Sam Morgan trims Xero holding to below 5% as stock charts record highs

Sam Morgan, who made his fortune when Trade Me was sold to Fairfax Media, has trimmed his holding in Xero, taking advantage of a share price that has soared by 179% this year.

Mr Morgan, a director of Xero, sold 1 million shares at $7.40 apiece in an off-market transaction to New Zealand institutions. The sale reduces his stake to 4.37% of the company and means he is no longer classed as a substantial security holder.

"Xero is my largest individual investment and trimming my shareholding is something I've done simply to restore a bit of balance in my portfolio after Xero's share appreciation in 2012," Mr Morgan says in a statement.

Mr Morgan isn't the only director to trim his holding as the share price has sky rocketed. Last month, the company's three largest shareholders - chief executive Rod Drury, director Craig Winkler and co-founder Hamish Edward sold a total of $22 million shares at $6 apiece in parallel with Xero's $60 million sale of new shares at the same price to Peter Thiel's Valar Ventures and Matrix Capital Management.

That saw Mr Drury's holding reduce to 18.5% from 21%; Mr Winkler's drop to 15.7% from 19.5% and Mr Edward's to 4.9% from 5.7%.

Matrix now owns 9.8%and Valar holds 7% of the cloud-based accounting platform.

Last month Xero posted a wider first-half loss and said the loss will be bigger still in the second half as it takes on workers to chase global sales. Sales soared 119% to $17.3 million in the first half, while operating expenses rose 105% to $22.8 million.

Xero expects to double operating revenue in the full year and said it has sufficient cash to implement its strategy.

(BusinessDesk)

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14 Comments & Questions

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If he's constantly 'trimming' like this, he may well achieve his dream of being able to pay a lot more tax ... pattern of trading shares? Intention when he purchased?

Though perhaps he's ethically paying tax on all such profits anyway. To aid the grand venture of the Big Big Big Big State.

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The issue of intention when they started Trademe is interesting. It is surprising the IRD has not taken the view that their intention was to establish then sell... in which case the capital gains would be taxable.

Gareth Morgan seems to like the idea of a capital gains tax - perhaps he should be true to his word and declare his intention was resale and pay the tax.

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Morgan sees the future.

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Don't blame him. No one can rationally point to a metric that justifies Xero's high price without having yet turned a profit.

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I can, and so can many others. But what would we know.

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Lance, I stand corrected. What value do you put on Xero? I'd love to know.

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I'm with Pablo. It's all very well to do a sneering put down Lance but the fact remains this is all extreme high risk and the major players in the US are now actively moving to take up the very ground Xero needs. Australia is similar. Xero's time as market pioneer is well and truly over.
When you need to give away up to 9 months of revenue to the puppet accountants promoting your products something is very wrong.
Also, in my opinion from a functional perspective Xero makes MYOB look quite good - which is some accomplishment.
If they manage to sell it and recover their money or make some, good luck to them. In the meantime I've got far better places to invest my own - which funnily enough seems to be exactly what Drury, Morgan, Winkler et al have decided.

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Why puppet accountants?, given the success and passion these 'puppets' are achieving. Don't agree re functionality. Myob hybrid model is flawed.. I hated their desktop and their pure breed online is light. They 're not innovating and their owners are selling down in a much more significant manner than small dilutions of xero founders.

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Many others? Not enough shareholders to justify that comment. What % of shares owned by top 8-10 shareholders. Before dump by Morgan

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Okay - what is it?

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A hunch? I mean lets be honest, its a calculated gamble that Rod and the team have a strategy to reach profitablity, but we haven't seen it yet, and we don't have a proper roadmap to it either.

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Wise move by Sam.
He knows that what goes up,will come down.
And of course Sam would be prepared to pay Capital Gains tax on the sale if it was the law at present.
Not his fault that it will not be introduced until a change of government.

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Anyone with any brains who is sitting on a tidy paper profit with this company should take this opportunity to take some money off the table and sell down some of their holdings. You'd be a mug not to.

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Lance - I'm all for being a ra-ra cheer leader and encouraged people into the SPPs at 90c and $2.65 (?) given the potential but by the only measure that makes any sense - the revenue multiple - its now well and truely over valued.

I don't want to go back to the error of dotcoms and $/click but at some point a company has to be measured relative to the value of others and not on the hypothetical expectation that Quickbooks will pay $5 billion for it. On a market cap / sales basis xero has blown through the stratosphere and there are now so many better opportunities out there for my investment $.

Thanks for all the fish ($$$) to xero.

Its not to say that Thiel doesnt have a grand plan in mind to hype the hell out of this and plump for a NASDAQ listing at an even crazier multiple but theres risks in believing that will pay off. At the end of the day, I'm a fundamentals investor and the fundamentals just arent there for me. Hope xero makes lots of money for the current investors but just not for me anymore.

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