Xero passes 50,000 paying customer mark
UPDATE SEPT 21: In an announcement to the NZX today, Xero said it had passed the 50,000 paying customer mark.
40% of customers are now based overseas, chief executive Rod Drury said.
There are now 200,000 active users of the company's online accounting software.
At the company's July 21 annual meeting - at which it also abandoned its formal goal to breakeven by the end of this calendar year - the company said it had 45,000 customers.
On March 31, Xero reported 36,000 customers, up from 17,000 a year ago.
Xero shares (NZX:XRO) were up 1.45% to $2.80 in mid-afternoon trading.
Xero abandons profit goal, reveals latest customer count
UPDATE JULY 21: Xero has abandoned its goal, set out in 2009, to break-even this calendar year.
Chairman Phil Norman broke the news to shareholders at the company's annual meeting in Wellington today.
The Xero chairman said the board had decided it was better to focus on long-term growth, particularly in the US where the online accounting software company recently opened a San Francisco office.
"We could drive to make even, but it just doens't make sense," Xero chief executive Rod Dury said. "This space is really hot."
From the floor, investor Gareth Morgan asked when the break-even point would now be.
Mr Drury would only allow "as soon as possible."
Director Graham Shaw noted that board members remuneration, and that of Mr Drury, remained at its pre-IPO level and would not be raised until the company broke even.
Another director, Sam Morgan, added "I'd like a nice question from my mother."
Customer increase
While profit remains elusive, the company's customer count is growing.
Mr Norman revealed the company's number of paying customers was now 45,000 up 25% on the 36,000 reported at the time of its result for its financial year ending March 31 (see below). Chief executive Rod Drury said there were 180,000 Xero users overall among the 45,000 business paying a monthly subscription for his company's online accounting software.
Mr Drury credited Xero's move onto Google's Android Market online store as one reason for the increase.
ABOVE (left-to-right) - Xero board members Craig Winkler, Graham Shaw, Sam Morgan, Sam Knowles and Hamish Edwards. Former Kiwibank chief executive Sam Knowles, who earlier filled a casual vacancy, was elected a full-time director.
Mr Dury said although Xero had rapidly taken on more staff - it no numbers more than 100 employees - revenue per employee was also rising, and had increased to $120,000 per employee over the past three months.
$16 million ash in the bank gave Xero the flexibility to decide if it wanted to break-even or grow, Mr Drury said. Right now, the latter option best served shareholders - none of whom NBR spoke too seemed to mind the vagueness of the new "as soon as possible" timeframe.
Speaking to NBR immediately before the AGM, Mr Norman said getting $20 million+ in investment from what he calls "sophisticated investors" Sam Morgan, MYOB founder Craig Winkler and billionaire Facebook investor Peter Thiel had put the company in a strong posiition.
ABOVE: Drury said Xero's $16 million in cash meant it could focus on customer growth, particularly in the US, over its now-abandoned 2011 break-even goal.
Aussie acquisition
Mr Norman also revealed that Xero has bought its payroll software partner in Australia, Paycycle, for $A1.5 million ($A500,000 in cash and $A1.5 million in shares). Paycycle has 750 customers, according to a Xero statement to the NZX.
The partnership will involve digital addresses and delivery services, "virtual mailboxes" for custoomers and small businesses that invoices could be delivered to, and an address lookup service that will provide a unique identifieer for businesses.
Xero had realised it needed a full service payroll component to its system to be more competitive in the Australian market.
iPhone app
Mr Drury also previewed an iPhone app, Xero Touch, which he said would be available shortly.
NZ Post partnership
Mr Norman said Xero would shortly announce a major partnership with NZ Post, linking to the company's digital postal services.
Mr Dury said Xero was now co-presenting with Microsoft in Australia, and working closely with the company over its new cloud software, Office 365.
The chief executive said Xero would not "push the button too hard in the US" until it had done more devlopment around and created more partnerships around payments, which were more complicated in that market.
The company had recently recruited a managing director for the US, but will not name him until October. The company's CTO is relocating to San Francisco.
Xero shares (NZX: XRO) were up 4.19% to $2.24 in late trading.
UPDATE MAY 20: 11am - Chief executive Rod Drury told NBR that his company was investing as per plan, and was still on-track to meet its target of breaking even by the end of this calendar year.
Mr Drury spoke to NBR from the US, where he has been meeting with potential partners of the past fortnight.
