What Happened:
Shares of payments and billing software maker Bill.com (NYSE:BILL) fell 34.1% in the morning session after 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 is down 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, it 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."
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What is the market telling us:
Bill.com's shares are very volatile and over the last year have had 41 moves greater than 5%. But moves this big are very rare even for Bill.com and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was six months ago, when the stock gained 16.2% on the news that the company posted a solid third-quarter with total payment volume (TPV), revenue, free cash flow, and earnings per share (EPS) all exceeding analysts' estimates. Impressively, TPV beat by roughly 10%. Customer growth also accelerated. Guidance for the full year was raised, and guidance for the next quarter came in above Consensus estimates. Overall, it was a nearly perfect quarter for the company, especially considering the mixed earnings results from its high-growth SaaS peers.
Bill.com is down 41.5% since the beginning of the year, and at $63.99 per share it is trading 52.8% 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 $1,800.
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