are scrambling to play a little offense but focus more on defense.
While other SaaS companies are essentially forced to get conservative and cut back on growth, Bill.com is financially equipped to stick to the plan and remain growth oriented.
We absolutely love this.
Bill.com’s stock fundamentals
Although some might take a look into Bill.com’s trailing twelve month (TTM) net profit margin and suddenly become sick, we are actually optimistic.
For instance, the company’s TTM net profit margin currently sits at -44.29% to the industry’s average of 15.07%.
Yes, this is a huge difference, however, Bill.com, like many other SaaS companies that we have recently analyzed is in the thick of growth mode and while it might technically be able to be net profitable if it really wanted to right now, it wouldn’t make much sense because it would more than likely inhibit future growth or the potential thereof.
It is our opinion that if Bill.com has to temporarily sacrifice a positive annual net profit margin for the time being with the goal of eventually leading its respective industry over the long haul, naturally enabling it to consistently bag a higher TTM net profit margin, so be it.
Over time, we presume Bill.com’s TTM net profit margin will inch exponentially closer to the industry’s average, given the scalability of its software and associated product offerings.
Finally, Bill.com’s TTM returns on assets and investment are both notably lower than that of the industry’s average, but again, this will more likely than not be remedied with time and gradually accumulated market share, thus it isn’t an unbearable concern for our team.
Should you buy Bill.com stock?
Although we hardly touched on this at all during this stock analysis article, regardless of the fluctuations throughout the overall economic cycle, Bill.com’s customer base seems fairly resilient in the sense that they can and will continue paying for the company’s software given how essential and sticky the products integrated within the software have become to their daily operations.
Additionally, given the current shape of Bill.com’s balance sheet, its accelerating annual total revenue, not to mention its growing share in the AP and AR spaces all while helping businesses focus on what they know best; their business and their customers, Bill.com has already outlined a proven track record of excellent execution and a future to be excited about.
Therefore, we have no qualms with giving the company’s stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.