Bill.com: Buy The Stock On Solid Growth Prospects (NYSE:BILL)

In this analysis of Bill.com Holdings, Inc. (NYSE:BILL), we examined the company following its strong growth in FY2022 with core revenues growing by 68.6% YoY. Based on its latest earnings briefing, management guided its FY2023 total revenue growth to be 48.8% YoY. We analyzed the company’s growth outlook based on its customers, payment volumes and revenue growth; as well as its acquisitions of Invoice2go and Divvy.

Robust Customer Growth

Number of Customers	2018	2019	2020	2021	2022	2023F	2024F	2025F	2026F	2027F
Bill.com Customers (‘000)	63.7	76.8	98.1	121	158	181	205	228	252	275
Growth %		20.6%	27.8%	23.5%	30.2%	14.9%	13.0%	11.5%	10.3%	9.3%
Customer Additions (‘000)		13.1	21.3	23.1	36.6	23.5	23.5	23.5	23.5	23.5

Click to enlarge

Source: Bill.com, Khaveen Investments

Bill.com’s customer growth had been steadily increasing over the past 4 years, ending FY2022 with a growth rate of 30.2%. In FY2021, the increase in the number of customer additions slowed down to 1,800 and the company only achieved 23,100 in customer additions. As a result, its customer growth was only 23.5% which is lower compared to FY2020 (27.8%) but recovered in FY2022. We believe the growth slowdown was due to Covid-19. According to PayPal’s (PYPL) study, revenues for SMBs declined by 9% in Q2 20220.

Furthermore, since 2008, Bill.com had partnered with CPA as its bill management partner. Also, its acquisition Divvy had

partnered with CPA.com to launch the Divvy Accountant Advisor program, which provides accounting firms with expense management software tools.

According to the American Institute of CPAs (AICPA), there are over 428,000 members. Thus, we believe this could benefit Bill.com with the largest network of accounting professionals.

Based on the past 4 years of customer additions for Bill.com, we estimated its yearly organic customer additions to be around 23,500. This is slightly above management guidance according to its Q4 2022 earnings briefing for the customer additions. Overall, with our estimates, we projected Bill.com customers to reach 275,000 customers by 2027.

And as we, sort of look out over FY2023, we think that 4,000 to 5,000 range (of customer additions per quarter) for Bill, excluding the financial institution contribution, is probably a good placeholder. – René Lacerte, Chairman, CEO and Founder.

Strong Organic Growth from Subscription and Transaction Fees

Bill.com Transaction Revenue Projection	2018	2019	2020	2021	2022	2023F	2024F	2025F	2026F	2027F
Bill.com Customers (‘000) (‘a’)	63.7	76.8	98.1	121	158	181	205	228	252	275
Bill.com Payment Volumes per Customer ($ ‘000) (‘b’)	779	928	984	1,157	1,388	1,606	1,858	2,149	2,486	2,876
Growth %		19.1%	6.0%	17.7%	19.9%	15.7%	15.7%	15.7%	15.7%	15.7%
Bill.com Payment Volumes ($ bln) (‘c’)	49.6	71.3	96.5	140	219	291	381	491	626	792
Growth %		43.7%	35.4%	45.4%	56.1%	32.9%	30.7%	29.0%	27.6%	26.5%
Transaction Fees as a % of Payment Volume (‘d’)			0.05%	0.09%	0.10%	0.10%	0.10%	0.10%	0.10%	0.10%
Bill.com Transaction Fees ($ mln) (‘e’)			52.7	121	228	303	396	511	652	825
Growth %				129%	88.9%	32.9%	30.7%	29.0%	27.6%	26.5%

Click to enlarge

* c = a × b

e = c × d

Source: Bill.com, Khaveen Investments

Based on the table, the company’s average past 4 years’ payment volume per customer growth is 15.7%. We forecasted its payment volume per customer growth through 2027 based on its 4-year average (15.7%) from $779,000 in 2018 to $1.61 mln in 2023. From there, multiplied by our customer base projections, we expect its payment volumes of $291 bln in FY2023.

According to the Small Business Administration of the U.S., there are about 33.2 mln small businesses in the U.S. with a

2.2% increase from the previous year and an overall growth of 12.2% from 2017 to 2022.

