Xero adds 23k customers since Sept, expects to double annual sales

Cloud-based accounting software firm Xero added more than 23,000 customers to its client list since September and says it is on track to double last year's $19.3 million in annual revenue.

The Wellington-based company has more than 135,000 customers and monthly recurring revenue of almost $4 million, it says in a statement. That implies annual sales of some $48 million.

Some 5000 of the new clients are in Australia, where Xero this week extended its range of products and faces increasing competition from incumbents MYOB and Reckon, which have both launched cloud-based services.

"This year is looking very positive for Xero as we see the benefits of all the hard work in our early years," chief executive Rod Drury says. "It's very pleasing to see so much momentum in the business around the world."

Last year, Drury co-founder Hamish Edwards and director Craig Winkler sold down part of their stakes in Xero to US tech investors Valar Ventures and Matrix Capital Management, which also injected $60 million of new capital.

The capital raise left Xero flush with cash, and it had $85 million at the end of December, according to cashflow statements lodged with the ASX.

The company is loss-making at the moment as it looks to secure a million customers in a drive to capture global market share for the online, cloud-based business system.

The shares fell 2.7 percent to $6.84 in trading today.

(BusinessDesk)

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Seeing profits is believing.

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What have you ever achieved apart from posting tall poppy comments? We'd all like to hear your great successes.

Go build a company of this size and growth with amazing profits, come back to post and give your ego a boost.

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Your article states "Cloud-based accounting software firm Xero added more than 23,000 customers to its client list since December " & "The Wellington-based company has more than 135,000 customers"

They had 111,800 at 30 September 2012 which means they only added about 200 Customers between 30 September and December.
https://nzx.com/companies/XRO/announcements/228020

The numbers NBR are quoting, do not add up.

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23,000 new customers is quite significant for a 4month time frame. Fingers crossed the momentum continue's through 2013.

A successful Xero can only be good for NZ!

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Not sure why people continue to knock these guy. Its a phenomenal story for NZ and we need more of these.

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Because the hard facts are that as their user base expands, so do their losses.
Their opportunity evaporated in 2011 when MYOB and others caught them in the SaaS market. Since then the space (outside NZ) has become increasingly crowded.
It's sell to the Americans or bust. May get away with it but high risk. Around $40M+ in the hole at the moment and counting every day. Not putting my money anywhere near it (although minor regret at not doing so earlier so could sell out at current valuation!)

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What ever $40m are sunk they now generate $48m a year (as of today) after all it's not a bad investment is isn’t it? Ministry of Education spent 40 million just for payroll software since 2008 to 2012, what did they got in return? NOVOPAY. Yes there are many similarities. Both have 100k+ client base, executed in 4 to 5 years time. Xero is made in NZ not outsourced.

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Good on them as a company and I hope they are successful.
However, investors need all eyes open, especially at current valuation.

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They sell down because there is no sentimentality in owning the business. It is all about the success of growing the business quickly. Therefore it is only natural that to facilitate quick growth requires capital to achieve that end. Selling down equity therefore is one of the easiest ways to do it.

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To snatch best talent, access to connections and strategic partnerships founders need to sacrifice portion of their original stake holding. NZ companies and founders are not used to this kind of thinking, They try to hug equity so tight they would prefer to sink with it rather than sharing and building wealth. You can twist the facts and support your opinion but the fact is that Xero founders have sold their equity to institutional investors (they can sniff a rat from a million miles) who could add value. Quantity of these sales are tiny when compared to their outstanding stakes. I hope investors are smart enough to understand running tech shop is different to family owned supermarket.

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Why are they all selling down their shares if the entity has a great future????

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Well here are the hard facts I could gather

- MYOB's cloud offering was launched prior to September 2012 but couldn't make a dent to Xero sales growth so far. Pay a visit to their community site see they client feedback. Pickup the phone and call few accountants about their latest debacle. Their exclusive cloud offering Live Accounts is not functionally sound. Reckon is yet to launch it's cloud offering. Rest of the players in the industry did managed come up with cloud offerings ranging from free to low price alternatives since 2011. Truth is that Xero biggest growth in customer volume actually came between 2011 and 2012. Tell me where are they coming from in droves?(- 7000 companies a month

Take a quick look on annual report, Bulk of expenditure incurs on Sales and product development costs which will help attract new clients and develop new feature set. Cost of maintaining existing subscribers are just ongoing support costs, hosting expenses. It's hard to convince people who never invested in cloud model, it's different. Do your home work.

As for the valuation, certainly it is high, it's called "growth premium"- you pay it in return for double/triple digit growth of business and equity. None of the financial ratios can justify this in short run. If you want a stable investment go and invest in Microsoft or Intel. You get bank note growth rate and be happy with a penny per decade returns.

We all diversify our portfolio's with some high risk stocks, each of these high risk stocks have their own uncertainties. So far xero impressed me.

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