Goldman Sachs cuts Bill.com to Neutral on challenging near-term outlook

Goldman Sachs downgraded Bill.com (BILL) shares from Buy to Neutral following the company’s latest earnings report, saying that higher investments and stalling out of margin expansion are “likely to prevent near-term outperformance.”

The Wall Street firm slashed its price target on the stock from $86 to $54.

Analysts note that Bill.com delivered strong results for the fiscal Q4 2024, surpassing expectations with higher spend and expense-related revenue growth.

While revenue guidance fell short of street expectations, the company called for significantly increased investments next year to position itself for future growth. Subscription revenues slightly missed, but float revenues were modestly higher, with total payment volume aligning closely with expectations.

“While our investor conversations leading up to earnings were negative, and we believe buyside revenue numbers were below the sell side, we think the incremental commentary around investments is likely to push out valuation support,” analysts wrote.

This is noteworthy given the pressure on customer funds that the current interest rate curve implies over the following year.

Analysts at Goldman Sachs also observe that although BILL anticipates a return to 20%+ growth in the fiscal 2026 year, driven by its current investments, this expectation hinges partly on the assumption of take rate expansion in the latter half of the year.

However, they believe investors are "likely to have trouble underwriting this, particularly given management commentary that seems to suggest take rate could be under further pressure in the first half of the year."

Lastly, analysts voiced optimism about the extension of BILL's large financial institution channel partner, previously identified to be the Bank of America. However, they note that the revised contract's updated economics suggest a significantly lower revenue run rate compared to the previous agreement.

Source: Investing.com