Thus, we believe the growth in small businesses could support Bill.com’s payment volume growth.

Furthermore, the company charges transaction fees on its payment volumes. As the company’s transaction fee as a % of payment volume has increased in the past 2 years, we based our forecast on its FY2022 figure (0.1%). The transaction fee as a % of payment volume multiplied by our projected payment volume estimates results in a forecasted transaction fee of $303 mln in FY2023, a YoY increase of 32.9% and a 5-year average forward growth of 29.3%.

Bill.com	2020	2021	2022	2023F	2024F	2025F	2026F	2027F
Bill.com Customers (‘000) (‘a’)	98.1	121	158	181	205	228	252	275
Subscription Fees per Customer ($) (‘b’)	855	921	1,037	1,143	1,259	1,387	1,528	1,683
Growth %		7.7%	12.7%	10.2%	10.2%	10.2%	10.2%	10.2%
Bill.com Subscription Fees ($ mln) (‘c’)	83.9	111.6	163.7	207.2	289.8	405.2	566.7	792.5
Growth %		33.0%	46.7%	39.8%	39.8%	39.8%	39.8%	39.8%

Click to enlarge

* c = a × b

Source: Bill.com, Khaveen Investments

From its annual report, besides transaction fees, Bill.com also charges subscription fees for its customers who use its platforms to process transactions. We first forecasted the growth of subscription fees per customer by using the average growth in FY2021 and FY2022 which gave us a subscription growth per customer of 10.2%. Multiplied by the number of customers projected, we estimate FY2023 subscription fees to be $207.2 mln with a growth rate of 39.8%.

Total Bill.com Organic Revenue ($ mln)	2019	2020	2021	2022	2023F	2024F	2025F	2026F	2027F
Bill.com Subscription Fees		83.9	112	164	207	290	405	567	793
Bill.com Transaction Fees		52.7	121	228	303	396	511	652	825
Bill.com total subscription and transaction fees	86.0	136	232	392	510	686	916	1219	1617
Growth %		58.6%	70.3%	68.6%	30.3%	34.4%	33.6%	33.0%	32.7%
Interest on funds held for customers	22.4	21.2	6.0	8.6	11.9	11.9	11.9	11.9	11.9
Total Bill.com Revenue	108	158	238	400	518	693	922	1224	1622
Growth %		45.4%	51.2%	68.0%	29.4%	33.7%	33.1%	32.7%	32.5%

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Source: Bill.com, Khaveen Investments

Overall, we forecasted Bill.com’s total revenues attributable to its core business including subscription and transaction fees as well as interest on funds to grow at a 5-year forward average of 32.3% supported by strong growth in revenue from transaction fees.

Acquisition Revenue and Synergies

Lastly, we examined the company’s acquisitions of Invoice2go and Divvy. According to Bill.com’s annual report, Divvy and Invoice2go contributed $241.7 mln in revenue to Bill.com, making up about 37.6% of Bill.com’s total revenue. This is significant as the two new acquisitions would provide Bill.com with an additional 242,300 customers.

Bill.com completed its acquisition of Divvy on June 2021 ($2.3 bln) which specializes in spend management and the company claimed in its annual report that the acquisition

enhances the company’s ability to provide an expanded solution to enable SMBs to manage accounts payable, corporate card spend, and accounts receivable all in one place.

Moreover, Bill.com also completed its acquisition of Invoice2go on September 2021 for ($625 mln), the company specializes in accounts receivable software

that empowers SMBs and freelancers to grow their client base, manage invoicing and payments, and build their brand” according to its annual report.

To determine the potential for revenue synergies of its acquisitions, we calculated the average revenue per user of Bill.com which was $2,482 in FY2022, obtained by dividing the organic core revenue of Bill.com by the total number of customers of Bill.com. Based on Bill.com’s FY2022 annual report, we derived the average revenue per user of Divvy and Invoice2go using the same method at $998 in 2022.

