Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight">Our base case valuation of Bill.com is market cap of $1.76 billion or $24.80 per share, which would represent a 38% upside from the high end of the IPO valuation range of $18 per share. Given the excellent upside, we like this deal. </div>In terms of valuation multiples, we used the median P/S multiple of 8.9x (2020E) of the peers. Clearly, Bill.com has faster growth than the other peers such as Dynatrace and Medallia. Among the peers, Datadog has similar sales growth rate as compared to Bill.com. In terms of operating margins (2018), Bill.com has superior figures as compared to Dynatrace and Medallia. However, Datadog's operating margin is better than Bill.com. The megacap software companies such as Intuit and Oracle are in their mature stages of growth and are able to generate much higher operating margins in the 25%-35% range. Overall, we think that Datadog's business model is more defensible with higher barriers to entry with greater customer stickiness as compared to Bill.com's accounting/working capital/process management related software. So, it probably makes sense for Bill.com to trade at lower valuation multiples than Datadog but at similar or slightly higher valuation multiples than Dynatrace and Medallia. In conclusion, we believe that about 8-10x P/S multiple for Bill.com using its average FY2020E and FY2021E sales is reasonable to value this company.

Our base case valuation of Bill.com is market cap of $1.76 billion or $24.80 per share, which would represent a 38% upside from the high end of the IPO valuation range of $18 per share. Given the excellent upside, we like this deal. In terms of valuation multiples, we used the median P/S multiple of 8.9x (2020E) of the peers. Clearly, Bill.com has faster growth than the other peers such as Dynatrace and Medallia. Among the peers, Datadog has similar sales growth rate as compared to Bill.com. In terms of operating margins (2018), Bill.com has superior figures as compared to Dynatrace and Medallia. However, Datadog's operating margin is better than Bill.com. The megacap software companies such as Intuit and Oracle are in their mature stages of growth and are able to generate much higher operating margins in the 25%-35% range. Overall, we think that Datadog's business model is more defensible with higher barriers to entry with greater customer stickiness as compared to Bill.com's accounting/working capital/process management related software. So, it probably makes sense for Bill.com to trade at lower valuation multiples than Datadog but at similar or slightly higher valuation multiples than Dynatrace and Medallia. In conclusion, we believe that about 8-10x P/S multiple for Bill.com using its average FY2020E and FY2021E sales is reasonable to value this company. 

<ul>
<li><a href="https://www.smartkarma.com/entities/bill-com-holdings-inc" target="_blank" data-smartkarma-citation="entities:28663:1" rel="noopener">Bill.Com Holdings Inc (BILL US)</a> is expected to complete its IPO in the U.S. in the next several days. We believe that this IPO is likely to receive a strong interest among many institutional investors, given the company's strong sales growth rate, solid customer retention, and an achievable path to positive operating profits in the next two years.</li>
<li>The company's cloud based software helps the SMBs to simplify and automate many complex and manual back office financial operations. Many customers use the company's software to process invoices, send and receive payments, and improve their working capital, cash management and accounting systems.</li>
<li>The company has generated an excellent growth in sales and profits in the past two years. Its sales increased 67% YoY to $108.4 million in FY 2019 (Year ended June) and 56.9% YoY to $35.2 million in three months ended September 2019. Bill.com Holdings' operating margin improved from -12.0% in FY2018 to -9.0% in FY2019, mainly due to higher gross margin combined with improved R&amp;D and sales &amp; marketing costs as a percentage of sales.</li>
</ul>


Bill.Com Holdings Inc (BILL US) is expected to complete its IPO in the U.S. in the next several days. We believe that this IPO is likely to receive a strong interest among many institutional investors, given the company's strong sales growth rate, solid customer retention, and an achievable path to positive operating profits in the next two years.
The company's cloud based software helps the SMBs to simplify and automate many complex and manual back office financial operations. Many customers use the company's software to process invoices, send and receive payments, and improve their working capital, cash management and accounting systems.
The company has generated an excellent growth in sales and profits in the past two years. Its sales increased 67% YoY to $108.4 million in FY 2019 (Year ended June) and 56.9% YoY to $35.2 million in three months ended September 2019. Bill.com Holdings' operating margin improved from -12.0% in FY2018 to -9.0% in FY2019, mainly due to higher gross margin combined with improved R&amp;D and sales &amp; marketing costs as a percentage of sales.


United States

BILL Holdings, Inc. operates as a holding company. The Company, through its subsidiaries, offers cloud-based applications that simplifies, digitizes, and automates back-office financial processes for small and mid-sized businesses. BILL Holdings serves customers worldwide.

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BILL Holdings (BILL US)

Bill.com Holdings IPO Valuation Analysis

Our base case valuation of Bill.com is market cap of $1.76 billion or $24.80 per share, which would represent a 38% upside from the high end of the...

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Bill.com Holdings IPO Preview

Bill.Com Holdings Inc (BILL US) is expected to complete its IPO in the U.S. in the next several days. We believe that this IPO is likely to...

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