Bill.com (NYSE:BILL) Exceeds Q2 Expectations But Stock Drops 19.8%

Full Report / February 02, 2023
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Payments and billing software maker Bill.com (NYSE:BILL) reported Q2 FY2023 results topping analyst expectations, with revenue up 66.1% year on year to $260 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $246.5 million, 1.68% below analyst estimates. Bill.com made a GAAP loss of $95 million, down on its loss of $80.4 million, in the same quarter last year.

Bill.com (BILL) Q2 FY2023 Highlights:

  • Revenue: $260 million vs analyst estimates of $243 million (6.99% beat)
  • EPS (non-GAAP): $0.42 vs analyst estimates of $0.14 ($0.28 beat)
  • Revenue guidance for Q3 2023 is $246.5 million at the midpoint, below analyst estimates of $250.7 million
  • The company reconfirmed revenue guidance for the full year, at $1 billion at the midpoint
  • Free cash flow of $47.6 million, up from $12 million in previous quarter
  • Customers: 182,700, up from 172,000 in previous quarter
  • Gross Margin (GAAP): 81.7%, up from 78% same quarter last year

Started by René Lacerte in 2006 after selling his previous payroll and accounting software company PayCycle to Intuit, Bill.com (NYSE:BILL) is a software as a service platform that aims to make payments and billing processes easier for small and medium-sized businesses.

The software offers a central cloud repository for invoices and provides an interface where its users can issue, process, approve and pay invoices in an easy to use environment. By automating a lot of previously laborious manual work, Bill.com brings down the cost of running the accounts receivable/payable department. The company charges its customers software subscription and also processing fees on the payments they make through the platform.

Finance and accounting software benefits from dual trends around costs savings and ease of use. First is the SaaS-ification of businesses, large and small, who much prefer the flexibility of cloud-based, web-browser delivered software paid for on a subscription basis than the hassle and expense of purchasing and managing on-premise enterprise software. Second is the consumerization of business software, whereby multiple standalone processes like supply chain and tax management are aggregated into a single, easy to use platforms.

Today, Bill.com is mainly competing with legacy manual processes and software companies like SAP (NYSE:SAP) that primarily focus on large enterprises.

Sales Growth

As you can see below, Bill.com's revenue growth has been incredible over the last two years, growing from quarterly revenue of $54 million in Q2 FY2021, to $260 million.

Bill.com Total Revenue

And while we saw even higher rates of growth previously, the revenue growth was still very strong; up a rather splendid 66.1% year on year. Quarter on quarter the revenue increased by $30 million in Q2, which was roughly in line with the Q1 2023 increase. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates Bill.com is expecting revenue to grow 47.6% year on year to $246.5 million, slowing down from the 179% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 33.6% over the next twelve months.

Customer Growth

You can see below that Bill.com reported 182,700 customers at the end of the quarter, an increase of 10,700 on last quarter. That is a fair bit slower customer growth than last quarter but still in line with what we are used to seeing lately, suggesting that the company still has decent sales momentum.

Bill.com Customers


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Bill.com's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 81.7% in Q2.

Bill.com Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still a great gross margin, that allows companies like Bill.com to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Bill.com's free cash flow came in at $47.6 million in Q2, turning positive year on year.

Bill.com Free Cash Flow

Bill.com has generated $67.5 million in free cash flow over the last twelve months, a decent 7.87% of revenues. This FCF margin is a result of Bill.com asset lite business model, and provides it with optionality and decent amount of cash to invest in the business.

Key Takeaways from Bill.com's Q2 Results

Sporting a market capitalization of $12.5 billion, more than $2.68 billion in cash and with positive free cash flow over the last twelve months, we're confident that Bill.com has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth Bill.com delivered this quarter. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and gross margin deteriorated. Overall, this quarter's results could have been better. The company is down 19.8% on the results and currently trades at $103.5 per share.

Is Now The Time?

When considering Bill.com, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. There are a number of reasons why we think Bill.com is a great business. While we would expect growth rates to moderate from here, its revenue growth has been exceptional, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

Bill.com's price to sales ratio based on the next twelve months of 11.9x indicates that the market is definitely optimistic about its growth prospects. And looking at the tech landscape today, Bill.com's qualities stand out, we think that the multiple is justified and we still like it at this price.

The Wall St analysts covering the company had a one year price target of $163.8 per share right before these results, implying that they saw upside in buying Bill.com even in the short term.

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