Acquisition Synergies Estimate
Bill.com Revenue ($ mln) (a’)	400
Bill.com Customers (‘b’)	157,800
Bill.com ARPU ($) (‘c’)	2,482.26
Divvy and Invoice2go Revenue ($ mln) (‘d’)	242
Divvy and Invoice2go Customers (‘e’)	242,300
Divvy and Invoice2go ARPU ($) (‘f’)	997.52
Estimated Revenue Synergies ($ mln) (‘g’)	359.8
Synergies per Year over the next 5 years ($ mln)	72.0

Click to enlarge

*c = a/b

f = d/e

g = (c – f) × e

Source: Khaveen Investments

We estimated a total revenue synergy of around $359.8 mln from the 242,300 new customers from Divvy and Invoice2go. Assuming it is allocated over the next 5 years, this would result in an increase in revenues of almost $72 mln for the next 5 years.

Revenue Projection ($ mln)	2022	2023F	2024F	2025F	2026F	2027F
Bill.com (Organic) (‘a’)	400	518	693	922	1224	1622
Divvy and Invoice2go (‘b’)	242	268	296	328	363	402
Growth %		10.7%	10.7%	10.7%	10.7%	10.7%
Estimated Synergies (‘c’)		72.0	72.0	72.0	72.0	72.0
Total Combine Revenue (‘d’)	642	857	1,061	1,322	1,659	2,096
Growth %		33.6%	23.7%	24.6%	25.5%	26.3%

Click to enlarge

* d = a + b + c

Source: Bill.com, Khaveen Investments

Based on Verified Market Research, the invoice automation software market is expected to grow at a CAGR of 10.7% through 2030. With that, we forecasted revenue from Divvy and Invoice2go to grow by 10.7%. Additionally, we summed our revenue projection with our core organic revenue forecast from the previous point, revenue from Divvy and Invoice2go as well as revenue synergies. All in all, we expect the total revenue of Bill.com to grow by 33.6$ in 2023 and a 5-year forward average of 26.7%.

Risk: Unprofitability

Bill.com Profitability ($ mln)	2018	2019	2020	2021	2022
Revenue	64.9	108	158	238	642
Growth %		67.0%	45.4%	51.2%	169.4%
Expenses	72.7	118	189	326	870
Growth %		62.6%	59.5%	73.1%	166.5%
Profit/(Loss)	(7.8)	(9.8)	(30.9)	(88.0)	(228)
Net margin	-12.0%	-9.0%	-19.6%	-36.9%	-35.4%

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Source: Bill.com, Khaveen Investments

Based on the table, Bill.com’s expenses have been growing faster than its revenue for some years, resulting in a loss of $228 mln in FY2022. Net margins have also decreased to -35.4% in FY2022 due to its sudden increase in depreciation and SG&A expenses. From FY2021 to FY2022, depreciation increased from 3.52% to 13.6% as a % of revenue whereas SGA increased from 75.8% to 84.8% as a % of revenue. We believe this is likely due to the acquisition of Divvy and Invoice2go. Due to its unprofitability but high growth, we decided to use the P/S ratio for our company comparable analysis to value Bill.com.

Verdict

Valuation	2023F	2024F	2025F	2026F	2027F
Revenue ($ mln) (‘a’)	857	1,061	1,322	1,659	2,096
P/S (‘b’)	18.36x	16.84x	15.33x	13.86x	12.45x
Valuation ($ mln) (‘c’)	15,746	17,866	20,271	23,001	26,097
Shares outstanding (‘mln’) (‘d’)	104.84	104.84	104.84	104.84	104.84
Price Target (‘e’)	$150.19	$170.41	$193.36	$219.39	$248.92
Current Price	$132.37	$132.37	$132.37	$132.37	$132.37
Upside	13.5%	28.7%	46.1%	65.7%	88.1%

Click to enlarge

* c = a × b

e = c/d

Source: Khaveen Investments

We valued Bill.com at $248.92 using an industry average P/S ratio of 12.45x in FY2027. We prorated this price target with an upside of 13.5% in 2023. In conclusion, we believe Bill.com shows significant growth potential organically supported by customer additions, transaction and subscription revenue growth as well as with its acquisitions of Divvy and Invoice2go. Taking into account our estimated revenue synergies with Divvy and Invoice2go, we rate Bill.com as a Buy with an updated price target of $150.19.