What Happened?

Shares of payments and billing software maker Bill.com (NYSE:BILL) jumped 17.7% in the morning session after the company reported impressive third-quarter earnings which exceeded analysts' revenue and EPS estimates. The 19% year-over-year core revenue growth was driven by increased customer acquisition and higher payment volumes among newer cohorts, demonstrating the improved efficiency in converting new users. Operating income margin also improved, reflecting the company's ability to balance growth and profitability. As a result, Bill was able to provide an optimistic EPS forecast for the next quarter, which blew past analysts' expectations. 

Overall, we think this was a strong quarter, with key metrics such as revenue growth and operating margin exceeding expectations.

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What The Market Is Telling Us

Bill.com’s shares are very volatile and have had 23 moves greater than 5% over the last year. But moves this big are rare even for Bill.com and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 11 months ago when the stock gained 5.8% reflecting the broader market's ongoing uptrend, which some may playfully call the Santa Claus rally (a real observed phenomenon where the market tends to drift upwards during the holiday season for reasons such as optimism and year-end tax considerations for funds and investors). 

All major indices rose, fueled by growing optimism about the Federal Reserve not only concluding its rate hikes but cutting in 2024. Easing inflation was the catalyst for this change in tone from the Fed. 

During the December 2023 Fed meeting, committee members signaled for at least three quarter-point rate cuts in 2024, roughly aligning with market expectations but more accommodative than Fed officials' previous statements. This set the stage for a soft landing scenario, where inflation comes under control without damage to the economy that could hurt overall consumer demand. 

As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.

Bill.com is down 0.3% since the beginning of the year, but at $77.11 per share, it is still trading close to its 52-week high of $84.23 from December 2023. Investors who bought $1,000 worth of Bill.com’s shares at the IPO in December 2019 would now be looking at an investment worth $2,169.

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