full year financial announcement and strategic update due soon, wondering if growth has plateaued... (In NZ) of course UK & OZ hopefully have some way to go
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full year financial announcement and strategic update due soon, wondering if growth has plateaued... (In NZ) of course UK & OZ hopefully have some way to go
$8.5m loss, (which no doubt is what the uneducated press will focus on!)
$12,874,000 expenses translates to a breakeven at around 32500 customers (based on average revenue of $33 per user)
This should still should be obtained within the next 12 months... (although costs should increase as they push into the US and they should make use of the cash that they have)
no official update on customer numbers unfortunately, so no new news really...(I estimate that this will be somewhere between 18,500 and 20,000)
How is it uneducated to focus on a $8.5 million dollar loss?
Affection for the product aside, I must admit there are days I "don't understand" this story in much the same way I "didn't understand" the dot com boom.
Uneducated was probably a poor choice of words...
But,
Whats the point of going to war with lots of ammo if you are not going to use it?
Through all this expenditure Xero have more than doubled their customer base in the last year, if they do that again over the next year they will break even... From there they are self-funded and all growth will be profit.
If Xero want to be THE online accounting solution, this is the way to go.
There are low funded solutions out there above breakeven, but a myopic focus is going to means that they are never going to be world beaters...
I was hearing constant radio ads for Xero during the key selling period - I sense that a lot of ammo was used.
I agree with Xero's decision to be aggressive but not *too* aggressive and to keep plenty of cash on hand.
They have done an A grade job when it comes to getting listed just before the crash then raising a large wad at the first sign of better conditions, catching Craig Winkler on the rebound to give extra credibility. Superb work.
It would be arrogant to assume money will always be easy to raise - it will be easier to sell Xero to an accountant with 20 million in the bank than it would have been at near zero.
I actually think they're by and large running things right and doing good things. I just think the stock is wildly overpriced and better opportunities will be there to buy it after breakeven.
Well said stranger, points noted..
Belg - do you think it should be valuing Xero higher, or lower?
Higher imho, one only has to look at the history of Sky T V , it took years of business with a low s p but once the bean counters sniffed that it was close to break even and could churn out real cash the instos all piled in, fair weather friends et al, its all about the "valley of death" and how long that lasts!!
The 42 Below IPO in 2003 issued 31 million shares at $0.50 ($15.5 million). The owners had prior to the float issued the foundation shares at cents per share (issue price of $0.50 translated to a $60.5 million capitalisation - at the time, 42 Below had negative earnings and no near term prospects of breakeven. The ultimate sale to Bacardi at $0.77 saw the IPO holder earn about a 15% annual rate of return on their capital - in no way compensation for the risks they undertook.
Xero IPO'ed in May 2007 issuing shares at $1.00 (raising $15 million) with an implied company capitalisation of $55 million. Again the foundation owners have been royally compensated for their efforts in founding the company - the company was founded with 1.5million shares, expanded to just over 1.7million in March 2007 and then boosted up to 40million shares by dividing existing shares 23.2:1 just before the IPO.
So, the founders contributed, apparently, about $2.8milllion to control 40million of the 55million issued shares. The public contributed $15million to control 15million shares.
In 2006 Drury and partners sold Aftermail to US software company Quest Software for US$14.7 million up front plus a performance-based consideration of up to US$30 million over three years. There were 5 partners in Aftermail - lets say Rod made at least US$8million. He already had whatever he made from selling Glazier Systems to Provenco in the dot com boom.
Guy Haddleton is also a very wealthy investor - founder of Adaytum and sold to Canadian software company Cognos for $160 million in 2002.
Sam Morgan - nuff said.
Craig Winkler - nuff said.
Why do these rich guys need your money, at $1 per share, to build a company that they have paid cents per share to found?
Maybe they simply want to do you a tremendous favour in giving you a small piece of what will prove to be a fabulous opportunity for only $1 per share. Their skills and experience more than compensate for the difference of cents per share some of the founders paid and the $1 you must pay. If you believe this ... then there is another stock you should own ... BurgerFuel!
-18% This month...
Pretty big swing after the annual results came out. ouch
Rod almost sounds like Mel Gibson talking about MYOB releasing their "online" product:
"We’re excited MYOB is finally hitting the market, their marketing campaign has already been fantastic for us.
We’ve been looking forward to this for a while and surprised its taken them so long.
We’ve had a very experienced team working on Xero for over 3 years now, building the foundations and all the support systems. We’re now 90+ strong and passionate about what we’re doing. We love writing and deploying software and making life easier for small businesses and accountants.
MYOB’s model has been to outsource development to an offshore 3rd party. While we’ve been hiring, they’re reducing their local teams and offshoring, slashing their costs and ramping up maintenance revenue, presumably for their Private Equity owners to break up and sell the company – which is what PE plays are all about.
Software is hard. I’m not sure many have seen a live version of the new MYOB product yet but when/if it does come out I’m sure there’ll be lots of good comparisons. Accounting applications are big, with a broad minimum feature set and take time. We’ve managed to develop a world class product factory that is shipping quality software regularly. You need to get a lot of things right to do that and maintain that.