Targeting QuickBooks "influencers"
The Xero founder has also been meeting with "influencers" in the US QuickBooks community as he works the accounting conference circuit.
QuickBooks was the number one accounting software brand in the US Mr Drury, said, but by his account its online product was struggling with just 180,000 customers and a bad reputation for outages.
By contrast, Xero had a proven track record in the US, Mr Drury said.
1000 US customers
Xero now had over 1000 customers in the US - where its CTO recently relocated - but would not "really put our hammer down" until a major partnership was secured similar to Xero's marketing alliances in Australia with Telstra (which promotes Xero through its business portal) and ANZ in Australia, or BT in the UK (which pushes Xero on its BT Business site).
On Monday, Xero will announce connectivity deals with multiple US banks, Mr Drury said, including at least one major - the Bank of America.
However, some features were still being ironed out in the US, notably bill payment systems, which Mr Drury described as "much trickier than in New Zealand".
MARCH 31: Xero nearly tripled revenue and slightly reduced its losses in its full-year results to March 31 posted today.
Net loss after tax was recorded of $7.6 million, down from $8.3 million, and revenue surged to $9.34 million from $3.15 million.
Customers numbers hit 36,000
Customer numbers increased from 17,000 to 36,000 over the year.
In a release attached to the results Xero's general manager of finance Paul Williams said the company was not yet at monthly break-even, but pointed to an annualised subscription rate of $14 million and the sales operations in all markets meeting their direct costs.
Cash at bank of $16.9 million was record and would be used to continue Xero's push into the US market, Mr Williams said.
Xero shares (NZX: XRO) were up 1.61% to $2.52 in early trading.
US challenge
Cloud computing commentator Ben Kepes - who recently briefed New Zealand Communications Minister Steven Joyce and his Australian counterpart Senator Stephen Conroy, and others, on online computing trends at the KANZ summit in Tasmania - told NBR, "It's good to see Xero's revenue heading in the right direction however I'm looking to see some clarify around a plan to really build customer numbers over the next 12 months."
The Diversity principal added, "Their burn rate is high and the only way to offset that is through higher revenue. The real opportunity is in the US and in hat market Xero faces both incumbents looking to innovate and more agile startups with a home advantage. Xero needs to move fast to build their US revenues but needs to do so with a model that works for such a massive market. Personally I'd like a little more clarity into their intended approach in that market."
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Comments and questions75
Yawn
We hear this every year
Burn rate was $18m for the last 12 months, but we don't know the annualised rate - let's say it's $22m
Current monthly revenue is $14m annualised, and growing.
Overall it's a really good picture when they have $16m+ in the bank.
I back that Xero will make it - I don't think it's going to be an easy road.
Remember 2 years ago saying 30,000 customers would be break even? Now we're at 36,000 and it doesn't look all that much closer
http://tvnz.co.nz/business-news/xero-expects-break-even-in-two-years-2867207
Sigh.
When Lance rereads that he'll see that 18m is total cost. The reducing burn is 7.6m.
While I respect how Ben has built up a profile as a cloud commentator and gets the overseas trips I'm yet to hear him say something insightful that demonstrates an understanding of business strategy or the market.
We're keen to see others build growth companies and share our experience so I've tried to give a bit more flavour here: http://blog.xero.com/2011/05/xero-triples-revenue-again
Cheers
Rod
sorry Rod yes. You reported net cash used for operatins which was $5,220,000 and loss of $7.6m.
.
Costs - $18m for the year, let's assume $22m annualised now and rising by a little but not so much.
Revenue is currently $14m, whereas it was $3.15m a year ago. That's an impressive growth rate driven by over doubling end of year customer numbers.
Rod's comment implies the annualised revenue and costs lines will cross later this year, which seems very reasonable given the numbers and trends. The biggest question I have is what to do with marketing spend. If it's demonstrated that more cash upfront drives gives more customers and significant net NPV then there is a case for ramping that up and holding off on monthly profitability. Amazon did this for years, one the land grab and are now milking the success.
Also notable for sustainability of the business model:
"The Company’s sales operations in all countries are now covering their direct costs."
36000 customers and $14m annualised revenue implies $389 per customer per year or $32.40 per customer per month.
Yawn again
Why don't Rod and Lance just call each other and have a cuddle - all very self fulfilling and cosy
Future results and profit will be the proof in the pudding guys - not cuddles
Thanks Lance, that's more useful analysis
Good question on the marketing spend. We're spending time up front on partnerships that give us inexpensive access to customers.
