Xero doubles loss, signals greater losses ahead
"Their business model is a valid one and they have great growth in revenue, but they have not addressed the major question. WHEN will they convert their efforts from growth to profitability?"Featured comment
Market darling Xero has almost doubled its half-year net loss to $7 million, while more than doubling revenue.
In its half-year to September 30, the listed cloud accounting software maker posted an after-tax net loss of $7 million, compared to a $3.7 million loss in the same period last year.
Operating revenue rose to $16.9 million in the six months, from $7.9 million during the same period in 2011, while cash and cash equivalents shot up to $30.6 million to $11.4 million.
The company has signalled it is on track to double revenue for the full year.
Xero also detailed several new projects, including tax products for Australia and rolling out its payroll product in the United States, which chief Rod Drury says will increase losses in the coming six months.
Losses down to hiring
Mr Drury told NBR ONLINE the larger loss was down to hiring of new staff – 130 in the last 12 months – to take the firm to 278 staff by October. It has another 100 roles open.
"It's not just adding a whole lot of people for people's sake, we've got a number of strategic projects – as an example we're doing tax for the Australian market.
"With MYOB faltering, being able to have a tax product towards the end of next year gives us a really good opportunity to even further accelerate that market."
Xero has more than doubled its Australian staff to 60 over the last year, he says.
In the six months, Xero's Australian revenue grew to $5.6 million, up from $1.8 million, while New Zealand revenue over the period was $7.7 million, compared with $4.6 million.
Paying business customers have lifted to 111,800 on September 30 2012, from 51,300 in the previous period.
Click to zoom. Xero's share price has jumped 127% in 12 months, taking its market value to $677 million (source: S&P Capital IQ).
Not swimming for safety
"We could swim for safety by the side of the pool but we're not," Mr Drury says.
"We're really building a company to compete with Intuit and MYOB and feel very comfortable in our position."
He would not say how long he thought the company's $30 million cash would last, but he said it would not be exhausted in the next year.
The company reviews its cash position each quarter.
"With the cash we have the responsible thing to do is to continue to hire and grow the business while the opportunity's there."
He says the company is "absolutely in the growth phase" and its investments will drive a profitable business in the long term.