AI And Embedded Finance Will Transform Digital Workflows

Key Takeaways

• AI-driven product innovation and new pricing models are projected to strengthen customer retention, fuel adoption, and expand margins.
  
• Strategic partnerships and embedded finance initiatives are broadening channels, boosting customer acquisition, and lifting revenue from higher transaction volumes.
  
• Intensifying competition, macroeconomic headwinds, and overreliance on volatile revenue streams threaten BILL Holdings' growth, profitability, and operating margin expansion.

Catalysts

Provides financial operations platform for small and midsize businesses worldwide.

• Accelerated rollout of AI-powered financial operations agents and intelligent automation solutions is expected to drive higher customer retention, greater product adoption, and potentially enable new subscription-based pricing tiers, supporting future revenue growth and enhancing margins.
  
• Expansion of embedded finance capabilities and the Embed 2.0 strategy, including strategic partnerships with large enterprise software platforms, is set to broaden BILL's distribution channels and could significantly increase customer acquisition and transaction volumes, translating into higher long-term revenues.
  
• Continued shift by SMBs from manual to digital, cloud-based financial workflows is boosting adoption of BILL's integrated AP/AR and Spend & Expense solutions, an ongoing trend that expands BILL's addressable market and underpins sustained topline growth.
  
• Launch of Supplier Payments Plus and broader ad valorem fee monetization is expected to increase BILL's transaction-based revenues and take rates, leading to improved revenue growth and expanding gross and operating margins over time.
  
• Increasing success in the fast-growing mid-market business segment, driven by tailored product enhancements and stronger go-to-market efforts, is set to raise average revenue per user (ARPU), payment volumes, and drive higher total company earnings as mid-sized clients typically generate greater financial throughput.

BILL Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BILL Holdings's revenue will grow by 13.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $94.8 million (and earnings per share of $0.89) by about September 2028, up from $23.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $201 million in earnings, and the most bearish expecting $-20.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 76.6x on those 2028 earnings, down from 196.9x today. This future PE is greater than the current PE for the US Software industry at 36.6x.
• Analysts expect the number of shares outstanding to decline by 1.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.53%, as per the Simply Wall St company report.

BILL Holdings Future Earnings Per Share Growth

Risks

• Ongoing macroeconomic uncertainty, including muted SMB spend environments and sensitivity to tariffs, could lead to slower-than-expected customer transaction volumes and spending, negatively impacting revenue growth and take rates.
  
• Market saturation and the onboarding of smaller or lower-spending SMB customers, particularly through the accountant channel, may drive down average revenue per user (ARPU) and limit net margin improvement over the long term.
  
• Competitive pressures from larger, more diversified fintech and software providers (such as Intuit and Stripe), as well as consolidation trends in the fintech industry, may erode pricing power and increase customer acquisition and retention costs, posing risks to gross margins and earnings.
  
• Overreliance on transaction-based and ad valorem revenue streams, along with anticipated moderation in float (interest) income, exposes profitability to macroeconomic rate cycles and mix shifts away from higher-margin segments, affecting net margins and earnings stability.
  
• Elevated investment in AI innovation and expansion into new verticals may not yield sufficient incremental revenue or successful monetization, while raising operational complexity and expenses, thereby dampening future operating margin expansion.

Valuation

• The analysts have a consensus price target of $57.571 for BILL Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $89.0, and the most bearish reporting a price target of just $42.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $94.8 million, and it would be trading on a PE ratio of 76.6x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of $46.12, the analyst price target of $57.57 is 19.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.