The market has finally been cheering PayPal (PYPL -1.59%) again. It's demonstrating progress under the leadership of a new leader, and PayPal stock is up more than 15% during the past six months.
But several billionaires have been piling into lesser-known fintech stock Bill Holdings (BILL -2.20%). Bill is a younger company with lots of growth on the horizon. Should you take a chance on it?
Billionaires like Bill
Bill provides software-as-a-service financial solutions for small businesses. Its platform automates tasks like accounts payable and receivable, and connects users to a large network of financial institutions. Clients love its technology, which frees up time from tedious tasks.
Some of the billionaires that recently bought Bill stock include:
- Ken Griffin of Citadel Advisors, who increased his position by 61%
- John Overdeck and David Siegel, formerly of Two Sigma Investments, who increased their position by 553%
- Steven Cohen of Point 72 Asset Management, who increased his position by 394%
More than billing
Bill's growth rate has sharply decelerated in the inflationary environment, but the growth is still solid. Revenue increased 16% year over year in the 2024 fiscal fourth quarter (ended June 30).
The company has 475,000 client subscribers and 7.1 million network members, creating a network effect in which its value increases as more members join the platform. It makes most of its money through payment processing, but subscription fees are an important part of its model. Subscription fee growth has been slow because of inflationary pressure and fell in the fourth quarter, but higher transaction volume has been picking up the slack. The company also makes money through float revenue, through which it earns interest on money as it passes through transactions.
While it waits for business to pick up again, Bill management is working on cutting expenses and improving profitability. It has an 81% gross margin, although that narrowed year over year in the fourth quarter. Operating loss narrowed from $41.4 million last year to $22.2 million this year.
The company should be well-positioned to grow more efficiently when economic conditions improve and become sustainably profitable.
Better than PayPal?
Is Bill a better deal than PayPal? That probably depends on what kind of investor you are. PayPal is a value play, and although it hasn't exactly been a stable investment during the past few years, it's moving in the right direction. It's still the industry leader in fintech, and it has millions of customers and merchant clients who rely on its tools. Bill, on the other hand, has expanded its network, but it's still building up its name and presence.
As you would expect, PayPal is much cheaper than Bill, and it's also profitable. But at 4 times trailing-12-month sales, Bill has a fair valuation for a growth stock and it offers better opportunities for growth investors.
PYPL PS Ratio data by YCharts
Analysts see it gaining more in the next 18 to 21 months -- the average target for PayPal stock is an 11% gain today, but 26% for Bill.
Should you be like the billionaires?
Bill has a tremendous market opportunity and a platform that creates value for clients. It continues to launch improved features and attract new business.
However, it's having a hard time with profitability. It could be the environment, and when the economy improves, Bill will do better. It's making the right moves to get there, but it's yet to prove that it can turn sales dollars into profit dollars. It has a very high gross margin, but that's not trickling down to the bottom line.
Down the road, Bill could become more efficient and reward shareholders. But individual investors should only follow billionaires into this position if they have a strong risk tolerance.
