Give Its Due – WSJ

This column is part of the sixth annual Heard on the Street stock-picking contest.

Nobody enjoys paying bills, especially when they are going up. But that doesn’t mean bill-paying is a bad business to be in. Holdings

BILL -4.26%

sells cloud-based software subscriptions and tools to small and midsize businesses to do back-office things such as automate billing, arrange payments and manage spending. It had served some 157,800 customers of its

BILL -4.26%

service as of the most recently completed quarter, and counted nearly five million network members that have made or received electronic payments using the company’s platform. Holdings

  • Recommendation: Buy
  • Price: $174.29

As mundane as accounts-payable and accounts-receivable modernization might seem, sells to a huge market comprising millions of businesses that sometimes operate in the relative stone age. This has helped sustain fast customer growth and a big valuation multiple since the company’s late 2019 public offering.

But the company’s stock has dropped by nearly a third this year, even after a rally on Friday following strong quarterly results. Investors have widely turned against fast-growing companies that, like, aren’t profitable on a net-income basis. They have also been worried that a lot of revenue growth in payments and automation was pulled forward during the disruptions of the pandemic.

However, the market might be painting with too broad of a brush: It is likely that a lot of smaller businesses still have a lot of evolving to do. For example, as recently as late last year 81% of businesses with revenue under $1 billion still reported sending checks for outgoing payments in a survey conducted by the Association for Financial Professionals.

Shares of aren’t strictly a bargain. The company trades at roughly 19 times its guidance for next-12-month sales. That is several times above the single-digit level where some other business-software and payments stocks, ranging from




trade versus analyst sales estimates, according to FactSet. But adjusted for its roughly 50% year-over-year pace of anticipated sales growth next fiscal year,’s multiple looks much more in line. 

Markets have surged as investors price in a soft landing for the U.S. economy and the end of peak inflation. But that all could be threatened if the dollar continues to weaken. WSJ’s Dion Rabouin explains. Illustration: David Fang

And might not have pulled forward as much future growth as others. Its revenue isn’t just driven by adding more customers, but by its existing customers doing even more transactions with the platform. Perhaps some small businesses would struggle in a potential economic slowdown, but if customers are still digitizing and automating, there can still be substantial growth. 

Notably, the percentage of total payment volume that earns as transaction fees—known as its take rate—is rising. That can be rare in payments, as volume growth past a certain point often comes at the expense of take rate. But has been introducing a lot of more advanced ways to pay that could potentially grow its take rate, including things consumers are used to such as cross-border payments, instant payments and virtual cards.

The company’s core take rate, excluding fees on its Divvy corporate-card transactions, grew nearly a third from a year earlier in the recent quarter, according to Autonomous Research analyst

Ken Suchoski.

He estimates that rate could almost double in the coming years.

What is more, as interest rates rise, and credit and liquidity are harder to come by, can help customers manage their working capital via faster payments or connecting to other forms of financing. Those kinds of transactions could help accelerate growth and turn rising interest rates from a challenge—as they will be for many fintech companies—into an opportunity. Investors might regret getting behind on

Write to Telis Demos at

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