Compounder Fund: Paycom Software Sell Thesis - 13 Apr 2026
Data as of 12 April 2026
We first invested in Paycom Software (NASDAQ: PAYC) for Compounder Fund’s portfolio in July 2020. Our investment thesis for the company can be found here. In late-February 2026, we completely exited Paycom Software. This article describes our Sell thesis for the company.
When we invested in Paycom, the HCM (human capital management) software-as-a-service (SaaS) company had captured merely 3% or less of its market opportunity, so we thought it had a long runway for growth. Paycom had grown its customer-base at an impressive rate of 16.2% annually from 2011 and 2019, and also delivered excellent revenue retention rates of 91% or more during that period. This drove Paycom’s strong financial performance for the same span of time. From 2011 to 2019, Paycom’s revenue compounded at 37.7% annually. The company was consistently profitable since 2013, with net income growth of 71.4% per year for 2015-2019. Paycom’s free cash flow had a similar dynamic – from 2015 to 2019, the compound annual growth rate was 49.3%.
For the first few years after our investment, Paycom continued to grow its customer base at a decent clip while delivering high revenue-retention rates. But in 2023 onwards, Paycom’s client-growth slowed to a crawl, although the revenue retention rates remained at 90% or higher. Paycom’s revenue, net profit, and free cash flow largely continued to grow at strong double-digit rates, but there was a noticeable slowdown in revenue growth in 2024 and 2025. These are all shown in Table 1 below.
Table 1; Source: Paycom quarterly earnings updates and annual reports
The key reason behind Paycom’s relatively tepid revenue growth rate in 2024 was BETI (Better Employee Transaction Interface). The first app of its kind in Paycom’s industry when it was launched in July 2021, BETI is Paycom’s fully-automated self-service payroll technology for clients’ employees to process their own payroll. BETI was delivering strong return on investment for Paycom’s clients during the year, but it had a negative impact on Paycom’s revenue. Paycom generates revenue when it helps clients fix payroll-related errors. Because of the self-service nature of BETI, clients encountered fewer such errors, which led to lesser revenue-opportunities for Paycom. Management was willing to accept the short-term pain because they thought this was for the long-term good for clients. We agreed with management’s decision and were looking forward to a reacceleration in Paycom’s revenue growth when the BETI-effect was lapped.
But 2025 was another disappointing year, as Paycom’s revenue growth decelerated again. This happened despite (1) BETI continuing to produce strong return on investment for clients and even contributing to churned-clients returning to Paycom, and (2) management introducing two significant new products in GONE and IWant. Here are some relevant commentary from management during Paycom’s earnings conference calls for 2025:
[From Paycom’s 2025 first-quarter earnings conference call]
“Our award-winning solution, GONE, is a perfect example of how Paycom simplifies tests through automation and AI. GONE is the industry’s first fully automated time-off solution that decisions all time-off requests based on customizable guidelines set by the company’s time-off rules. Before GONE, 10% of an organization’s labor cost went substantially unmanaged, creating scheduling errors, increased cost from overpayments, staffing shortages and employee uncertainty over pending time-off requests. According to a Forrester study, GONE’s automation delivers an ROI of up to 800% for clients. GONE continues to receive recognition. Most recently, Fast Company magazine named Paycom, one of the world’s most innovative companies for a second time. This honor specifically recognized GONE and is a testament to how Paycom is shaping our industry by setting new standards for automation across the globe…
…Another example of automation that is changing our industry is BETI. Our award-winning payroll solution continues to be a major selling point for organizations looking to reduce the labor needed to process payroll by up to 90% and also cut the time spent correcting payroll errors by up to 85%…
…Thanks to BETI and the importance of perfect payrolls, we are also successfully getting former clients back onto the Paycom platform. We recently brought back a 500-employee health care company, who quickly realized the pain they brought on themselves by switching to another provider. With this other provider, this client lost the transparency and ability to fix errors before they became problems. In fact, their employees were some of the biggest advocates and encourage this client to return to Paycom because they missed having control over the accuracy of their pay. Once employees experience BETI, they don’t want to go backwards in technology. The client returned to us within 9 months and went from processing payroll in 4 days with their previous vendor to 4 hours with BETI.”
[From Paycom’s 2025 second-quarter earnings conference call]
“We recently released IWant, the most significant product in our company’s history. We already have the most automated solution in the industry, and IWant delivers even more value to our clients through AI and automation…
…Hopefully, everyone has seen the demo we linked in today’s earnings press release issued at the close of the market. If you did, you saw numerous use cases for it on the employee, manager, administrator and executive side of the software. You also saw how IWant eliminates the need for a Paycom user to be trained on our software. With IWant’s command-driven AI users either type in or leverage voice-activated functionality to command the system, and IWant is designed to immediately provide the answer with accurate results. This means that navigation and asking others for system information is rendered obsolete.
A critical component of AI is the data it pulls from. And because IWant pulls from Paycom’s single database, it eliminates problems created by inconsistent or duplicative data sets…
…Today, in IWant’s executive mode executives using Paycom now have the information they need at their fingertips, enabling them to be daily users of our solution without ever having to be trained on the system. Just tell it what you want and IWant delivers, making executives even smarter and more effective. Now I can quickly find any information about my staff available in our single database because we track the entire employee life cycle and have data from applicant tracking, onboarding, Paycom Learning, expenses, benefits, time and attendance, payroll, schedules, surveys and more, all accessible through IWant.
