Wells Fargo downgraded Bill.com Holdings, Inc. (NYSE:BILL) to an Equal-Weight rating (From Overweight) and cut their 12-month price target on the company’s stock to $75.00 (From $80.00) as analysts believe the company faces “a growing list of risks”.
BILL is facing increased uncertainties on both micro and macro levels after its 1Q results. These uncertainties stem from various issues: suppliers becoming more selective about payment acceptance costs, measures to tighten credit exposure raising concerns about the health of BILL's SMB base, and guidance indicating a sequential decline in take rate for the first time.
These factors, based on discussions, seem to have reduced the buy side's terminal take rate and potential for virtual card penetration.
BILL reduced its workforce by 15% late last year, a move that Wells Fargo estimates could result in over $100 million in annual cost savings, translating to approximately a 10-point margin benefit for FY24.
Investor sentiment indicates that sustained mediocre top-line performance would require increased profitability for continued interest. However, skeptics may interpret the management's actions as an indication that the challenges signaled in October persisted or worsened in November.
Additionally, although management denied reports in November regarding the Company's alleged $1.95 billion acquisition of its direct competitor, Melio, investors might have taken the headline more seriously due to its specificity and timing.
“Until BILL can deliver multiple beat and raise quarters, we believe investors will perceive the Melio noise as a sign that management itself lacks confidence in organic growth,” Wells Fargo added in a note.
Shares of BILL are down 0.05% in early trading Tuesday morning.
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