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Xero gets nod from influential US publication

The US edition of PC World - a key influencer in the personal and small business markets - has given Xero the nod in a comparison of online business accounting apps.

In the article - also published on sister publication MacWorld's site - Jeffery Battersby writes:

"In the interest of full disclosure, I have been a QuickBooks Online user for a little over a year. Of the four online apps I’ve looked at here, none offer anything that make switching from QuickBooks Online compelling. The differences between the apps are not significant. My personal favorite is FreshBooks, based solely on a single feature. I’d likely choose FreshBooks today if I was starting from scratch, but the best app by a hair is Xero."

As NBR has written before, Xero faces a tough challenge to grab market share from Intuit, whose Quicken product holds a near monopoly on the North American market (mostly through users of the offline version of QuickBooks). And even if it does make inroads, it's another matter entirely whether the success will be enough to justify its $5 billion market cap. 

And Mr Battersby's praise is not unalloyed, but then by its own admission, Xero is still working on features for the US market - notably in the key area of payroll for many states.

But to come out on top with its feature set not yet complete is a coup for Xero. Expect the company to make hay, just as when Fortune highlighted Xero vs Intuit in a series on David vs Goliath fights. Expect Xero to make hay from its PC World/MacWorld success.

ckeall@nbr.co.nz


RATING XERO

Woodward Partners Securities:  Reduce; 12-month target: $27.00 
Forsyth Barr: Underperform; 12-month target: $24.75
First NZ Capital: Outperform; 12-month target: $45.70
Xero shares [NZX:XRO] (early trading, March 13): $43.55 

XERO HALF-YEAR RESULT (reported Oct 3, 2013)

Loss: 17.1 million
Revenue: $30.3 million
Cash: $230 million
Customers: 250,000 as of February 2014. No geographic breakdown given beyond 100,000 in Australia. (In October 2013, with customers at 211,300, Xero gave the following geographic breakdown - NZ: 85,500; Australia :79,100; UK 30,100; US/rest-of-world: 16,600)
Xero says it expects FY2014 full-year revenue of up to $80 million. See also NBR's report on Xero's Jan 31 NZX update: Xero customer receipts rise 14% in 4Q as cash burn creeps higher
Market cap (March 13): $5.56 billion

Xero 12-month price history (NZX.com)

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Comments and questions
2

Say what? I guess that confirms that everything is open to interpretation. This starts the alarm bells start ringing for me. You can't assume the other products will stand still so the base assumption has to be that there will continue to be little differentiation between the products. If that's the case, I don't see how Xero wins given the power of incumbency and vastly superior financial firepower. Put options at $2/share please.

Use Xero, think it's great, but I'm with you on the Puts. The incumbents have cash flow that amounts to the Mississippi in full flood while Xero has no cash flow and only have a single lake of cash (a small lake at that) which will disappear rapidly as sales and marketing expense increase not to mention the huge development costs to keep adding functionality at a rate to keep early adopters happy.

From a SME perspective the punters in USA will be thrilled, another player to keep Intuit & Freshbooks honest and to keep their feature delivery in fast forward mode. But remember Beta and VHS, many of the youngsters reading NBR now may have to Google Beta vs VHS to get an update on how a better product failed to deliver for its investors.