Early feedback has been phenomenal with clients calling this a total game changer. IWant’s command-driven AI engine will increase usage among non-daily users in our system. And I fully expect IWant to increase satisfaction and client ROI.”
[From Paycom’s 2025 third-quarter earnings conference call]
“IWant has already successfully responded to millions of queries from employees, managers and executives, extending the power of our full solution automation. We are seeing a dramatic uptick in usage, especially among new users, which include the C-suite and newly onboarded employees of our clients. The intuitive nature of IWant means new employees no longer need training on the system and are able to utilize the full solution upon hire. I’m particularly encouraged by the engagement we are seeing among the C-suite. Traditionally, executives have not been daily users of HCM solutions. With IWant, thousands of C-suite executives are already pulling data and insights directly from the Paycom system and the feedback has been phenomenal…
…Recently, 2 clients who were not previous BETI users came back to Paycom, thanks to BETI. One of these was a large auto group who after leaving Paycom had numerous issues processing multiple payrolls across their more than 25 locations that impacted their employees. They quickly realized the mistake they made and reached out to us to come back. Upon the return, they were quick to adopt BETI because of the payroll automation and paycheck transparency. The second example of an organization returning was a manufacturing company whose employees quickly voiced frustration over the switch away from Paycom, especially managers who lost access to the information they were accustomed to, resulting in a slowdown in revenue-generating work. This organization pointed to BETI as a significant reason for the return and a game changer with 100% accurate payrolls, thanks to BETI identifying and notifying employees of items that need attention prior to payday.”
[From Paycom’s 2025 fourth-quarter earnings conference call]
“Our most advanced AI solution, IWant, is designed to accelerate the speed to value by allowing anyone to become an expert in the system without any training. Forrester’s recent analysis of a composite organization with more than 500 employees found that organizations using IWant experienced an ROI of over 400%, driven by productivity gains at every level. Managers save as many as 600 hours per year, executives up to 60 hours, HR teams up to 240 hours and employees across the organization collectively reclaim 3,600 hours annually.”
During Paycom’s earnings conference call for the third quarter of 2025, management hinted at a reacceleration of revenue growth in 2026 and beyond (emphasis is ours):
“[Question] I’m just wondering what — from an execution perspective, could go right over the next couple of quarters to really kind of maybe get growth back up to that 12%, 14%.
[Answer] We’re focused right now on revenue growth. I really feel good about all the work that we’ve done to set ourselves up in every other area. And so we’re really focused on that. That doesn’t mean we’re not focused on product innovation, and we’re not focused on service and the full client value achievement. I just feel like we’ve set ourselves up very well now to attack the revenue growth opportunity. I’m not confirming what our growth rates are going to be next year, and we’re not setting guidance right now. But what I will say is that over the last 2 years, we’ve done a significant amount of work that needed to be done throughout our organization. And as we sit here today, we’re all focused on one thing, and that’s capturing more market share, and that’s available to us now. We have a very differentiated product. It’s meaningful. It’s not a brochure. It’s something you actually achieve value from once you start using it.”
It turned out that management is currently guiding towards total revenue growth and recurring revenue growth of just 6%-7% and 7%-8%, respectively, for 2026. This is further deceleration from 2025’s level, if it comes to pass. Over the past few years, management had repeatedly commented* that Paycom only had a market share of 5%. But yet, the company’s revenue growth has slowed markedly – to a single-digit percentage range – with no clear signal for future acceleration. The disconnect between management’s view on Paycom’s seemingly long runway for growth (extrapolated from its low market share), and the company’s actual material deceleration in revenue-growth, is concerning to us. Because of this, we decided to part ways with Paycom.
We made our initial investment in Paycom at an average price of US$295 per share and sold at an average price of US$120. The capital from the sale of Compounder Fund’s Paycom shares was redeployed to some existing companies in the portfolio (in this case, the companies were Meta Platforms, MercadoLibre, and TSMC).
*The following are comments from management on Paycom’s market share from the quarterly earnings conference calls for 2024 and 2025:
[From Paycom’s 2024 first-quarter earnings conference call]
“I want to be sure to note that we remain highly focused on our U.S. growth as we still have only an estimated 5% of the total addressable market.”
[From Paycom’s 2024 third-quarter earnings conference call]
We still have less than 5% of the addressable market. We remain focused on executing strategies that will produce extremely high ROI in automation for our clients while continuing to differentiate our solution to automation.
[From Paycom’s 2024 fourth-quarter earnings conference call]
We only have 5% of the market right now as a company.
[From Paycom’s 2025 second-quarter earnings conference call]
Remember, we have less than 5% of the total addressable market just in the U.S. even.
[From Paycom’s 2025 third-quarter earnings conference call]
I mean we still have less than 5% of the total addressable market even here just in the U.S.
[From Paycom’s 2025 fourth-quarter earnings conference call]
We have less than 5% share of a large and growing total addressable market, and we believe our differentiated full solution automation strategy can drive long-term sustainable growth for years to come.
And here’s an important disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation; they are merely our thoughts that we want to share. Of all other companies mentioned in this article, Compounder Fund owns shares in Meta Platforms, MercadoLibre, and TSMC. Holdings are subject to change at any time.
