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XRO - Xero Limited

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System

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Xero Limited (XRO) is a SaaS (Software as a Service) company headquartered in Wellington and operating globally with a presence in its key markets of Australia, the United Kingdom and the United States.

Xero's accounting software is hosted securely on the Internet and connects small businesses to their advisors and other services, providing business owners with real-time visibility of their financial position in a way that’s simple, smart and secure.

For accountants, Xero forges a trusted relationship with clients through online collaboration and gives accountants the opportunity to extend their services. Over 111,000 businesses globally run Xero, in over 100 countries.

http://www.xero.com
 
Anyone following this stock? It has been rising non-stop since listing and is now worth a massive $1.75B

To put it in perspective, in May it reported revenue of ~NZ$40m and a net loss of $14m.

Ancedotally, I've heard good things about this company in terms of its product offering.

But this is one heck of a valuation?! Market cap / revenue of >50x is unheard of unless you are facebook or something.

An article on the SMH this morning

The shares rose 3.9 per cent to $NZ17.40 in morning trading - valuing the Wellington-based company at $NZ2.04 billion and adding to its 120 per cent jump this year. That makes it the 11th biggest company on the New Zealand stock exchange, leapfrogging online auction site Trade Me, which is valued at $NZ1.96 billion.
...

Xero has attracted 157,000 customers, the bulk of which are in Australia and New Zealand, giving it annualised monthly revenue of about $NZ51.5m, or about $NZ328 per client.

The company is looking to reach one million paying clients, with about 350,000 in Australia and 360,000 in the US, according to Xero’s investor presentation in May.

Read more: http://www.smh.com.au/business/xero-value-cracks-nz2b-mark-20130704-2pd75.html#ixzz2Y2URcOy3
Click to expand...

Even if they reach the target it seems grossly overpriced?! Thoughts anyone?!

EDIT:
FWIW, MYOB was bought by private equity in 2011 for $1.2B and had annual revenue of ~$200m. So at 6x market cap/revenue (actually I am not sure re: debt situation of the PE deal), XRO need to increase revenue to $300m... So may be at 1m customers it wouldn't be a stretch (but they need to get there first).
 
From a tech perspective it's a good product, everyone I know who uses it prefers it over competitors like saasu and lightyears ahead of stuff like MYOB. Lots of good features, and relatively easy to add new features to products like this.

New business owners will go with Xero. But there is huge intertia around MYOB in existing businesses, to succeed Xero will need to fight that intertia.

:2twocents
 
I had a look at this last year when they listed on the ASX. It's going to be pretty hard for the business to meet the valuation. The product is good (I've used it) but I thought there was a lot of blue sky in price at $7.

I wonder if these cloud based system will reduce the inertia somewhat?
 
Agree with all of the thoughts above - this is a great product. But the revenue multiple is mind boggling. The operating margins will improve over time as they are heavily discounting at the moment in order to grow rapidly. However, as SKC said, even at their target figures, this looks super expensive.

You guys mentioned a few others, but it's now almost 6 times the Enterprise Value of RKN.

Reminds me of dot-com mania.
 
Well since I've been on the computer and looking at XRO, it has gained about 3-4% in about 30 minutes.

Is this company just another silicone valley type model?
 
Someone at work asked me about this one a few weeks back. I said like it at 17.00.
He didn't want to buy because it was at all time highs. Hit 22 this morning.
 
If they're currently running at a loss and heavily discounting as mentioned above. What does everyone think they will do when they actually need to start turning a profit?

Increase prices of the software? If so, increase them to what? (have they made mention of this?)
Otherwise cut costs I assume.
 
pavilion103 said:
Dunno.

I'd be out now. That exponential growth would have been a nice little profit. Wouldn't be interested in holding onto it.
Click to expand...
I reckon there is a good chance of it going down hill. I could be wrong though but I just seriously can't see the value in it especially if they believe they're locking people in and they won't care about the inevitable price hike.

Most them probably jumped ship to Xero, no saying they won't jump off the same ship.
 
PinguPingu said:
You only need to look at US stocks like TSLA to see how ridiculous the market can push these guys.
Click to expand...
I wonder if it's topple-over will continue to decline or just be another bump on the way up.

Going by the email I sent to XRO, they have no intention to increase their prices in the future and don't believe increasing their prices is the answer to becoming profitable.
 
Isn't the MO of these guys to build economies of scale? Afterall, each additional user costs virtually nothing and accounting software probably has some of the highest customer retention rates of any product/industry. So once you've got them in they're almost like an annuity. Even better with this new model of charging by the month. What's the old saying about a frog in hot water?

The software is pretty good. And beats the hell out of MYOB/Reckon.
 
pavilion103 said:
Timberrrrrrr.....
Click to expand...

Today is a pivot point reversal (meaning the high of today exceeded the high of yesterday and the close of today will be lower than the high of yesterday.)
And a very aggressive one so Id be out!
 
XERO is one of the star performers in the global stock markets. Recently when my daughter did research on this company for her accountancy subject in School it was trading around NZD 18 and she said it has a potential. I should have listened to her and should have parked all my money there. It went up immediately after my daughter’s comment and traded around NZD 35 in the New Zealand Exchange.

In global markets analysts and other market players will follow current popular stocks, index and other stocks while neglecting some out of favour stocks with more than ten bagger characteristics. These are life time opportunities and only few can identity these types of hidden gems before others. Even now if we can do some home work we should be able to identify more than ten bagger stocks from all types of markets such as developed, emerging and frontier markets .I have seen these types of stocks in few stock markets. I like to follow these types of stocks. So we can forget market volatility, charts and other factors while having good sleep.

Remember 10 years back above stock was trading around NZD 1 and it has become more than 30 baggers now. If we want to outperform market, index and all other instruments at least we should have one more than 20 baggers in our basket. Even now there may be stocks with more than 30 baggers characteristics in global markets.
Investing in correct stocks could lead to making fortune. Have a great 2014.

When stocks make new high they can go up further. Similarly when stocks make new low they can go down further.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions.
 

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