Why Bill.com (BILL) Shares Are Falling Today

Radek Strnad /
2024/04/01 10:54 am EDT

What Happened:

Shares of payments and billing software maker Bill.com (NYSE:BILL) fell 5.4% in the morning session after Wells Fargo downgraded the stock's rating from Equal Weight (Hold) to Underweight (Sell) and lowered the price target from $70 to $60. The new price target indicated a potential 8% downside from where shares traded when the downgrade was announced. 

The analyst cited multiple issues, including "(1) added take rate questions post Visa/Mastercard settlement, (2) the potential to expand the BofA relationship to the 'back-book' becoming increasingly unlikely, and (3) an underwhelming return from the November RIF (Reduction in Force) initiative which we perceive as a sign of limited operating leverage."

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Bill.com? Access our full analysis report here, it's free.

What is the market telling us:

Bill.com's shares are very volatile and over the last year have had 24 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 5 months ago, when the stock dropped 34.1% on the news that the company slashed full-year revenue guidance, which will result in Wall Street analysts reducing their estimates. As a reminder, stocks follow the direction of Wall Street's financial estimates, so it is no surprise that the stock fell on this news. Similarly, revenue guidance for the next quarter also came in below Consensus. Lastly, gross and free cash flow margins were down. Management attributed the weak results to tough economic conditions, citing increased uncertainty as it primarily serves small businesses struggling to adapt to current realities. These challenges have led to a noticeable decrease in spending. Starting in late fiscal Q1 and extending into Q2, the company observed customers and suppliers tightening their belts. 

Additionally, Bill  noted that larger suppliers are opting for lower-cost payment methods, even if it means slower payments. Management expects the trend to persist and could negatively impact the company's transaction monetization in the short term. 

The market hates uncertainty, and this commentary (when paired with the slashed full year guidance) do not at all inspire confidence in the near to medium-term prospects for the business. 

Following the results, KeyBanc downgraded the stock to Sector Weight (Neutral) from Overweight (Buy). The firm said "We are downgrading Bill.com to Sector Weight as we see headwinds from macro factors (e.g., tighter spend, changing payment preference, prudent approach to credit) and worsened sentiment surrounding SMB spend as unlikely to subside in the NT. We continue to view Bill.com as a LT category winner with a solid management team in place, though see a lack of catalysts for shares at this juncture."

Bill.com is down 15.8% since the beginning of the year, and at $65 per share it is trading 52% below its 52-week high of $135.52 from July 2023. Investors who bought $1,000 worth of Bill.com's shares at the IPO in December 2019 would now be looking at an investment worth $1,832.

When a company has more cash than it knows what to do with, buying back its own shares can make a lot of sense–as long as the price is right. Luckily, we’ve found one, a low-priced stock that is gushing free cash flow AND buying back shares. Click here to claim your Special Free Report on a fallen angel growth story that is already recovering from a setback.