Investors loved Bill Holdings' (BILL -2.26%) latest earnings update, and after falling for most of the year, Bill stock is now is up 38% since the report last week. Did its risks suddenly vanish? Was the performance just that good? Let's go through the update and see whether or not it makes sense to buy Bill stock right now.
A great concept is taking off
Bill's concept has always been impressive. It's the deceptively simple idea that digitalizing and connecting all of a company's back-end financial operations can help them work easier, cut costs, and get incredible data. Bill's platform pulls everything together in a simple, easy-to-use platform, taking care of functions that every company, big and small, needs, like accounts payable and receivable, and spend management.
Like many young and disruptive companies, Bill had a great idea, but it takes time to scale effectively and profitably, especially when so many companies are used to legacy operations. Its efforts were impeded when companies cut back on spend as inflation ballooned, making it harder for Bill to scale and turn a profit. Revenue growth has decelerated over the past few years.
Bill has two sources of core revenue. It sells subscriptions for clients to use its platform, but it makes most of its revenue from processing volume through its vast network of financial institutions. The whole connected concept can only work if Bill's platform is plugged into the various institutions its clients need to access; that way, all of its financial transactions can happen in one place, on Bill's platform, and any updates are instantly inputted into all of its records. There are instant calculations, and payments and taxes become a breeze.
So while client count is important, network size is also. Network members are all kinds of financial partners, including banks like Bank of America and American Express, as well as accounting firms like Acuity and Moss Adams.
As of the end of the 2025 fiscal first quarter (ended Sept. 31), Bill has 476,000 clients using its services and 7.1 million network members. It has a 92% net dollar retention rate, implying that clients are satisfied with Bill's services.
Bill is a champion of the small business, which is still switching to digital from tedious solutions like spreadsheets as well as pad and pencil. But it's also targeting the enterprise business, which is already online, but uses a multitude of solutions that still require burdensome connecting.
Profits at scale
The market was impressed with the results of Bill's fiscal 2025 first quarter, but it seems like that enthusiasm was buttressed by the post-election market boom. Revenue increased 18% year over year in the first quarter. Management is guiding for revenue to increase 12% to 13% for the full fiscal year.
The standout was improvements in profitability. Management has been working on that since growth began to slow, and actions are paying off. Net income was positive in the first quarter, although operating income was still negative. Management is guiding for positive operating and net income for the second quarter and the full year.
BILL Operating Income (Quarterly) data by YCharts
This looks like the company is turning a corner toward profitability. There are reasons to be confident, but investors need to see this trajectory hold for a few quarters.
Be confident, but cautious
Bill stock trades at a forward one-year P/E ratio of 44 and a price-to-sales ratio of 7. That's not cheap, but it could be reasonable for a company that's in growth mode and demonstrating robust, increasing profitability. Bill has many years ahead of it to gain customers and increase its processing volume.
I wouldn't call it a no-brainer right now. There are still risks as it moves toward profitability while growth slows down. The likelihood is that it will keep growing its business efficiently and rewards investors over time. But it's only an option for investors who have a strong risk tolerance.