Given we are three years ahead, their feature set will be thin and their values are different to ours – we’d expect them to have to lead on price. But we’re very confident that we are providing a lot of value.
MYOB’s last online product Business Basic Online got no traction, meanwhile we’re going very well.
We may sound a bit harsh on MYOB but I have to tell you, that their lack of innovation has slowed down small business productivity for many years. They were a good company back in their day but when I had to use it for my own businesses I was shocked by how hard doing the books was. I’ve done the late nights trying to get my reports right in MYOB. So this is personal and we are incredibly focused on this and will compete very hard.
We have a clear vision of what we’re doing, and we’re only just getting started.
I’m sure MYOB is more worried about us than we are about them. As we release final accounts on Xero and can replace Accountants Office (for free) and they have to upgrade servers and database licenses ($10’s of thousands) in their next big upgrade they’ll really know what competing on price is.
So far it’s 17,000+ to nil. Bring it on."
- Quoted from Braveheart / Stolen from Xero's blog
Interesting announcement. I'm wondering how this fits in with Telstra deal in Aus and BNZ in NZ. Sounds positive though.
XRO
03/06/2010
GENERAL
REL: 0830 HRS Xero Limited
GENERAL: XRO: Xero enters into distribution agreement with ANZ
MARKET RELEASE
3 June 2010
Leading online accounting software provider Xero (XRO) has entered into a
regional agreement with ANZ to distribute its online accounting services to
ANZ customers. The agreement allows for exclusive distribution in Australia
and to explore opportunities in Singapore, New Zealand and more broadly
across the Asia Pacific region.
Xero will offer ANZ's 450,000 small business customers in Australia an
online, integrated banking and accounting solution that allows them to
understand trading performance and cashflow position in real-time.
"This agreement reflects the synergies that Xero and ANZ share in supporting
small business owners to meet the challenges of operating a small business by
giving them the tools to take greater control of their finances," says Xero
CEO Rod Drury.
"We're excited about the prospect of working on more sophisticated
integration between our respective online systems for the convenience of our
customers,'' he says.
Nick Reade, ANZ General Manager Small Business, says managing cashflow is one
of the main issues for small businesses. "The integration of Xero's software
provides our customers with a simple and convenient solution to manage their
cashflow and provides greater transparency around trading performance."
Mr Reade says this agreement confirms ANZ's commitment to support small
businesses through both traditional and value adding services to help them
start, grow and thrive.
For more information contact:
Helen Matterson
Communications Manager, Xero
helen.matterson@xero.com
+64 21 125 8434
Rod Drury
CEO, Xero
rod.drury@xero.com
+64 21 457 012
Anyone see this? http://www.techday.co.nz/start-up/ne...stomers/16621/
Just one guys view I guess but I haven't seen any info released by Xero about this, which is weird as they're normally very vocal. No idea whether this story is true or not.
There's not enough information in the article in order to pin the issue on a particular party. Besides, things do go wrong and there's never a right time for this sort of thing. What is important is how Xero dealt with the matter and how quickly the issue was resolved.
May 2011 for the 30,000 then, based on a conservative flat line growth of 30 signups a day.
Will see over the next year if the hockey stick really exists.
Given their strategy to target accountants, not clients, the hockey stick may happen. Once the accoutnant is on board, they will slowly transition their clients across at the next software update (ie. do you renew MYOB or move to Xero). They have 1000 accountants now. Lets say each accountant has 100 entites (ie one client may have multiple entities), that 100,000 potential Xero customers.
Annual Report Out... a bit of info to consume
Xero just got competition:
https://indinero.com/
Cost is from free to US$100 per month
Will get a lot of press in the tech scene from these guys:
http://techcrunch.com/2010/07/02/ind...ch+(TechCrunch)
I am a Financial Administrator who set up MYOB for our organisation (after changing from Quick Books 2 yrs ago) - dont think you can consider Indinero as real competition imho. it seems like small fry and very clunky to use comparatively. I spent Friday playing with Xero after our organisation's accountant recommended I take a good look as he is encouraging all his small - medium sized clients to move to Xero from MYOB. Xero is very intuitive, their Demo is brilliant to play around with, followed by the free trial before you have to put any $$ down. The whole layout is so easy to get your head around even though its a completely different way of thinking about accounting software. Xero seems to make everything so simple as opposed to MYOB that seems to make accounting complicated! Comprehensive help is available right from the start, and in addition there is specific email help if needed. Reporting is extremely in depth. Simply put, I loved it. I dont do the nuts and bolts of accounting in our organisation-someone else does this and I oversee. I love the fact that with Xero I could log in anytime, from anywhere in the world and see what the accounts lady has been up to LOL. In my personal life, my husband & I both contract for our income, claim business expenses and own investment property - I set up everything I needed in a very short time and will be going with Xero for our personal business from now on. GST options are brilliant (you can set different GST rate on each category if you want - great for automating the GST portion of motor vehicle expenses where I cant claim the whole amount but only a portion). I came hunting for the share AFTER using Xero last week because I think it has such potential to kick MYOB into touch here in NZ and in Aussie. Just gotta time an entry point....
