Thats a PE of -100 there.... way to go before they even get to a PE of 100 :) :P
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back of the envelop:
DIL has flipped to profits and has a profit margin of 40% so assume XRO can do the same.
So $170 profit = $425m revenue
Currently on $50m per year and doubling annually so
50->100->200->400->800
So by 4 years, that should be more than justified with $800 revenue resulting in $320 profit so a market value of 3.2 B at a P/E of 10
Do you buy the growth story?
Disc: sold out at $7.75 and not buying back in at current prices.
Yes, I had a sharetrading friend of mine that thought similar to your dad when I was tapping him to get into Xero at $4.00. He opted instead to stay with his safer blue chips because the calculations didn't add up to the fundamentals he expects to see in a good stock. Stories don't matter for some people out there and thank god we all think and act differently. 8-)
And in 4 years following revenues rise to: 1600, 3200, 6400, 12800
No I do not buy the growth, nor do I buy the profit. No way with 800m revenue that they will be making 340m profit.
Also 100% growth is possible for a year, maybe 2 but after that no way.
Still not convinced. Look I know its a great company, great product and will go a long way. Just cannot see them capitalised at $1.7b right now. Too many uncertainties and what happens when a competitor with a superior product comes along?
The high prices are driven by high growth. Remember that these are paying customers unlike the previous tech boom which was driven by high growth in page views or unique users.
Provided revenue growth continues, SaaS companies can reduce costs (sales and marketing) quickly to turn cashflow positive in a short space of time.
Watch the growth numbers from paying customers, not just eyeballs.
I know of quite a few people who were actively talked out of taking part in the IPO or were talked out of selling their holdings early on by Brokers or even their accountants due to it being perceived as risky. Fair enough I suppose but I wonder how those people feel now. I have trouble believing brokers recommendations after some of the cock ups I have read.
Well said, CJ. I will add that such companies do not necessarily need to reduce costs to quickly turn cashflow positive. Just keep them in a stable situation and let the increasing customer base widen the disparity between expenses and revenue.
Yes, many people still have a problem differentiating between the 90's tech boom and where we are at now.
If you haven't seen it before take a look at the Gartner Hype Cycle:
http://blogs-images.forbes.com/gartn...s-Graphic4.gif
They've positioned Cloud Computing as over the "Peak of inflated expectations" and part-way down toward the "Trough of disillusionment" which they think it will recover from and reach the "Plateau of productivity" in 2-5 years.
It's an interesting model. I suspect Xero is still on the "Peak of inflated expectations". Only time will tell if it has a "Trough of disillusionment" before making its way back up again.
Interesting graphic - thanks Maddog - I hadn't seen it before.
Xero themselves are not a cloud computing supplier. Rather they use cloud computing to deliver their product (an accounting package). So if cloud computing is still on the way down then they are exposed to the same risks. What are the risks to cloud computing? I suspect security breaches and major outages will be some of the issues. We have already had a little taste of this in NZ with the recent Telecom/Yahoo!Xtra email issues.