In a huge market like the US you could blow a lot of dough with no results and we don't want to do that.
Anonymous - great that you find this boring. We're just executing our plan with no negative surprises.
Rod
Classy. Will you say the same about other commentators who are criticial from time to time?
As I've said many times in the past, I love the Xero product, have every expectation that Xero will do well in the marketplace but would like to see some more clarity about how it will execute in the US market. As to my not understanding the marketplace... nah, I won't even go there....
Ben - to be fair to Rod, what is your expertise in the market? There are lots of commentators out there with surface knowledge only of their subject. Are you coming at things from a teleco / tech background or just a career journo?
From an accountants perspective I get the impression Xero has spent a lot in building and marketing a product that will make Accountants happy and is simple for end users.
A clever strategy because once you have a foothold with accountancy firms their clients will follow and the rest is history.
So if maintaining that strategy and expanding it internationally means running at a loss for a while longer it will pay off in the long run.
I've just had a read through the financial statements and there is one policy change that affects the scale of the loss announced.
On page 6 of the statements is a note in small print saying that the amortisation rate has changed from 3-4 years to 3-5 years and that the impact of this is a decrease in amortisation costs of $880,000.
The third line of the Market Release announcement proudly announces that the Net Loss after tax reduced from $8.4 million to $7.5 million.
This is a reduction of $900,000 - remarkably almost the exact same figure as the reduction in amortisation - but the impact of this poilicy change doesn't get mentioned anywhere in the PR surrounding the announcement.
If Xero had not changed its accounting policies the loss would not have decreased. Revenue and expenses have both increased in the past year and cancel each other out.
By the way Xero's accumulated losses now total just over $28 million (with several million more on top of that spent on capital expenses). With breakeven still some way off it is going to be long time before this company gives a genuine return to its investors. An awful lot of cash has been burnt so far with more to come.
[See http://www.nbr.co.nz/article/xero-responds-questions-over-narrowed-loss-ck-p-93899
- CK]
Hey Marketer - I've consulted to a good half dozen account software vendors around the world - both targeting SMBs and enterprise level customers. I'm an adviser to a bunch of companies in the space and I've reviewed and commentated upon pretty much all of the competitors to Xero. I've also been watching Xero closely since before they launched, sufficient credentials?
Yawn
Rod and his supporters can't be that sure of the future success if they have to dominate the responses to this article.
Sounds like a free PR spin exercise to me.
The whole Xero strategy seems to be a marketing exercise rather than the product or service being anything that special.
Anonymous - while I'm not so impressed with the ad hominem way Rod has responded to this article, it's unfair to say that the Xero product isn't anything special.
Despite my questions around their strategy, there's no denying that Xero is a fantastic product that is world class.
Rubbish it is no better than any other accounting system
It is just the way it is accessed and the payment methods that are unique.
Certainly a great team behind Xero as well as a hell of a nice guy Heading it.
Maybe now is the time for Xero to stop spending so much cash on the product and look at getting partners/contacts in bigger overseas markets.
I would love to buy into Xero but at its current shareprice, it seems too high. In saying that Linkdn market cap today is over $10b with only $3.42m in profit!
Sounds like Xero have asked all their staff to blog favourable comments - they are that corny.
" Hell of a nice guys" have nothing to do with robust profitable businesses. Bottom line or market penetration are the yardsticks and Xero has not delivered either - yet .
Hopefully they will but they are best to forget all the fluffy stuff and just put their heads down and deliver.
Hey Mr. Sleepy,
You're making me yawn now...
Does that make me a secret Xero agent??
Anonymous, that's a pretty ill-informed comment. Anyone who actually owns a business or two, and actually uses Xero knows that it has changed day to day accountancy in a dramatic and real way, particularly for SMBs
@Anonymous (5:58pm), if you think it's no better than any other accounting system you obviously have never used MYOB.
I switched from MYOB to Xero 2 years ago and it was the best thing I ever did for my business.
Side note, it's awesome to see a CEO of a company taking an interest in media articles and taking the chance to comment himself - I'm impressed.
Xero- The next company to go bankrupt on the NZX
Beware a company where the CEO has to jump on a blog/comments page to defend his/her company and adding comments like "While I respect how Ben has built up a profile as a cloud commentator and gets the overseas trips I'm yet to hear him say something insightful that demonstrates an understanding of business strategy or the market" is a backhanded cheap shot .
