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Monday, 01/06/2020 6:20:24 PM

Monday, January 06, 2020 6:20:24 PM

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$BILLFirst Mover Advantage

Bill enjoys a first-mover advantage in the SMB back-office financial automation category and it shows in its recent percentage, Goldman Sachs analyst Christopher Merwin wrote in a note. The company showed a 67% year-over-year revenue growth of 67% in 2019 while revenue rose by 57% year-over-year in the first quarter of 2020.

The company faces little direct competition as those who offer similar services target B2B payments among mid-market and enterprise companies, the analyst wrote. In fact, rivals are unlikely to look to compete against Bill directly as the SMB category is full of high churn and lower adoption.

Even if this thesis doesn't play, Bill established a "natural barrier to entry" given its extensive relationship with thousands of partner firms across accounting, financial institutions, and accounting software vendors, the analyst wrote.

BofA: Premium Valuation

Bill should be able to continue growing its core revenue (subscription and transaction revenue) at 30% or more through growing awareness and adoption of the company's cloud offering and electronic payment services, Bank of America analyst Brad Sills wrote. By 2021 total revenue is estimated to be $193.2 million and the stock should be valued at a multiple of 19 times.

The stock warrants a premium valuation versus the overall SaaS software group at 8.6 times 2020 revenue, the analyst wrote. The valuation is justified as the SaaS group as a whole is modeled to grow revenue at a slower rate in the mid-20s in the near-term.

Needham: Large Unaddressed Market
Bill's stock is a direct play not only on the growing electronic B2B payment space but as the sole company able to satisfy the needs of the underserved SMB market, Needham analyst Scott Berg wrote. Meanwhile, at most 25% of the estimated 6 million SMBs make use of electronic payment technologies today and this rate should grow to 100% over time.

Other larger companies are known to develop their own customized solutions as opposed to Bill who offers a platform-agnostic solution that integrates with leading accounting software packages, the analyst wrote.

KeyBanc: Risks To Follow

Bill boasts compelling unit economics and is led by "visionary" founder Rene Lacerte who recognized a compelling opportunity more than 10 years ago, KeyBanc Capital Markets analyst Josh Beck wrote. Nevertheless, there are five potential risks investors should keep in mind.

These include potential changes in the competitive environment, potential need for large balance of reserves to fund losses related to fraud, potential interruptions or delays from partners who process ACH, checks, cross-border, and virtual card payments, and potential deterioration in existing partnerships.

Ratings And Price Targets

Goldman Sachs initiated coverage at Neutral, $32 price target.
BofA initiated coverage at Buy, $48 price target.
Needham initiated at Buy, $43 price target.
KeyBanc initiated at Overweight, $45 price target.

Latest Ratings for BILL
Date Firm Action From To
Jan 2020 Initiates Coverage On Outperform
Jan 2020 Initiates Coverage On Hold
Jan 2020 Initiates Coverage On Buy
Date Research Firm Action Current PT
1/06/20 William Blair Initiates Coverage On Outperform
1/06/20 Canaccord Genuity Initiates Coverage On Hold 40.00
1/06/20 Bank of America Initiates Coverage On Buy 48.00
1/06/20 KeyBanc Initiates Coverage On Overweight 45.00
1/06/20 Needham Initiates Coverage On Buy 43.00
1/06/20 Jefferies Initiates Coverage On Hold 40.00
1/06/20 Goldman Sachs Initiates Coverage On Neutral 32.00

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