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Xero hits 100,000 paying customers, considers ASX dual listing

Online accounting software company Xero says it now has 100,000 paying customers, up from 45,000 last year.

CEO Rod Drury told the company's annual meeting that it took Xero five years to achieve its first 50,000 customers, and 10 months to net the next 50,000.

Mr Drury said annualised committed monthly revenue had increaded to an annual run-rate of $34.5 million, up from $25.5 million at March 31, 2012, and 57% of Xero’s committed monthly revenue is from offshore markets, up from 51%.

Xero will consider dual listing on the ASX to make it easier for Australian partners and customers to purchase shares, the CEO said.

Xero proposed Craig Elliott, the co-founder and chief executive of cloud-network software firm Pertino Networks, be added to the company's board, accompanying chairman Sam Knowles' address.

Elliott is a strategic adviser to New Zealand Trade & Enterprise, spent a decade with Apple Inc in senior roles, and had previously run Packeteer, whose software aimed at improving network performance.

The appointment has yet to be finalised, a Xero spokesman told NBR.

The Wellington-based company said it had identified a candidate for a US-based director, but was still looking for an Australian to join the board.

The companies shares [NZX:XRO], which have recently retreated from an all-time high of $5.80, closed today up 1.01% to $5.00 – valuing the so-far profit-less company at $524 million.

Comments and questions

Not long for a deserved $1 billion valuation.

That's an annualised revenue figure - not a profit figure. At $1b market cap and zero profit you would have to call it a "p/e" ratio, as in "plausibility extinct".


All nonsense compared to the share price - overinflated

This will encourage more suckers to buy the shares and give the principals another chance to sell at these ridiculous prices .

Congratulations Rod and co

Ignore your view on share price. What do you think of xeros performance, momentum, growth rate in oz, xeros substantial vision to pick the trend six years ago, and general global market position. Comment on that. Xero doesn't set it's own share price, try critiquing the business. You always just slag it off more from the view point that your frustrated it has a high sh price. Isn't xeros potential a good thing for nz ! Its global ambition should be admired, not spat at ... Utter drivel from the dr.

Doctor, you continue to be so bitter towards this company. Xero has a wonderful product, we use it in our business. Obviously other businesses think it is great as well, and it will simply continue to grow. Perhaps it is time to stop reading stories on Xero, as it is obviously effecting your blood pressure.

There's a lot of small market mentality around this stock.

If rapid growth and high valuations based on growth expectations are too much for you, then invest in some nanny fund.

What you're seeing here is essentially US internet share dynamics hanging out in the stagnant go-nowhere NZ market. Xero will do better on the ASX because the minds aren't quite so small there.

I agree. The strategy is high risk but the reward is also high reward if they continue to grow at similar rates.

Hope the price continues to inflate but a significant issue is that less than 100 people hold over 80% of the shares, so it's hardly a widely held public company.

Rod will do extremely well, retail investors that is another story that will play out in the next three or four years.

Liquidity is a huge problem - the share price moves hage amounts on very little volume which is an issue. However, how do they sell down with out people claiming they are selling out - a double edged sword.

innovation and growth in a market that is super hungry for their products. Reminds me of apple in 2003. I can see them doubling customers again in 12 months or less. Raise the average value of each client throughout this period and the shareprice looks very attractive at $5 now.

With the push into the US and the enthusiasm at the Australian conference, I see them coming close to doubling numbers in a year as well.

Well Done !!! But the share price is seriously over valued and will deter from people buying.

Another good result. I appreciate that this is a big high risk play but one I am certainly happy to be involved with. Certainly more interesting than owning infrastructure stocks no matter how stable they might be.

Bearing in mind Xero's previous history of fudging numbers to make itself look better than it actually is, I carried out a quick review of the information presented yesterday. And yes, there is another piece of data manipulation going on.

In the Investor Presentation, there is a chart showing Revenue Generated per Employee. The figures struck me as high so I took a closer look.

As the chart is a pdf and doesn't show the original data I recreated it using data from Xero's annual reports - simply dividing the reported annual revenue by the number of employees at year end.