P.S. Accountant's opinion was that MYOB was dead in the water once Xero got some serious uptake. DYOR.
As far as cost goes, if you want support from MYOB it costs abt $600 p.a. anyway (then you get "free software upgrades"!) so price wise Xero is cheaper @ $29 USD per month.
It looks like Canterbury University is teaching Xero in one of its compulsary NZICA courses. Xero assignment is apparently worth 10% of the paper.
http://www.acis.canterbury.ac.nz/out...IS243-10S2.pdf
Not sure if other universities are following suit, but it will be good for Xero having graduates going into the labour market with experience in Xero.
Of course MYOB is in there as well...
Any AGM report, I see the sp is down P M today must have been something from the meeting?
Closed up 1c yesterday (?). I see Sam Morgan has bought some shares of Drury and Edwards to take his stake to 5%.
Positive spin : Trade Me founder Sam Morgan purchased more shares.
Negative spin : The co-founders have started selling shares.
The reality is, both statements are true.
shareprice has shot up 19c this morning. was up 24c at one stage
Bid is only up 3% though, XRO's liquidity is the cause.
Founder sells a million shares. Shares go up 19 cents in celebration.
I clearly need to drink more of the kool aid.
This is weird.. Did Dury have to sell so there was enough for Morgan to buy?
Be nice to see Dury notify us of his reasons here.
If Morgan (and others) wanted to buy, then there are other ways - rights issue, placement etc - with the money going to the company itself.
If Drury were to sell on market, with an illiquid stock, the price would quickly fall and it would also look bad.
My guess is Drury wanted some cash and Morgan was happy to buy more, and was having the same issue with liquidity as a potential seller has.
Nice solution. Smart. But good news? Hardly.
Would have loved to see the 1,000,000+ shares placed on the market, would have loaded up on any price drop...
"Rod and Hamish do not intend to sell down any further shares prior to the Company achieving break-even." So there could possibly be some more liquidity in 12 or so months?
Agreed. Looks like Drury needed some liquidity and they figured out a way to give it the best spin possible. The headlines were basically "a vote of confidence in Xero by Morgan" but the reality, if anything, is that Morgan sees more upside than Drury. Either that or Drury just needed the cash, plain and simple, and such a thinly-traded stock would have been hit hard (including Morgan's stake, of course!).
My opinion is Drury should have come out and said he needed the money for something else (say the new fibre cable project).
He is CEO so has better knowledge than Morgan of potential upside. Also $2m to Drury is alot bigger deal than it is to Morgan. To Morgan it is small enough to be part of his extreme risk portofolio but to Drury he is not backing it as a stable investment.
Nah, Drury doesn't have to do that. His money, his choice. Half of the time with these guys, its probably just the wife demanding a flasher house!
My beef isn't with the sale or how it was handled - it was superbly well managed.
My beef is with any moron who thinks it is good news!
Agree he doens't have to - I worded my post badly. But for it to be seen as anything other than bad news, I think he would need to have given a reason. Not exactly a vote of confidence from the CEO is it!
No, especially as his business history consists of building things and selling them.
The more concerning thing was the commitment not to sell any more shares until breakeven, which they seemed to indicate was a year or so away?
The devils advocate way of viewing that statement is that they can still keep that commitment by selling shares in a year or so which isn't far away.
My understanding of business ownership is that you plant your crops, nurture your crops, then you harvest your crops.
If there is true value, it was made possible in the planting stage, most of it is created in the nurturing stage, and is physically delivered in the harvesting stage.
The idea of selling out just before or just as harvesting is starting is a curious one.
It only makes sense if the wrong crops were planted. In that case, flick just before harvesting. *
I hope that doesn't prove to be the deal here.
* Buffett's "birdless bushes" explanation is still the best I have seen on this point.
***its probably just the wife demanding a flasher house!***
Hit the nail on the head I reckon! If you get close enough to Rodders he may show you the plans on his i-phone!
M
Hi guys
just a quick note I'm doing a valuation of Xero at my blog, gregnz.wordpress.com. Part 1 and 2 are up, and I'd be interested to hear thoughts, corrections, and any suggestions. I'm planning on doing this for a number of companies on the NZX, so any thoughts about improve gratefully received. Basic methodology is based on Damodarans NYU course.
cheers
Greg
Your numbers are so far based on customers paying $40 per month. I think you said this number was a little high, maybe you could produce some numbers that were in a range ie $29 and $40 It might produce a more conservative valuation. More creditable do you think?
Yes, a range will be interesting. I was giving them the benefit of the doubt, so I think at the end will revisit some of the numbers, the $40 range and the number of years of income. Their income per subscriber is not super-clear, so a range would be a good idea.
cheers
Greg
You can't run numbers on the above - that is the point.
All of the above could happen, but investing in XRO is a faith game, not a numbers game.
Like all potential investments, I'm happy to wait until it is a numbers game, knowing full well it means I may never get to invest. Not a problem, don't need to be on every horse.
