Totem Point Management Adds Significant Stake in BILL Holdings Amid Share Price Decline

In the third quarter of 2023, Totem Point Management initiated a substantial equity holding in BILL Holdings by acquiring 71,225 shares, with the total investment amounting to roughly $3.77 million according to a Securities and Exchange Commission filing dated November 14. This acquisition marks the investment firm's inaugural reported stake in the cloud-based business software provider, reflecting a strategic expansion of their U.S. equity portfolio. This position accounts for 3.36% of Totem Point Management's total reportable U.S. equity assets under management as of the end of September, indicating a meaningful commitment to BILL alongside other prominent holdings. Among their largest equity positions are shares in technology and digital service companies including Nvidia (Valued at $14.28 million, roughly 12.7% of assets under management), Taiwan Semiconductor Manufacturing Company (TSMC) at $12.10 million (10.8%), Take-Two Interactive Software at $11.10 million (9.9%), Spotify at $10.17 million (9.1%), and Micron Technology at $9.79 million (8.7%). As of November 17, shares of BILL were priced at $55.23 each. Over the preceding 12 months, the company's stock has experienced a significant decline, dropping nearly 38%—a stark contrast to the S&P 500's approximate 15% gain during the same timeframe. This underperformance has raised questions about market sentiment toward the business. Nonetheless, BILL Holdings continues to demonstrate operational growth and resilience. The company specializes in delivering cloud-based software solutions that automate key financial and operational processes for small and midsize enterprises (SMEs). Their offerings focus on accounts payable, accounts receivable, spend management, and payment workflow automation. Predominantly, BILL generates revenues through a subscription-based software-as-a-service (SaaS) model, complemented by transaction fees from processing payments and additional value-added services. BILL serves a diverse clientele, including accounting firms, financial institutions, software companies, and an extensive base of SMEs globally. Its cloud platform supports scalable and efficient financial operations across these sectors. The blend of recurring SaaS revenues and payment transaction volumes contributes to the company's financial foundation. Recent fiscal data further illustrate the company's growth trajectory. In its latest reported quarter, BILL registered total revenues of $395.7 million, reflecting a 10% year-over-year increase. Core revenue streams, which exclude certain items, grew even more strongly at 14% year-over-year. This growth results from both heightened transaction volumes and a rising subscriber base. During the same period, the BILL platform processed approximately $89 billion in payment volume, serving just under 500,000 businesses. This data underscores strong platform adoption and sustained engagement despite a market environment where investor enthusiasm toward the stock has cooled. The decision by Totem Point Management to enter this position may align with its existing investments in durable, growth-oriented technology companies such as Nvidia, TSMC, and Spotify. Compared to speculative trades, BILL appears to represent a discounted growth compounder, where near-term profit margins and expansion rates might be undervalued by the market. The marked decline in BILL's stock price could signal a reassessment of expectations, while the underlying business continues to scale its operations. This discrepancy between market valuation and business fundamentals is often where long-term investing opportunities can emerge. Glossary and Definitions - 13F AUM: The aggregate value of U.S. equity securities a fund manages, reported quarterly on Form 13F to the SEC. - Position: The quantity of a particular security held by an investor or fund. - Stake: Ownership share or interest in a company held by a fund or individual. - Assets Under Management (AUM): Total market value of investments managed on behalf of clients by a fund or firm. - Trailing Twelve Months (TTM): Financial data for the 12 months ending with the most recent quarter. - Compound Annual Rate: Yearly investment growth rate accounting for compounding over a defined period. - Software-as-a-Service (SaaS): Subscription model where software is hosted online and accessed over the internet. - Transaction-based Fees: Charges applied per payment completed via the company's platform. - Back-office Financial Processes: Administrative operations like billing, payments, and bookkeeping that support business functions. - Payment Network: Digital system enabling electronic business-to-business payment transactions. In conclusion, while BILL Holdings’ share price has declined considerably over the past year, operational metrics paint a picture of continued expansion and adoption. The entry of Totem Point Management with a sizeable equity stake highlights a potential value opportunity as the company continues scaling its financial software platform for SMEs. Investors will likely monitor how market expectations and business fundamentals align in the coming quarters.