Bill.com (BILL)

Payments and billing software maker Bill.com (NYSE:BILL) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 10.9% year on year to $358.2 million. On the other hand, next quarter’s revenue guidance of $375.5 million was less impressive, coming in 1.8% below analysts’ estimates. Its non-GAAP profit of $0.62 per share was 65.8% above analysts’ consensus estimates.

Company Overview

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.

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.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Bill.com’s 39.9% annualized revenue growth over the last three years was exceptional. Its growth beat the average software company and shows its offerings resonate with customers, a helpful starting point for our analysis.

This quarter, Bill.com reported year-on-year revenue growth of 10.9%, and its $358.2 million of revenue exceeded Wall Street’s estimates by 0.8%. Company management is currently guiding for a 9.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 12.6% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is above average for the sector and suggests the market is baking in some success for its newer products and services.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Bill.com’s billings punched in at $358.2 million in Q1, and over the last four quarters, its growth was solid as it averaged 15.3% year-on-year increases. This performance aligned with its total sales growth, indicating robust customer demand. The cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Bill.com is extremely efficient at acquiring new customers, and its CAC payback period checked in at 11.6 months this quarter. The company’s rapid sales cycles stem from its strong brand reputation and self-serve model, where it can onboard many small customers with little to no oversight. These dynamics give Bill.com more resources to pursue new product initiatives so it can potentially move up market and serve enterprise clients, which can provide a second leg of growth.

What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Bill.com’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 83.8% gross margin over the last year. That means Bill.com only paid its providers $16.22 for every $100 in revenue.

Bill.com produced a 81.2% gross profit margin in Q1, marking a 5.2 percentage point decrease from 86.5% in the same quarter last year. Bill.com’s full-year margin has also been trending down over the past 12 months, decreasing by 2 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Bill.com’s expensive cost structure has contributed to an average operating margin of negative 5.7% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Over the last year, Bill.com’s expanding sales gave it operating leverage as its margin rose by 8.9 percentage points. Still, it will take much more for the company to reach long-term profitability.

Bill.com’s operating margin was negative 8.1% this quarter.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Bill.com has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 22.3% over the last year, quite impressive for a software business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Bill.com’s free cash flow clocked in at $90.54 million in Q1, equivalent to a 25.3% margin. This result was good as its margin was 5.8 percentage points higher than in the same quarter last year. Its cash profitability was also above its one-year level, and we hope the company can build on this trend.

Over the next year, analysts predict Bill.com’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 22.3% for the last 12 months will decrease to 16.1%.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Bill.com is a well-capitalized company with $2.17 billion of cash and $1.77 billion of debt on its balance sheet. This $399.2 million net cash position is 8.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by Bill.com’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. We were also glad its full-year EPS guidance trumped Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed significantly and its full-year revenue guidance was in line with Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The market seemed to be hoping for more, and the stock traded down 2.2% to $46.50 immediately after reporting.

Updated: May 19, 2025 at 10:02 PM EDT

Before making an investment decision, investors should account for Bill.com’s business fundamentals and valuation in addition to what happened in the latest quarter.

There’s plenty to admire about Bill.com. To kick things off, its revenue growth was exceptional over the last three years. And while its forecasted free cash flow margin suggests the company will ramp up its investments next year, its efficient sales strategy allows it to target and onboard new users at scale. On top of that, its admirable gross margin indicates excellent unit economics.

Bill.com’s price-to-sales ratio based on the next 12 months is 3x. When scanning the software space, Bill.com trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $63.97 on the company (compared to the current share price of $46.47), implying they see 37.7% upside in buying Bill.com in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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