Just confirms what a class act Drury is - can't handle a little criticism - big ego - dick head.Keep quiet and let the results talk for themselves and the share price and reputation that you worry so much about will rise with any success the company has.
Xero is a good product. It's no better (or worse) than any number of products in the market. The problem Xero faces is that it is being sold on a technology only platform, hence the tiny penetration so far achieved. While Xero trumpets 35,000+ clients, this is peanuts. They've burned $28m+ getting there, so one would naturally expect some growth. Investors would love Xero to succeed, but don't expect that any time soon. The best bet (and this word is well chosen) is for Xero's timing to match the bubble's expansion, and for the shareholders to be rewarded by a huge US buyout. Good luck, you're going to need it.
Xero is a good product. It's no better (or worse) than any number of products in the market. The problem Xero faces is that it is being sold on a technology only platform, hence the tiny penetration so far achieved. While Xero trumpets 35,000+ clients, this is peanuts. They've burned $28m+ getting there, so one would naturally expect some growth. Investors would love Xero to succeed, but don't expect that any time soon. The best bet (and this word is well chosen) is for Xero's timing to match the bubble's expansion, and for the shareholders to be rewarded by a huge US buyout. Good luck, you're going to need it.
When a public company makes a $900,000 reduction in its losses and fails to make that clear upfront (ie not in small print buried in the financial statements) that it had a change in accounting policies that accounted for $880,000 of that improvement it has me worried. Rod - please explain?
There's also a lot of focus on breakeven. While that would be an achievement after years of losses, breakeven appears a continually moving target for Xero - both in terms of customers required and when it will occur. What I also want to know is when Xero estimates it will make an economic return on the $34million or so that has so far been spent? That seems years away yet.
Rod - what's your response on these points?
It actually says alot that the CEO actually reads what is being said about their company. 37 signals Jason Friedman is the same. Both successful companies with products we enjoy using.
Rod is a spin merchant
Needs to keep spinning so he can go back to his investors or attract new investors once he burns the current cash pile in the near future.
Based on the figures above it has cost $971 for everyone of the 35000 clients. they have a revenue stream of $400 per client per year and a burn of $515 per client per year. Every year they are " nearly there.
35000 clients is chicken shit in terms of penetration.
Stop the spin Rod and start delivering - your ego is not representative of your outcomes achieved to date.
Rod, when are you going to sell out to Sage?
Tried using it. It's not that good. Went to Quickbooks. How many others have done the same ?
Revenue trajectory is spot on for Xero. Model is clearly working.
For those commenting on behalf of the investors and shareholders, your investment is tied closely to Rod's given his own investment in Xero.
We use Xero at Snapper. Comfortably processed $100 m in transactions in 3 years. For $50 per month. This product meets the market's needs.
NZ needs people like Rod who take personal risk to build businesses that provide high value jobs. It takes time. And I am sure once he'll find these comments motivational to say the least.
Miki
CEO
Snapper
Rod drury clearly has a big ego but probaly dosn't even know it himself. Being a seminar/business guru speaker and being talked up in the media alot can do that too you.
I admire his successes and hope Xero will go BIG! Certainly better than most other high net worth NZ'ers that just put there cash in real estate.
This is an appropriate question on the marketing spend. We're spending time up front on partnerships that offer us reasonably priced entrée to customers.
Same day payday loans
Rod needs to focus 100% on the business - he doesn't have time to be a celebrity speaker. He owes every minute to his investors in Xero until he delivers.
We all hope Xero makes it and then NZ Inc can be proud of another success. but until then Rod should shut up, put head down and bum up and burn the midnight oil.
This article and blog responses make him look like a jerk - sorry rephrase that - Rod id making himself look like a jerk.
Miki
Your loyalty to Rod is admirable and we all like winners which Rod may become one again soon hopefully. Your analogy that investors investments are closely tied to Rod's investment could actually be a negative. If Rod is not performing as well as expected and knows it, he will personally be under pressure and his performance could be affected.
But $100M of transactions is irrelevant as a reason for the success of Xero - that could be 1 transaction 20 transactions or 2000 - so what - computers and computer software don't judge clients or systems on figures , even if you do.
