BILL falls 4% despite Q2 earnings beat on margin concerns
Financial automation firm beats estimates but gross margin compression and slowing customer growth weigh on shares
Bill.com Holdings Inc shares fell more than 4% in Thursday trading after the financial automation software provider reported second-quarter results that exceeded Wall Street expectations but raised concerns about profitability and customer acquisition.
The company reported adjusted earnings per share of $0.64, beating analyst estimates by 14.2%, while revenue reached $414.7 million, surpassing the $399.9 million consensus forecast according to MarketBeat. Core revenue grew 17% year-over-year, demonstrating continued demand for the company's cloud-based financial management solutions.
Despite the top and bottom-line beats, investors focused on declining gross margins, which contracted 180 basis points year-over-year to 83.9%. The margin compression reflects a shift in revenue mix toward lower-margin offerings, a trend that analysts have been monitoring as Bill.com expands its product suite beyond core accounts payable and receivable automation services.
Customer growth also showed signs of slowing, adding to investor concerns about the company's ability to maintain its historical expansion rate in an increasingly competitive fintech landscape. The company's shares have traded near their 52-week low of $36.55, significantly below their high of $98 reached earlier in the fiscal year.
"Bill.com delivered a solid quarter with revenue and EPS exceeding our expectations, but the margin pressure and decelerating customer metrics are clearly weighing on sentiment," noted analysts in the company's earnings presentation materials. The gross margin decline of 180 basis points to 83.9% represents a notable shift from the company's historical range of 83-85%."
For the third quarter, Bill.com provided guidance of revenue between $397.5 million and $407.5 million, representing 11% to 14% year-over-year growth, with earnings per share expected in the range of $0.53 to $0.57. This outlook fell within but toward the lower end of analyst expectations, contributing to the muted market reception.
The Palo Alto-based company, which provides cloud-based financial automation solutions for small and medium-sized businesses, faces mounting competition from both established financial institutions and emerging fintech startups seeking to digitize back-office operations. The margin pressure suggests the company may be offering more aggressive pricing or incentives to maintain market share in an environment of heightened competition.
Analysts remain broadly optimistic on Bill.com's long-term prospects, with 24 Wall Street analysts covering the stock maintaining a consensus rating of moderate buy, according to market data. The average price target stands at $61.14, implying significant upside potential from current levels, though the recent post-earnings decline reflects growing investor caution about near-term execution risks.
With a market capitalization of approximately $3.72 billion and shares trading at roughly 2.5 times trailing twelve-month revenue, Bill.com faces pressure to demonstrate it can reignite customer growth momentum while stabilizing margins. The company's fiscal year ends in June, giving management several more quarters to address these concerns before year-end results provide a clearer picture of its trajectory in the evolving digital financial services market.