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Here goes some thoughts on $Bill.com. What does it do? It's a cloud-based platform for better managing your AP (payables) and AR (receivables). A huge portion of SMBs still rely on mailing invoices, printing paper checks, waiting for payments & storing paper in filing cabinets.
Bill digitizes all that. It automates the capture of your invoices, "reads" them in order to auto-populate your payment flow and enables those $s to go over ACH as opposed to via check. It integrates with accounting s/w for an easy UX. It makes it easy to track all these flows.
1/ How big is the mkt? They claim that a conservative est of their TAM is the ~6m US SMEs with employees (o/w only 50k have > $50m in revs). Intuit thinks QBO Advanced has a ~1.5m TAM while surveys I've seen also suggest Bill's real addressable market is closer to ~1.5m.
2/ Let's err on the low end and go with 1.5m. What can they capture? The product is fundamentally better than existing solutions. It's quicker, more secure, less error-prone, more audit-able. It's just better. That means the vast majority of the 1.5m should end up with a product.
3/ http://Bill.com seems to be the clear market leader so let's give them 2/3 of the market. That's a nice round 1m. Let's assume they get there in 10 years, that would be a ~25% CAGR in terms of customer count. Aggressive but not impossible. They did ~28% last year.
4/ What can they make per customer at maturity? In FY20 sub. rev / customer was $968. If that grows at 2% (price), you're looking at $1,180 in FY30. In FY20, TPV / customer was $1.1m. If that grows at 4% (NGDP), you're looking at $1.7m in FY30.
5/ What about take rate? It was 3 bps in FY18 but 6.7 bps last Q. There are two big reasons for the expansion - virtual cards & cross border. The CFO thinks they can be 5-10% and 10-20% of TPV respectively and that these are 75-100 bp take rate opportunities.
6/ Let's say he's being too optimistic and they can generate 50 bps take rate on ~22.5% of TPV and they keep making the baseline 3 bps on the rest. That's a 13.5 bps blended take rate once VC & CB are ramped. That would be $2,250 of txn rev / customer in FY30.
7/ They also make money on float in their system. That income was ~27% of sub + txn rev in FY19 when fed funds averaged 2.2%. If we adjust the ratio down for the rise in take rate and assume 2.2% is an OK proxy for normalized fed funds, that would imply ~$670m of FY30 float revs.
8/ So we're at $4.1b of FY30 revs (~$1.2b from subs + ~$2.3b from txns + ~$670m from float). What about terminal margins? I'm going with 40%. Why? Merchant acquirers make ~45% EBITDA - CapEx margins. Intuit is expected to make ~35% in 2022. I just split the difference.
9/ That's $1.6b of EBIT or $1.3b of NOPAT @ 21% tax. If we exit on 30x, you're looking at a business worth ~$39b. They have ~$700m of cash today and probably generate ~$6.5b of NOPAT over the next decade for an exit mkt cap of ~$46b / share price of ~$570. That's an 18% IRR.
10/ Big risks? Competition from Intuit. Intuit white labels and sells Bill to some of its own customers but is < 2.5% of Bill's revenue so is a surprisingly small customer of theirs. They have a ton of stuff on their plate. They've articulated their priorities and this isn't it.
11/ Other than that, not sure. It feels like a great product that creates real value for its customers with a great management team behind it and a huge opportunity ahead. I'm sure I've missed stuff though. Any thoughts/feedback/comments are always welcome.