After visiting the Snapper website
/www.snapper.co.nz
I can see why you are so supportive of Rod. You have a very similar business model - all hype and you are the Rod of Snapper - all hype and BS. You have 165000 members ( probably more now ) only because you gave out 165000 free Snapper cards - how many are active??
This blog is a sad indictment on the culture of NZ business and indeed our broader culture. To grow NZ we need many more entrepreneurial and successful companies, in many different industries, trying to crack very difficut global markets. Let's remember that as the principle here.
Somewhat depressing reading comments of Anonymous non contributing zeros here. I wish there were more companies like Xero, Snapper etc in NZ.
It's not sad Vic
No one is begrudging success - we all encourage it. NZ entrepeneurs need to be honest and transparent or they will damage the chances of future entrepreneurs.
Xero and Rod have told porkies about their financial results and success - blatant lies.
Then Rod gets involved in a forum about his own performance and obviously is offended by the truth so encourages a whole lot of his mates ( Snapper & staff etc ) to stick up for him and say what a great guy he is. There is no doubt he is a very capable and clever guy and probably is a great guy - but he needs to cut the crap and start telling the truth about his company.
The truth is it is still struggling to break above a break even position and he will run out of cash soon. He tells the same story every year - " we are nearly there " and each year they are " nearly there".
Maybe Rod needs to look in the mirror - he might come to the conclusion that he is the problem with the company. Xero's products aren't invented by Rod and his ego and continual spin is damaging the company. Xero's board should look hard at this.
So Vic, you might be comfortable with the spin going on but most normal Kiwi's ( and the investors ) won't be
Further to the blog at 7.49am
They have spun porkies about the financial results not told porkies - ie the true facts are hidden in the accounts but the press release gives a totally different picture, which is highly debatable
There are... I know someone at ProWorkflow.com and they have been in profit for 9 years with thousands of users in the saas game and turn 7 figures. Bookme.co.nz started recently and are already cash positive. There's plenty of other co's doing well.
interesting thread - nit picking, speculation and shit fighting adds nothing - NZ needs dozens of successful companies like Xero and others mentioned here and yes there are several business models - Xero is unusual for NZ so is open to the usual knocking.
That said the only sure way to make a small fortune is to start with a large one.
interesting thread - nit picking, speculation and shit fighting adds nothing - NZ needs dozens of successful companies like Xero and others mentioned here and yes there are several business models - Xero is unusual for NZ so is open to the usual knocking.
That said the only sure way to make a small fortune is to start with a large one.
The real issue is that the core of Xeros business still targets SME's. Unfortunately, these guys also have the highest failiure rates and won't stay clients for long!
Time to start targetting larger organisations buddy!
Tech bubble BOOM! Lots of promises, but no delivery. The test is in the pudding and it has yet to prove it is profitable. Reminds me of 1998 tech bubble bursting.
Maybe time for Rod to resign as Ceo and put out an international job position for CEO? Can us shareholders do this?
Xero - kind of fitting that it also describes how much profit the company has made to date - Rod is a walking ego who bends the truth when he see's fit - as shown by the $800,000 accounting move - throwing his toys when someone dares to question the company results and future - a perfect example of how a CEO should not behave...well done dick head
Dear NBR. This website would be more professional if it wasn't hijacked with personal attacks from an Anonymous poster with a grudge (competitor?). It would work better if you required an email address for posts.
Dear Mr Anonymous. Your arguments would hold more weight if you used your real name in future - and less hyphens - in all your messages.
Nothing wrong with anonymous postings James. Freedom of speech and all that. Please NBR retain the Anonymous "feature"
Careful what you wish for...
This is the first time I have posted on this article - I have followed it out of interest to see the response from a CEO posting within the responses. (I personally don't think that was wise).
I am a potential buyer of Xero stock - not at the current price, at this stage I think it is tad high.
I note Xero hasn't responded to the points raised regarding the accounting changes - which if are as implied by the poster at Friday, May 20, 2011 - 4:17pm would put a whole new picture on the results. (Great post by the way Anon)
Chris Keall and NBR staff care to follow up on this question for us?
Sell Xero - Buy Diligent. All those who have backed Diligent at least can see cash and rising profits. However when Xero goes down to around 60 cents a share, which is what Xero is worth, its probably worth a punt as you have to take your hat off to Rod as an ideas man, but the need for commercial changes at Xero along the lines that Diligent took in 2008 is now very apparent. Slash costs, and stop the burn rate now.
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