Bill Shares Fall After Morgan Stanley Downgrade: Is the Bull Run Over?

BILL Holdings (BILL) shares dropped sharply on June 6, 2025, after Morgan Stanley downgraded its rating on the fintech company from Overweight to Equal-Weight. The move reflects growing skepticism about the company's ability to sustain growth amid a challenging macroeconomic backdrop. But is this a sign of permanent structural issues, or merely a temporary setback for a stock that's long been a darling of the small-business fintech space?

Let's dissect the downgrade's drivers and what it means for long-term investors.

The Downgrade Context
Morgan Stanley's decision came after months of underwhelming performance from key metrics tied to BILL's core business: small and mid-sized businesses (SMBs). The firm's analysis highlighted three main issues:

1. Slowing SMB Spending: Critical SMB sectors like wholesale trade, payroll services, and construction have seen declining payment volumes per customer. This slowdown, persisting into April 2025, has dented revenue growth.
2. Monetization Struggles: Efforts to boost profitability through payments and new products (like an upgraded ACH option) have fallen short of expectations.
3. Valuation Concerns: While BILL trades at a modest 2x sales and 10x free cash flow, the lack of near-term catalysts leaves the stock rangebound.

The downgrade also came with a price target cut to $55 from $60—a 9% reduction—reflecting the analyst's more cautious outlook.

Fundamental Headwinds: The SMB Dilemma
The core issue is the health of SMBs, which are BILL's lifeblood. The company's revenue growth has historically been tied to SMB spending patterns, particularly in payment processing and financial services. However, recent data shows SMBs are pulling back amid economic uncertainty.

Morgan Stanley noted that SMB spending in key verticals has stagnated, with payment volumes per customer dropping 5% year-over-year in Q1 2025. This is a stark contrast to the company's earlier thesis, which assumed SMBs would rebound as post-pandemic volatility faded. Instead, businesses are now prioritizing cost-cutting, reducing discretionary spending on fintech tools.

Monetization: A Missed Opportunity
BILL had bet heavily on improving monetization through new products and services. Its ACH payment upgrade, for instance, was supposed to attract higher fees from businesses. But adoption has been slow, and the firm's gross margins have flattened.

Analysts argue that without a clear path to boosting profitability, the company's FY2026 earnings estimates—currently at $2.10 per share—are overly optimistic. Morgan Stanley slashed its 2026 EPS estimate to $1.80, citing “a lack of catalysts to drive top-line growth.”

Valuation and Near-Term Sentiment
At current levels, BILL's valuation is far from sky-high. However, the stock's modest multiple isn't enough to offset the lack of growth visibility. The downgrade reflects a broader shift in sentiment: investors are now demanding proof that SMBs will rebound before rewarding the stock.

The Long-Term Outlook: A Bumpy Road, but Not Over Yet
While the near-term outlook is gloomy, Morgan Stanley's downgrade isn't a death knell for the company. The firm still sees potential in BILL's long-term story, contingent on two key factors:

1. SMB Recovery: If economic conditions stabilize, SMB spending could rebound, reigniting revenue growth.
2. Product Innovation: BILL's ability to launch monetizable products (e.g., advanced analytics tools or expanded payment services) could unlock value.

The company's Q3 2025 results—beating EPS estimates with $0.50 and $358 million in revenue—show some underlying resilience. However, these positives were overshadowed by management's caution on full-year guidance, reinforcing the macro-driven uncertainty.

Investment Takeaways
For long-term investors, the key question is whether the current dip presents a buying opportunity or a red flag. Here's how to think about it:

• Bull Case: If SMB spending recovers in 2026, and BILL's new products gain traction, the stock could rebound sharply. At 10x FCF, it's priced for failure, so even modest growth could lead to a re-rating.
• Bear Case: If the macro environment worsens, or competition intensifies, the company could face a prolonged period of stagnant growth.

Final Analysis
Morgan Stanley's downgrade is a symptom of broader market skepticism about the durability of fintech growth stories. For now, BILL remains a “hold” due to the lack of near-term catalysts, but it's worth monitoring for signs of an SMB recovery or product breakthroughs. Long-term investors should consider dollar-cost averaging into the stock if the valuation dips further, but avoid overcommitting until clarity emerges.

The bull run may not be over—just on pause.