I thought they were sticking to just the core business and using Partners to provide add on services like payroll, timesheets etc (I am not sure if there is some sort of referral fee for this). Therefore they cant get any more from their existing customer based (unless they need to upgrade from one of the existing 3 plans).
Hi guys
I've just written a new blog post (gregnz.wordpress.com) with well... some numbers for Xero. Apologies to all who don't like numbers here! They're pretty optimistic, ball-park figures, but would love to hear thoughts, and any changes that would be good going forward.
cheers
Greg
Gregrday - white on black is very hard to read. Good for a photography blog but bad for a primarily text - just a thought.
Growth seems optimistic - depends how well they do outside NZ/Aus. I would also think gross margin would increase with size as they get economies of scale.
Hi CJ
Thanks for that. I had to change my blog theme to fit the table on, will have a play with the colours and see if I can make things better. Margins? I just stuck the operating margin to max out at what seemed to be the average of those sorts of companies, estimated via wikinvest.com. Not too sure how economies of scale work with internet companies, you seem to always be upgrading servers/hosting/developers.
But will revisit in the epilogue :-)
Hi guys
the final page on my Xero valuation is up. Took a few shortcuts explaining what I did, since Im assuming not too many people are that interested! Let me know if you want more detail, it was getting kind of long. But its all on the spreadsheet.
http://gregnz.wordpress.com
Let me know comments, and whether this sort of thing is valuable, since I'll be looking to do a few more when I get time. Its a fair chunk of work. Open to suggestions for other companies to look at too.
It also has the 'final' answer to what you should pay for a Xero share today, so will be looking forward to some ... discussion :-)
cheers
Greg
I did buy some but have since sold them, based on the analysis I did. Which beats my normal practice of seeing if I like the sound of the name, or "they can't go down any more" telecom type purchases. So I'm pretty happy with the decision. I'll be watching Xero closely over the next 6 months, to see how they're tracking. But the numbers I did were reasonably optimistic, so I couldn't really find any margin of safety at all. Happy to revisit if anyone disagrees with anything...
cheers
Greg
http://www.nbr.co.nz/article/myob-sh...ng-xero-127909
Optimist view : MYOB's product will be bad, but the fact they're doing SaaS validates Xero. Good for Xero.
Pessimist view : MYOB's product will be good or good enough, pricing cheaper, cheaper to market to existing client base. Xero ends up having to reduce pricing. Bad for Xero.
I don't have a strong view either way, but MYOB don't have a good track record at producing software that makes you go "wow".
It seems as if MYOB is only going for new customers, and not trying to transition existing clients over (they are targeting small excel users). Until they offer a full product for more than a 1-3 person business, xero has nothing to worry about.
Once they lock in existing users however, that eats into a lot of Xero's target market.
Has anyone looked into http://www.actionstep.com/ . Just saw it mentioned in the NBR article comments. Looks like it provides a wider product range than Xero.
I suspect a vast majority of Xero's customers are 1-3 employee businesses.
Off their own figures, something like half their clients hadn't previously had a computerised accounting system (other than Excel or similar).
Looked at ActionSteps. Talked to the CEO Ted Jordan. Seems to be a VERY switched on outfit but is not competing in the same market as XERO at all. Targeting companies of 10 - 300 employees. Cost $60 per month PER USER. Not an accounting centric system. IN NZ there are 477,000 businesses. 90% (430,000) employ less than 5 people - this is XERO's target market. Its like comparing apples with combine harvesters. XERO is at about break even in NZ now with 22000 users. I am a bookkeeper - MYOB Approved and XERO Certified - and have many clients on both systems. I have tried MYOBs Live Accounts released last night. Its not really a patch on XERO - yet. XERO is really light years ahead of them at this stage. Still you don't need the best product to succeed - MYOB has already proven that. IMO they have been flogging a very second rate product for a decade or more without making any effort it improve it because they make all their money from the help desk. I have noticed a significant improvement since they went private equity though. It will be very interesting to see who wins - hopefully the best software will and you know who that is...
Hi guys, 'final' post on Xero based on some feedback I had, up at http://gregnz.wordpress.com.
Discusses the $1.12 share price I forecast, and the reasoning and some evidence around some of the important numbers (Operating margin and marginal sales/capital ratio), with implications.
let me know what you think.
cheers
Greg
Hey guys
just revisted Xero valuation, and worked out I stuffed up the terminal value calculation, missing out around 200,000,000 from the bottom line. Which means, revised share price from $1.12 to $3.55. A beginners mistake, so humblest apologies... check out the new writeup (and more apologies) at gregnz.wordpress.com.
cheers
Greg
Greg Love your posts.Am enjoying your learning proccess.At least you are giving it a go and trying to work out value.I just find it hard to believe the numbers have grown so quickly,and the good comments from users. I brought a few for the wife as a spec and have been pleasantly surprised.Look forward to your next valuation.
Thanks Percy. The valuation process is pretty 'valuable' (stock pun there!), since now I actually have some numbers to track against. If everything goes as I forecast (it won't), then I will have some idea if the price is under or overvalued. So I'm really looking forward to the next earnings release to see how they're doing. I'll be looking to do this in other NZ stocks, so suggestions welcome, but I prefer companies that only do one thing, and that I can more or less understand. So... restaurant brands maybe? or Michael Hill?
cheers
Greg
So you are into 3 peice quarter packs and Diamond rings?