The numbers I get are typically 30-40% less than what Xero has reported in its presentation.

My calculations are:

2008 $3,045 per employee
2009 $17,436 per employee
2010 $35,089 per employee
2011 $82,664 per employee
2012 $99,845 per employee

By way of comparison Xero reports a figure in the 2012 year of just over $130,000.

What's going on?

The only answer I can come up with is that Xero has based its calculation of revenue "generated" around its forecast future income stream - then divided this by its current staffing levels. The problems are (1) that this income is not yet "generated" and is not guaranteed - and (2) Xero keeps on adding in staff, so that future income will be divided by a much larger number of staff when it is actually received.

It would be good if Xero can clarify the situation as the graph in their investor presentation is misleading.

I think Xero would be using the current month earnings to generate this figure.

To compare the past 12 months with the current employees would be misleading. Especially since their revenue amount is growing so fast (as is employee count). Could probably do average head count over past 12 months revenue.

Responding to Anon #14. As Harvey (#15) points out, Xero is a high growth company both in terms of revenue and number of employees, so comparing revenue generated over a 12 month period against an employee number at the end of the period will generally provide a lower revenue per employee number. Harvey is correct that the calculation we have used divides the annualised amount of committed monthly revenue against the employee number at that point in time.

The purpose of the slide was not as much focussed on the absolutes but the trend in the numbers showing that although Xero is adding a significant number of employees, each employee is adding more value each year, this is the case under both your methodology and ours.

Whichever way you cut it, achieving 100K paying customers in this space is a significant milestone.


Thank you for your response. I appreciate your clarification and the speed with which you did it. However, I believe your explanation confirms the slide was open to misinterpretation.

Firstly, it talks headed "Revenue generated". To me the word "generated" implies it is a backward looking chart. Future income has not yet been "generated" although I am sure you are confident that much of it is locked down.

Secondly, when that revenue is "generated" in the future Xero will have even more employees.

Revenue per employee is a key metric of an organisation's success - and I think you should have taken more care in presenting the result - it simply needed to say something like "monthly annualised results" on it. While the trend that my analysis indicates is the same as yours, there is a considerable difference in real terms.

I also noted the rate of growth is levelling out. The very best organisations can generate revenue per employee in the several hundreds of thousands of dollars per year. There is still some way to go for Xero to achieve that.

My criticism of Xero has always been that while it knows how to generate revenue it also keeps on adding in increasing costs at a matching rate - particularly staffing. That's why this metric is so crucial - and crucial to have it accurately presented.

"My criticism of Xero has always been that while it knows how to generate revenue it also keeps on adding in increasing costs at a matching rate - particularly staffing."

I would say that Xero would be foolish to aim for profits at this stage. Their goal is, and should be, continued rapid growth. They can worry about breaking even or generating large profits further down the track, when their growth is reaching its potential peak.

At this stage they should be throwing all resources at growth. Otherwise it would leave an opening for the slow moving competitors to catch up on technology and Xero would lose its technology lead before capturing all the potential customers.


Xero does not have a technology lead over the whole market. There are many smaller companies around the world (and a few larger ones) doing what Xero does with technology just as good. FreeAgent in the UK is a good example.

What Xero has is a funding lead over most of those smaller companies. It has funds and it is trying to buy its way to market share. Where there are excess funds there is normally excess expenditure and that is the case at Xero.


Xero have a massive technological lead over MYOB, which covers the NZ/AU markets. The UK and US markets are a more complex matter, though I would be comfortable in saying that Xero is in the lead pack.

Again, my point stands: Xero would be foolish to aim for profits at this stage. Rapid growth should be their goal, at the expense of profit. Holding back at this stage would be a gift to their competitors.

BEWARE- there are free equivalents online- how strong is the business model pricing?

I have tried the free ones and they are not (currenlty) compariable.

Also you have to question their business model. They are supported by ad's but how much will people actually buy from ad's on the site.

I also read that Rod made a comment at the AGM re Big data which no one seems to have picked up and points to a new revenue stream (ie. targeted ad's based on peoples data - lots of privacy issues to address should they go down that path but they are obviously thinking about it).