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Trash talk means rivals are struggling: Xero's Drury

Xero founder and ceo Rod Drury is shrugging off "trash-talking" by rival companies, saying it is a sign they are struggling.

Competitors Reckon, of Australia, and US-based giant Intuit took the start-up to task for "flawed" software and its chances of making more headway into the Australian and US markets.

"If you've got incumbent providers trash-talking us it's shows that we're absolutely having an impact," Mr Drury says.

"We are the No 1 threat to all of the incumbents."

He criticises Reckon for moving too slowly into cloud-based accounting, in which his company specialises, and he says Xero has "poked the bear" of Intuit by moving into its home turf.

Mr Drury also takes a crack at its main Australasian rival MYOB, which he says is more risky than Xero because of the huge debt of owner Bain Capital.

The comments come on the same morning as MYOB announces a $A125 million capital raising, partly to pay off debt.

Money claim 'ridiculous'

Australian rival Reckon's chief executive Clive Rabie said last week Xero might run out of money by September – meaning Xero will need more cash from investors, not that it will go broke.

However, Mr Drury dismisses Mr Rabie's comments as "ridiculous".
 
"That's not true. We've got plenty of cash and we've got plenty of ability to raise cash."

He would not rule out further capital raising this financial year, however, stating it was "always an ongoing discussion".

Mr Drury says listed company Xero has revolutionised the accounting software market in Australia and New Zealand by putting accountants and businesses on the same database, meaning accountants do not need to be charged.

Reckon and MYOB have business divisions dedicated to selling to accountants, he says, which will be hard to sustain.

He says Reckon does not have a history of building software – the company has grown from "Australianising" Intuit products – and "they haven't acted in the last five or six years".

Some Australian analysts are concerned about Reckon's long-term prospects over its split with Intuit, particularly how it will fund development without revenue from on-selling Intuit's products and how successful it will be moving online.

Reckon's share price (ASX: RKN) is $A2.34, about where it started the year, although it dipped below $A2.10 in May and traded above $A2.50 last month.

He dismisses the prospect of Mr Rabie's company buying Xero as "fantasy", saying Reckon's market cap is not big enough.

MYOB 'more risky'

Mr Drury says MYOB's hybrid software into the cloud has been "panned".

MYOB "community" pages show users of the new AccountRight Live online system are having trouble with basics like opening files and getting their computers to synchronise with the system.

"With that much debt on the books we would think MYOB is a much more risky proposition than Xero."

Xero's US growth has been good but it is early days, he says.

"We've seen lots of New Zealand companies go and blow their dough there by going too quickly.

"We want the team to hit a few milestones and then we'll put some more investment there.

"That's why we're really on the radar of Intuit. We've really poked the bear by turning up in their own country."

On Xero as a takeover target, he says the company has an "open dialogue" with all the "big boys".

"But it's something we're not really interested in and we've made that clear – we're building a long-term business."

"There's no desire at all to sell it."

Xero shares (NZX: XRO) gained 10% last week, and are down 0.6% this morning to $6.40.

dwilliams@nbr.co.nz

More by David Williams

Comments and questions
19

Hahahahaha

Some easy money for anyone willing or able to go through the pain of buying an instrument that is short on Reckon. They seem to have no reason to exist in the future, and this sort of attack, along with a cloud launch that is five years late, are obvious signs.

"There's no desire at all to sell it." Now that would have to be the best Tui ad this year!

Thinly traded, MASSIVELY overvalued, this is a bubble and Drury, etc, are smart enough to know it. It'd be irresponsible not to be sell "it" to a big (obviously fat and happy but not very bright) big boy...

Sounds like another tall poppy attack. Just what this country is famous for. Good on you Xero, I wish you the best.

A tall poppy attack? Absolutely not, I'd be the first to help people get a leg up. This is not about the product or indeed the management. My concern is that we have a tech stock that is so clearly overvalued and in an environment where we are trying to get people out of property investments into capital markets, it sends a bad message to the investing public. No-one can actually justify the share price based on any metrics that are rational or make sense.

At 680M how can they "swim for the edge"? The minute they make a profit, they'll crystalise the value. Maybe it's worth 2 or 3 times revenue, that's still a bloody good outcome, and aspirational. The problem is there's now a big gap between that and 680M.

It's just my view, but I still think it's a bubble stock. If you are in it for the ride, then great and good luck.

Great reply, Rod. We need more innovative people like you in NZ.

What a joke - the King of Trash-Talk complaining about the way Reckon and Intuit described Xero! I thought they were very matter of fact and restrained. Drury is constantly going on about how Xero will be the last man standing and how all the others will fall over - all I see is the incumbents quietly but assuredly going about their business and releasing really great solutions to challenge Xero and maybe Mr Drury doesn't like it/really wants one of them to buy Xero...?

do you enjoy working at MYOB?

Ha ha! I'm a chartered accountant. I don't enjoy the way Xero constantly derides the opposition, turning innuendo into fact, and their bully-boy sales tactics. Their ethics are clearly out of step with mine...

You can't turn innuendo into fact. If it's a fact, then it's a fact.

The opposition has no problem deriding Xero. It's all part of the game.

Where are the bully boy sales tactics? They talk to accountants and accountants (generally) go "Hey, that's a good idea" and pitch it to their clients.

disc: fanboy shareholder.

It's getting too hard to invest in things without copping flak. Don't buy property, don't buy Xero shares, don't invest in low interest TDs...

This has been one of my better investment picks. Already recovered my initial investment and happy to go for the journey, up or down.

Where are all the comments panning AccountRight Live in the MYOB forums? The couple I saw were all related to the old hardware and insufficient RAM at the user end, not the MYOB end. More gross exaggerations, Mr Drury? As an accountant, I quite like the MYOB approach to the cloud and am looking forward to using it with my clients. My experience with Xero is that it is slow and cumbersome.

the only reason it would be slow and cumbersome is if your internet connection was sub-standard. This is a user end problem also.....

I have a super fast connection by copper standards - the fibred cabinet stands five metres from my building. Download 16.1 Mbps, upload the usual throttled 1 Mbps. Try another excuse for Xero's slow refresh times...

I am an accountant and absolutely hate AccountRight Live. File sync is an early 2000's solution, MYOB is just repackaging it as 2nd gen tech.

You know Xero has always been on to a winner. Good sign seeing innovation in New Zealand again and it doesn't look like he's selling any time soon. With backers like Silicon Valley's Peter Thiel, you know the competition are shaking in their boots!

I was just listening to a Harvard Business Review podcast interview with James Allworth coauthor of 'Breaking News: Mastering the Art of Disruptive Innovation in Journalism' talking about how GM ignored Toyota when they first entered the US market. Wasn't a great move, was it?

I'm with Rod. If Xero isn't worth worrying about then why would US competitors even mention them. As to NZ, its a bit hard to argue with facts.

My experience with Xero is not much, but I pay homage to any Kiwi business person who is bringing export dollars into the country and showing off what Kiwis can do. Let's support Kiwi entrepreneurs and put an end to the tall-poppy syndrome. We should be asking how we can generate more companies like Xero bringing money into New Zealand, or would you rather have austerity measures?

Good to see a positive and rational comment! Go Xero and be gone ...negative phelchers

I wish them luck but I wouldn't touch there shares with a barge pole.

Oh..... come on Doctor. Why are you hiding, take your mask off?