Good work on that DCF. As well as tracking the XRO earnings reports, look at the rest of the DCF as well, for instance the WACC (cost of equity/debt) which drives the whole thing.
thanks buns. re: Restaurant brands, I did pretty well out of them recently before selling a month or so ago. Its a company I can understand, so follow reasonably closely. re: MHI, another company I understand, and hold a position in, mainly because of management and international exposure. But I'm happy to look at other simple, one trick companies.
re: WACC, yes next one will go into more detail on this. Xero was a special case since it was such an early stage, and everything was a guesstimate.
cheers
Greg
Hi Gregday,
Nice work on on the DCF valuation.
Perhaps you could help us get to the bottom of the numbers for RYM on the owner earnings vs free cashflow thread. I'm not sure it meets your definition of a one trick company, and it may be a bit harder to get to the bottom of the numbers (but not impossible). but considering its been the best performing NZ company over the last decade, growing entirely from its own cashflows with little debt, my thoughts are that its a business worth understanding!
Regards,
Sauce
Thanks Sauce, I havent really looked at the owner earnings concept, although I understand the idea. I have looked at Ryman, and ... well, got confused about just about every aspect of the business. I didnt really understand how they made money, how it was booked, and how the properties were owned. All in all, it just confused me (which is not that hard), so looked for easier pastures! Most of my stocks are US-based, and theres a good supply of 1-trick, simple companies there.
cheers
Greg
Hi Greg,
Your not wrong about confusing! The accounting has been doing my head in. However the business model and their cashflows are actually very easy to understand. If you ever do decide to look at it, I suggest reading through their investor center online, and then checking out the 2007 Annual report first. The reason is that their accounting is so confusing from 2008 - now is the change in accounting from GAAP to IFRS.
However, the reason I suggested them is twofold. They benefit from enormous positive cashflow, and they managed to grow those cashflows throughout the GFC. Something very good is going on within this business and I think it would help any investor to better understand it.
Interesting that you invest mostly in the US. I can see a lot of benefits to that. Its hard to find companies with the potential for secular growth in small markets like AU and NZ for starters!
Cheers
Sauce
Hi Greg,
I really enjoyed reading your valuation. Nice work. :)
Clearly, picking something like XRO to value in public is a pretty challenging. Since DCF's are going to multiply and compound the errors and biases in any assumptions, your chances of getting within a factor of 10 of reality on a high-growth, embryonic business is umm, well I guess you know that...
To get even close, I would suggest you need to scrutinise your assumptions a bit harder. The most crucial one first up is that sales growth %. You've gone from noting that the % growth is falling (on two data points) in one post to assuming that it continues. Realistically, I think another 2 years of 200% growth is very unlikely. To get a better trend, maybe try converting the quarterly customer no. chart in the agm back to an approximate set of customer numbers and turn it into a log-plot, then extrapolate etc?
The next big factor to consider is scalability - what proportion of costs are fixed vs what proportion can achieve efficiency of scale. A fair mix of both in this case I would think. I would try and separate and extrapolate separately.
Finally, any valuation of a growth business probably needs to consider cash demands - does the business have sufficient cash and profits to cover the remaining period of losses plus investment cashflow requirements plus a proportional increase in working capital? If not, then at some point, some of the returns will go to the new money that finances that growth. If it does require this, then, even after accounting for a cost for this, the margin-for-error around your valuation will probably have trebled, since it will depend heavily on how well management negotiate this step.
Probably sounding impossibly pernickety, but unless the underlying figures have all been thought through, I reckon you are probably better in a DCF to just "intuit" a few cashflows for the next 5 years. Or maybe just toss the "company" dcf altogether and go for some other rough & ready estimates (probably equally inaccurate, but less time consuming). Though, as you pointed out, it doesn't hurt to have some forecasts you are measuring the company against either in terms of sales and margins - at least you'll probably be quicker than most to pick changes in trends.
Hey Lizard,
thanks for the pointers. XRO was the first early-stage valuation I've done, so it was pretty interesting. Because it was early stage, I didn't want to go down the route of analysing everything and pretending the numbers meant something. I really just tried to base Xero estimates on things that have already happened in the SaaS space. Probably the most interesting thing from the whole valuation exercise was the realisation that none of the SaaS players are really doing well. Salesforce being some weird exception based on their stockprice (i mean a 160+ PE?!?).
re: Cash demands, yes, this is a very good point. My spreadsheet has them breaking even in 2011 (as per the AGM), and carry forward 20million in operating losses. Given their current cash situation, they should be able to live with that, but any deviation will mean going back to market or hooking up some debt, either one of which would be pretty hard on the share price I think.
Time to think about the next valuation I think...
:-)
Greg
Must be near the 25k mark now.
Wish the Yodlee feeds would get up and running....
Hi guys,
following up on the XRO valuation I did a month or so ago, I've done a new summary and valuation of Michael Hill.
