Xero doubles revenue – but still mum on breakeven date
Xero expects revenue for its year ending March 31, 2012 to double, according to an NZX filing this morning.
In its 2011 financial year, the online accounting software company reported revenue of $9.3 million (and a loss of $7.5 million).
Revenue from Xero monthly subscriptions has reached $1.75 million, or an annualised rate of $21 million.
The company also said the number of paying Xero customers now exceeds 60,000 - up from the 51,300 reported in a November 18, 2011 update.
When it listed in 2008, Xero told investors it would breakeven by the end of the 2011 calendar year.
On July 31 last year, the company formally abandoned that goal.
This morning, chief executive Rod Drury told NBR the time-frame to make a profit remained open-ended.
It was in investors’ interests to focus on long-term growth, Mr Drury said.
A change in private equity ownership at key regional rival MYOB, and issues releasing MYOB’s cloud computing product, had “left the door open” for Xero to grab market share, Mr Drury said.
Half of Xero revenue now comes from off-shore markets, the Xero boss said, up from around 30% a year ago.
Australia was particularly strong, and the UK market was growing.
Xero now has six staff in the US, based at the Sam Morgan, NZ government-backed Kiwi Landing Pad in San Francisco and a high-profile manager to lead its US operation.
Mr Drury said Intuit dominated the US accounting software scene.
So far, progress is modest. Xero is still in the process of adding a key feature for the US market – cheque printing – and developing a network and support among accountants.
Once these issues have been addressed, “We’ll see if we can take share from Intuit. That’s when things will get really exciting,” Mr Drury said.
Around 3300 accountants were now using Xero, Mr Drury said, up from around 3000 this time last year. The chief executive said a key difference was that his company was now winning full practices.
Xero shares [NZX:XRO] were up 6.27% to $2.71 in early afternoon trading.
Below: Xero 24-month chart courtesy NZX.com (click to zoom):
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Comments and questions14
"It was in investors’ interests to focus on long-term growth, Mr Drury said."
Makes you wonder if it is in managements best interests to say this sort of thing - becasue profit will never be achieved.
I'd say that the door is not "wide open". Well certainly not as wide as Mr Drury claims.
MYOB have had their issues - as any well established software solution will while implementing a quite different platform and a transformational shift in market strategy (I think Xero has gone through a couple since its inception).
And the competition is not just MYOB.
I admit, I'm using the MYOB 'cloud' solution 'Live Accounts'. I compared Live Accounts and Xero when I was selecting my accounting software and chose MYOB because it was the most cost effective (functionality and subscription $/mth) for the number of invoices I issue. So horses for courses I guess.
As an MYOB customer it's excellent to have some competition biting at the ankles of MYOB (with their 1.15 million customers) though. As a customer of MYOB I definitely benefit from that in two ways. Eyes on the ball, and constant R&D funded from a significantly larger customer base.
With respect to Xero's investment in so many off-shore markets, that's one great big hairy audacious goal! So hat's off. Stretching R&D, execution and support across the number of international borders that Xero does requires huge on-going investment, unwavering belief, and leadership. Compliance must also be a headache.
In terms of ROI for share holders, perhaps it'll be a bit like the cheese ad on TV... 'good things take time'. But how long? Analysts are now watching - so it'll be interesting to see what their thoughts are around progress. But even Morgan Snr has asked Mr Drury the question of when will the profit come - shareholders deserve to know.
Yawn
More drivvel from Rod - nothing changes at each announcement
Should be rebranded "Gunna " or change the brand to Zero
I was waiting for Anonymous to chip in with a far sighted comment. Thanks for not making me wait too long.
I guess it's really for the share holders and analysts to comment on their financial expectations.
But I know if my Director of Sales came to me and told me they didn't know if they'd make target or not, and i just needed to hang in there... I'd be asking some serious questions about capability. Actually - they'd be told to sort it, or be on a program of performance management.
I know so much about Rod's business is new territory, but it's not helpful to investors (existing or prospective) when there is a lack of data. In fact without reliable forecasting it's all sort of 'wing and a preyer' and 'dotcom' type speculation isn't it?
On the flip side, others would say it's gutsy and that's what an entrepreneur is. High risk.
Paul
Your blind faith in Rod is admirable but not necessarilly great for your or other investors pockets in the long term
@ROI.
Nice to see some insightful comment on the topic, without the vitriol that comes with the Anon's of this world.
As someone who's done the numbers on user growth I've watched Xero go from 10 signups per day in 2008 to well over 150 spd.
People were wondering when Sky TV was going to turn a profit once - another subscription based business that is doing nicely today, without the potential for global growth. It annoys me to see those on the sideline do nothing but rain criticism on something just because the results aren't instant.
Jeez, Anonymous. Do you own shares? If not, why do you care? If so, why don't you sell for the 3x list price? You can go back to running your own successful multi national.
Intriguing that there is so much focus on profits by analysts and commentators when the company has no fundamental basis for 'value investment'. Even technically the stock price is behaving poorly. It's pretty much what you'd expect and hope to see for a company doing precisely what Rod says it is.
It is also sign that there is sufficient confidence from the cornerstone investors that this business model is sustainable. When they want to change it will change, not before and not for reasons of endless external analysts bleating about what they think Xero should do.
Xero is a capital gains play, which will and does appeal to speculative early venture investors who have faith in the management, and the business model, or just plain balls and financial resources to take a punt.
When Xero is profitable, which it could be at any time that the management choose to ease expenses on growth and development, the next wave of value investors will have a valid point if they continue to see the current management behaviors.
By then of course the venture partners and early investors will have made their $, be bored and likely have sold or be soon to sell the company. They will groom the sale by converting to profitability 'overnight'. People will be astounded!
Anyone who thinks the 'management' and early investors are in it for the long haul and easy lifetime dividend earnings just doesn't get it.
Any investor who is worried about profitability is in this stock too soon. Investors who know why they own this stock will be selling shortly after Xero announce consecutive months/quarters profitability.
@roi no problem if you want perception of full predictability and no risk. there's always government bonds. guess is that Greek ones are offering a decent return right now...
Why do people hate Xero so much? We just started using it as our accountants recommended it for our business. Very easy to use. I think it will go far personally but then I am no expert. I think there are a lot of jealous corporate types on NBR, probably sitting in their cubicles hating anyone that makes a go of things as an entrepreneur. Much safer to criticize and then then take your safe salary home at 5:00pm
Why must kiwi comments be so negative? I am an investor and this has been a fabulous success --I have more than doubled my money. I suspect most of you are not shareholders in the company.
So stop your pointless whining.
Your loss. My win. Xero's win. NZ's win.
Yeah, I agree with enxx in some way. I am also a shareholder of Xero. I got in Xero very early back in 2008. I have more than tripled my money up to today. Since I am sitting on a comfortable capital gain, the only risk for me will probably be the bankruptcy of Xero. I think this is the same for those corner investors too. The more accounting firms and customers are attached to the product, the bigger business ecosystem is built. The bigger business ecosystem is built, the harder for other new comers to invade the territory. The question now is just how big Xero can afford to achieve.
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