Macroeconomic Headwinds Leave BILL Stock in the Doldrums

We parse through a lot of transcripts from quarterly and year-end earnings reports so you don’t have to. (You’re welcome.) We find this is often the most efficient way to understand the current and future picture of a company with the highest resolution into the financials. Press releases are too ra-ra-ra, while making our overworked MBAs slog through 10-K and 10-Q reports to find insightful nuggets is just plain cruel (though these SEC documents are useful as reference guides if you know where to look). The throughline from many, if not all, of these transcripts is that the ye olde macroeconomic headwinds have been steadily blowing for the last couple of years. 

We’ve been throwing out the term “macroeconomic headwinds” so often that it has become kind of meaningless, precisely because it can mean just about anything, from full-blown recessions to geopolitical instability. In our current economic climate, it generally refers to high inflation and rising interest rates, which increase costs for businesses, make borrowing more expensive (and slows investment), and reduce consumer buying power. The wars in the Middle East and between Russia and Ukraine are also often wrapped up in stormy forecasts from many companies when they cite macroeconomic headwinds these days.

BILL Slowed by Macroeconomic Headwinds

So, it was not entirely surprising to hear that BILL (BILL), which offers a cloud-based platform that automates and streamlines various financial processes for small and medium-sized businesses (SMBs), is experiencing slowing growth. After all, these sorts of economic conditions can really impact SMBs, forcing them to moderate expenditures and shift to lower-cost payment methods. The knock-on effect to BILL is slower growth in payment volumes and transaction fees. Yet the company still notched 22% revenue growth in Fiscal 2024 to $1.3 billion, followed by an 18% increase to nearly $360 million in Q1-2025 compared to a year ago. 

What is surprising, however, is the steep decline in BILL’s dollar-based net retention rate (NRR) over the last few years – an important metric for gauging stickiness of the company’s platform. It dropped from a fat 131% in 2022 to a still-respectable 111% in 2023, before plunging to a WTF 92% in 2024. Even if you subtract out the impacts from a restructuring of a partnership with a major (but unnamed) financial institution, the NRR remains below 100% at 96%. We hold shares of BILL stock in our Nanalyze Disruptive Tech Portfolio and New Money Portfolio, so we want to know more about this downward trend in NRR. Another burning question since we last reported on BILL: What impact is last year’s break up with Intuit going to have now that the financial software company is a competitor?

Can BILL Return to a Triple-Digit NRR? 

We often preach that NRR is a crucial measure for software-as-a–service (SaaS) companies because it reflects how well they retain and grow revenue from existing customers over time. Various sources contend that a median NRR across all SaaS companies is around 102%-106%. Of course, the top performers will typically be in the 110%-125% range or higher. An NRR above 100% indicates that a company is not only keeping its customers happy but also increasing revenue from them (by upselling and cross-selling), which can lead to exponential growth without relying solely on new customer acquisitions. High NRR often correlates with stronger financial performance, higher valuations, and better long-term growth prospects. 

This was certainly the case with BILL stock back in 2021 when we first covered it as part of an article on pure-play B2B payment stocks. At the time, BILL stock commanded an exorbitant premium, in part thanks to a NRR above 120%, with a simple valuation ratio (market cap/annualized revenues) of more than 90. Remember, this was the heyday of the SPAC boom, and tech was hot, particularly for anything resembling a SaaS stock. Our threshold was to keep clear of anything above 40. After the macroeconomic headwinds started blowing in late 2022, we dropped the threshold to 20. BILL actually bucked the downward trend already underway by posting a higher NRR (131%) in 2022 than in 2021, before the macroeconomic headwinds finally caught up.  

Today, BILL sports an SVR of about 6.5 ($9.2 billion market cap/$1.4 billion annualized revenue), which is par for the course among the stocks in our Nanalyze Disruptive Tech Portfolio. The valuation rightly reflects the company’s declining NRR and 2025 revenue growth forecast, which is “just” 12%-13%. Core revenue, which consists of subscription and transaction fees, is projected to grow a more respectable 15%-17% in 2025.

The company blamed changes in spending patterns by customers, continued softness in the SMB economic environment, and the migration or churn of certain customers of a bank partner for less spending by existing customers in 2024. While management expects more of the same in the near term, it said the company will return to an NRR above 100% as it continues to “roll out new offerings and the economy returns to growth mode for SMBs.”  Perhaps the erosion in NRR should not be too surprising, given BILL’s reliance on transactional revenue versus cloud-based subscriptions.

Indeed, BILL is far from being a pure-play SaaS company with less than 20% of revenues coming from recurring revenues. In that case, the focus on NRR is something of a red herring. Instead, the company should be more focused on adding new customers – even if operating margins take a hit with the cost of acquiring new business – in order to organically grow its subscriber base and boost transaction volume. Based on the company’s own estimates of U.S.-based SMBs and B2B payment volume, it has only captured about 1% of the total addressable market (TAM).

Of course, the other 99% is contested by a number of competitors, including another company in our Nanalyze Disruptive Tech Portfolio, AvidXchange (AVDX). Even though both companies are pure-play players in the B2B payments space, AvidXchange targets larger firms and enterprises. However, there is another competitor that could emerge as a serious threat.

Is Intuit a Serious Threat to BILL?

As we alluded to earlier, Intuit and BILL parted ways back in 2023. For about a half-dozen years, BILL provided an embedded bill-pay service within QuickBooks Online. Intuit apparently figured it could do better and began offering a white-label bill pay service for QuickBooks powered by BILL rival Melio, according to an article in Payments Dive. The QuickBooks Bill Pay would seem to be an attractive option for existing Intuit customers because it is fully integrated within the QuickBooks ecosystem, providing seamless bill pay and accounts payable automation for businesses of all sizes. The offering mimics many of the same features as BILL’s platform, including time-saving automation and digitized record-keeping. 

Of BILL’s 400,000-plus customers, about 12,000 reportedly used its embedded feature in QuickBooks. While some larger businesses reportedly jumped into bed with BILL, most of the smaller fish churned (or is it chummed?). Given QuickBooks’ dominant market share in small business accounting, estimated at more than 80%, it has a significant advantage in reaching the same SMBs that are BILL’s bread and butter. The QuickBooks platform processed $91 billion in payments volume in 2022, then $125 billion in 2023. So while BILL seems to be leading by volume, Intuit saw $790 billion of bills recorded on their platform in 2023 that represents easy market share to capture.

BILL is attempting to fire back with a slew of initiatives and strategies to acquire more customers directly, while still building out and depending upon its network of partnerships. For example, the company is expanding international payment capabilities to more than two dozen countries. One of our biggest beefs with BILL is that the company’s business is almost entirely focused on the United States, so we hope this signifies an expansion into other markets. Many of the new innovations are designed to help customers access cash more quickly, such as enabling real-time funding options so that they can fund payments with credit cards or ACH or real-time payments. And, of course, more AI: The company is applying artificial intelligence to more use cases to simplify and personalize the user experience, such as the AI-powered Sync Assist for accounting system integration.

Conclusion

Now we have a better understanding of the macroeconomic headwinds against which BILL is trying to grow. It appears the current challenges will continue to slow revenue growth in the near term – and perhaps longer. The question about the long-term threat by Intuit remains unanswered. The net retention rate, while somewhat important, seems less significant until subscription revenues become a bigger part of the company’s business model. Until then, we’ll rely more on transaction volume and revenue growth as key metrics. While shares of BILL stock are attractively priced, we have no immediate plans to add to our current position. Nanalyze Premium subscribers will be the first to know if and when that changes.