I've changed the format, added in the summary section, and performed a simple growth discounted cash flow to produce a per-share value. I'm really interested in getting feedback about this doc, ie, is this useful? Any thoughts for improvements appreciated too.
check it out at http://gregnz.wordpress.com, let me know what you think (and all my mistakes of course)
cheers
Greg
Sounds like a good person to have on board. I know he must have a huge amount of money to throw around but must believe in the product to some degree to invest $4 mil. I'm looking forward to seeing how things go when they finally start having a serious go at the US.
http://www.nzx.com/markets/NZSX/XRO/...Invest-in-Xero
Xero release half a dozen Australian bank feeds today, over the next few weeks Xero are expected to release "thousands" of more bankfeeds across Australia, the UK, Canada and the US.
Exciting times. Growth in the UK especially should take off with the release of more feeds.
Half year results should be out in the next week? will be interesting to see the latest customer numbers and projections on break-even.
Amazing the progress they are making in the last 12 months.
My guess for the interim announcement is 27,000 paying small business customers, but the growth for next couple of years should get exponential.
The thing is they are signing up relevant partner channels in all markets, and this network is growing. W
I would be amazed if these guys are not in the nzx50 in the next 18 months which could put them on radar of institutional investors.
Really incredibl story really, while the world was going into gloom and doom over last couple of years this little kiwi company was taking developing a new market and adding new customers at a breakneck pace. NZ needs more of these ideas....
_Michael on the button... will be interesting to see once NZ institutional investors get on board - quite possibly the demand will initially come from overseas...
"Xero struggles to get NZ investors onboard
Online accounting software firm Xero, whose stock has soared to a record high, is struggling to get New Zealand's fund managers and analysts to buy into its "success story'', says founder Rod Drury.
Shares in the technology startup rose to $1.81 last week, the highest since the company listed on the NZX in mid-2007. Under Xero's growth strategy, the business isn't forecast to break even until the second half of next year and it burned through $12.9 million in the financial year to March 31, when sales amounted to just $3.4m.
Xero is betting on demand for its cloud-based accounting package aimed at small and medium businesses to win sales in New Zealand, Australia, the UK and the US, The company's CEO and biggest shareholder, Drury says there's a niche worldwide for a low-cost service that can link a company's bank transactions to its accounting platform and handle invoices but institutional investors don't understand its business model.
Despite a stellar line-up of big-name investors in the IT sector, including Trade Me founder Sam Morgan, MYOB founder Craig Winkler and most recently PayPal co-founder Peter Thiel, institutional investors rank low among Xero's biggest shareholders. Bank of New Zealand is listed with a 2.5 per cent holding and the Accident Compensation Corporation, which typically allocates a portion of funds to smaller equity investments in New Zealand, had 0.8 per cent, according to the 2010 annual report. Drury's interests hold 27 per cent.
"We talk to [the New Zealand investment community] quite a bit, but they haven't invested any money in us, Drury said. "They've yet to understand the cloud-based model."
By contrast, "we are getting is a lot of broker demand out of Australia where they are now comparing us to Reckon and MYOB [accounting software firms]," he said.
Thiel, who bought $4m of new shares in Xero in late October at about $1.49 apiece, has seen his investment jumped about 22 per cent since then. Thiel, who was one of the first external investors in Facebook, may have helped fan the stock's advance, given his track record backing IT start-ups.
Xero can afford to burn cash a bit longer. Of the total $50m it has raised since inception, it still has around $21.3m in the bank at March 31, which excluded Thiel's $4m contribution last month. It reported a net loss of about $8.45m last year and is scheduled to release its first-half results for the current year this week.
In his presentation to shareholders at the annual meeting in July, Drury said Xero has a "highly scalable" platform that could cater for "hundreds of thousands" of customers and it had a longer-term vision of "millions of customers". As at June, the company had 22,000 customers worldwide.
Ad Feedback "We get approached by these companies all the time and I tell them to come back when they've got three years of cash flow positive operations under the belt," said Paul Robertshawe, a fund manager with Tower Asset Management. "Early stage companies are a dream and most of the dreams fail," he said, making clear he wasn't specifically alluding to Xero.
The company sold shares in its 2007 IPO at $1 each. At the time, one of the sale organisers, First NZ Capital CEO Scott St John, said he was hopeful the IPO "will act as a catalyst for more New Zealand companies to experience the benefits of a public listing and a broad investor base."
Since then, companies attempting to go public have had mixed fortunes. South Island milk processor Synlait abandoned a public sale and ended up selling shares to China's Bright Dairy. BioVittoria, which was bringing a natural sweetener to market, withdrew its sale after failing to reach the minimum target.
"There is blue sky in the share price, but the New Zealand market is hungry for companies that have the upside potential that Xero is seen to offer," said an investment adviser who asked not to be named. "You can pick holes in it and say the market is getting carried away a bit, but some people are prepared to take that journey."
I remember the last time tech people were telling me I "didn't understand".
It was in 1999.
http://www.xero.com/downloads/pdf/an...nouncement.pdf
Half year result is out. it says that its lost has reached the maximum point and turning to be reduced in the following months towards to break-even.
All looks on the up and upQuote:
Running a public company you think in 6 monthly increments. All the work during the period ends up in black and white and out in the market. There is no hiding and it’s not for the faint hearted. There is no getting off the merry-go-round.
But in today’s 1/2 year results I think we’ve demonstrated that our strategy is working. Here are the highlights …
Near tripling of half year operating revenues from $1.3m to $3.7m. This compares with 2010 full year revenues of $3.4m. Annualised subscriptions are running at approximately $9.0m.
Successful recruitment to resource our operating model in New Zealand, Australia and the UK lifted headcount from 73 to 101 and therefore a planned rise in operating costs to $7.9m – up 59%.
Net loss of $4.7m – an increase of 24%, is expected to be the maximum loss incurred as the company drives toward break-even.
Cash at bank of $16.6m as at 30 September 2010 – excludes $4m additional monies raised by the Peter Thiel strategic placement in October. Xero anticipates having significant cash reserves at its planned break-even point.
You can read the full announcement here: Xero half year announcement
Belgarian - profit growth is the LAST thing they want.
If they managed to earn a million bucks after tax, at $1.90 a share the P/E ratio (this means Price/Earnings for those likely to be buying Xero shares at this valuation) would be 172.9.
Best to have the valuation based on potential than have to clarify things with a pesky profit!
And yes, yes, I get the growth story, I get that P/E, P/S, NTA etc isn't everything.
The key problem I have is that virtually without exception whenever I have witnessed large profits, they tend to have been preceeded by small profits - NOT by large losses.
This is especially true in industries which involve lots of IP and not a lot fixed assets. I get that Xero is trying to do it real fast, which costs money, but yeah.....a lot of money...
The simplest way I can put it is this. If a kid came to me and said "look, I have this one little lemonade stand that is making great profits. If you give me money, we'll be able to create heaps of lemonade stands just like this one, and make heaps of profits!" then, yeah, I'm listening.
If the kid says "look, I have this one little lemonade stand, and its losing a fortune. If you give me money, we'll be able to create heaps of lemonade stands but because of this and that and this, they'll actually be real profitable and we'll make heaps of profits!" then my bulls*** detector rings out real loud.
Hey guys, commentary on Xero half year results up on http://gregnz.wordpress.com... summary, things going quite well, and previously model (which I posted in this thread) is tracking pretty well. 2011 and 2012 are the interesting times.
cheers
Greg
Except the lemonade customers are subscribing to pay for lemonade monthly, which is probably the most important fact
One general comment I have, as part of my research into Xero for my previous blog posts on Xero, publicly traded SaaS firms generally have pretty high (you can substitute 'ridiculously' for pretty if you like) P/Es. There seems to be a lot of positive spin (you can substitute 'whacked out hype' for positive spin...) regarding how cost effective the SaaS model is. So... theres a lot to be proven here. I hope Xero is the company to do it!
cheers
Greg
Hey Belgarion,
cheers for that. A couple of comments... SaaS hasnt really proved to be a low-cost model. Its touted as that, but theres not really a lot of difference between producing CDs (a la MYOB) and Xero. Internet distribution costs may narrow the gap further. Evidence? Check out the financials of Salesforce (CRM), Taleo (TLEO), NetSuite (N). These are the best-of-the-best public SaaS companies, and all are characterised by very low operating margins.
Second, the model was originally done based on 'industry-best' projections (based on numbers from Salesforce and Intuit primarily). Sure, the market is large, but theres some pretty powerful (and VERY well funded) competition (such as Intuit, which are a pretty well-run company). Any or all of them could purchase XRO without any difficulty at all. Also, their selling proposition is hard. Everyone can already do what Xero does, Xero are just offering a better hammer. However, their channel partnering seems to be working really well, so thats a huge plus.
So... I'm not sure the growth models are out-of-whack. They do tail off, but on the theory that low-hanging fruit will run out. I try and be conservative in my valuations, so.... 6 years to 1.5 million customers? Hard to tell. Seems ok to me, but possibly could be 10 million. Or 100,000. The good thing about the model is we can see how they're tracking, so come 2011 we'll have a pretty strong datapoint. And come 2012, I think we should have a clear idea whether they are conquering the US.
cheers
Greg
Hi. I don't own any share of XRO but I do like the company for the fact that we have very few of these in the stock market. However I don't think XRO is comparable with Facebook and TradeMe. The other two are true Web 2.0 companies, in which the quality and the value created by their product/service are directly dependent on the number of users. The SaaS model that XRO is based on belongs to Web 1.0, very similar to the old days when you need to pay to gain access to some websites or some web services. Of course they must have their unique strength in the software itself, but that is again the very traditional thinking of a software business and it is doubtful if that could be "the future" again.
Microsoft still makes very good money, but there must be reason why its share price hasn't changed much for the last decade.
I personally think that Xero is more than a Web 2.0 or traditional web 1.0 companies. Indeed, Its profit relies on the headcount of customer who are willing to pay the monthly fee to use the system. But its revenue sources are various. Its business model is all about education, partnering and integration.
Education
I am not sure whether education is a right word to use. But I think Xero does focus a lot on making
people and especially those accountant consulting companies to understand what Xero is and why it is worth to use. These consulting companies are the key to educate more end users and convince them to pay for a new system like Xero because the end users would get lots of supports from them.
Partnering
Xero has developed a lot of partnership with other companies besides the accounting companies that I mentioned above. For example, it established partnership with telecommunication companies like Telecom. Many telecommunication companies nowadays want to enrich their service and participate in the race of cloud computing. They want to become an IaaS and SaaS providers to both individual customer and business. These partners can provide strong customer sources to Xero in different ways.
One thing for sure is that bank feeds are the most important part of the services. The more bank feeds supported means the more potential customers. That's why Xero is partnering with many banks and the online banking solutions Yodlee to provide more bank feeds access for customers.
Integration (through web API )
Now this is key web2.0 feature allowing other companies custom their development with Xero using their Web API through web services. Through web api, other companies can integrate xero as part of their own service to customers. These integrating services can add a lot of indirect customer sources for Xero.
To summerise it, Xero only focuses on its core business and make it simple, which is to providing online accounting services in technical way. Xero is a red dot in the middle of a big web. It constantly develop its network and utilise the network as customer sources rather than sit and wait for the paying customers.
Fair points of what they do more than software, but isn't that make them look even more traditionally oriented than futuristic? The power of Web 2.0 model is that you don't need to teach your potential users to use your service. They come to you with curiosity, and once they use your service they become part of your service as well. Surely Web 2.0 companies also educate, partner and integrate with others, but they focus on the tails rather than the heads and the only way you can do that is to let people come to you on their own rather than you go and search for them. Otherwise the cost would be too high, and traditional thinking will kick in to make the company to target the heads first. Finally, Web 2.0 companies start to make a difference when they migrate from being a product/service to a platform. Then the API makes sense to target basically all kinds of developers (e.g. Facebook games, Twitter apps etc). At some point those Web 2.0 companies could share the cost and workload to innovate with their collaborators. So if a company needs to actively look for partners and collaborators to integrate with, that is hardly a sustainable competitive advantage these days.
Without a doubt we need more listed IT companies in NZX. If the market thinks Xero is doing great right now then this is good news to all of us. But whether it is a good business in general or a good software business; for now or for the future, it really depends on how we measure it. I guess that's why different people sees different things.
This "letstrade" looks interesting. Put together by Peter Montgomery/MSL. Integrates with Xero:
http://www.nbr.co.nz/article/montgom...oftware-133537
http://www.letstrade.co.nz/
Might list it too:
http://www.stuff.co.nz/business/smal...sting-for-firm
Wellington based online accounting company Xero has become the first Kiwi business to make it into Deloitte Technology Fast 500's top 10 fastest growing companies in the Asia Pacific.
The index ranks the top 500 tech businesses according to their revenue growth over the past three years and sets the standard for high growth businesses in the Asia Pacific region.
Xero came in at eighth on the list with 2,250.26 per cent growth.
http://www.nzherald.co.nz/business/n...ectid=10691744
That is great news for xero, but I really to question the worth of the fast 50/500. I think I would much prefer a company with profits rather than a company which can grow its revenue (and expenses) fast.
Having said that I am interested in investing in Xero and am very annoyed I missed out by 1c on the morning that US investor was announced.
That is quite high considering they still haven't made a profit. If they can break the US market though may be warranted. Having said that, Mint sold for US$170m late last year and it had 1 million unique users a month (now 2.5m). While it has a different model (ie free) it receives revenue from commissions so was profitable. Mint is US only (expanding to Canada) and I assume will only expand to countries where it can get sufficient commissions (for recommending products) unless it decides to go to a paid model like Zero personal.
Funds that follow an index(ie passive funds), or lazy active fund managers buy a companies in proportion to their index weighting. So when one enters one exits so fund managers buy the one entering (pushing up price) and sell the one exiting.
anyone seen this:
http://www.acclipse.co.nz/for_busine...ure_comparison
Looks like it doesn't have bank feeds but coming shortly. Could be interesting.
Seems Saasu has a delay on bank feed feature rolling out till next year. I think the bank feed is one of the key feature to be successful. Xero is a little bit ahead in the game I guess. Plus, Saasu doesn't seem to have Web APIs that allows software developers to integrate Xero function to their own software. This is another advantage Xero has in the market. But both features are not hard to realise. Xero may still have some time to grab as much customers as possible. However, it is actually not a bad thing to see competitions. In my point of view, the more competitions may prove that the more online accounting market potential out there. :D
http://www.theaustralian.com.au/busi...-1225972769784
I saw this article and I thought it might be worth posting.Quote:
NEW Zealand's Xero plans to dual-list on the Australian stock exchange, and potentially the Nasdaq index, the web company said today. Xero joins a growing number of companies attracted by Australia’s buoyant economy and larger capital markets.
The company, which provides internet accounting services to small and medium-sized businesses, has grown rapidly since its establishment in 2006 and now has more than 1000 customers in the US and a market capitalisation of $NZ217.5 million ($162.6m).