Drury on whether Xero will follow PushPay's lead with US listing

Drury at this morning's AGM

Rod Drury on Xero's next steps.

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Forget about Rod Drury succumbing to peer pressure. 

The big tech news this morning was that PushPay plans to list in the US within 36 months.

But Xero chief executive Rod Drury says his company is in no hurry to follow suit. In fact, it seems to have been downgraded from something that was "always in the playbook" (as the Xero boss told NBR back in 2014) to something that's potentially in the playbook.

The immediate stumbling block remains the same: Xero has been a hit in Australia (where it's nearing 500,000 customers), New Zealand (where it's nearing 250,000) and the UK (where it had 212,000 subscribers as of March 31). But the US remains a tougher nut to crack (as of March 31, Xero had 92,000 customers across the US and Canada). And as Mr Drury has conceded before, American investors are parochial: they want to see success on their doorstep. Commonwealth countries don't cut it.

"For us, because we have a massive competitor in the US [Intuit], while we're already twice the size of them in subscribers and revenue outside the US*, and quite a bit more than that by revenue, I think US investors still want to see us making traction against them in that market," says Mr Drury, talking to NBR after his company's annual meeting in Sydney earlier today.

He says Xero's move into areas like AI and machine learning, combined with its push into front-office areas like employee expense reports, will ultimately see the US market move in its favour.

"Once that happens it will be natural to potentially look at listing in the US. But until then we're in a great position so there's no big hurry," Mr Drury says.

The Xero boss says that although PushPay and his company are both in the cloud, and PushPay touches on finance, they are otherwise very different companies.

Another difference: PushPay has most of its business inside the US, where churches have taken to its payment software for faith-based donations.

No more AGMs in New Zealand
It was the second year in a row that Xero has held its AGM in Sydney.

Will it ever return to New Zealand?

"Maybe for sentimental reasons," Mr Drury says. 

There are simply more investors, customers and analysts across the Tasman. 

"We're now so large in the Australian market. We're not just one of the biggest New Zealand tech companies, we're one of the biggest Australian or Australasian tech companies. It just makes sense to do this in the Australian market."

To emphasise the revenue point, Mr Drury showed the AGM audience a visual representation of ASX and NZX techs' revenue:


Source: Xero AGM presentation, Clare Capital. Click to zoom.

NBR asked Clare Capital for its original report, and the graphic in that is slightly less flattering because it puts Xero side by side with archrival MYOB, and includes operating profit (of which Xero has none at this point; there was no fresh guidance issued today).


Source: Clare Capital Tech Update. Click to zoom.

Still, Mr Drury's broad point stands: with its monthly subscription take now pointing to annual revenue of $360 million, Xero is indeed now one of the largest listed tech companies on either side of the Tasman.

Bump for the directors' pool
At the AGM, investors voted to support an expansion of the fee pool for non-executive directors from $850,000 to $1.4 million.

Chairman Graham Smith says no one on the board is getting a pay rise. 

Instead, the extra $550,000 will go toward luring two or three new directors.

What grounds will Xero be hunting in? Mr Drury says the UK is a particular point of focus at the moment, so it's possible one of the new board members will be recruited from that market. It's also possible someone from the US will come on board and/or someone from Asia, a relatively new territory for Xero.

Xero recently lost a director when Chris Liddell resigned from the board and sold his shares (to comply with ethics rules) as he joined the Trump administration as an adviser.

Mr Drury told the AGM audience in Sydney "Drury: "Chris is a great New Zealander and he's having a lot of fun inside the White House. Try his Instagram feed. It's a lot of fun."

NBR did try, only to find Mr Liddell's feed is set to private. He has yet to approve our request to become a follower.


Since its May 11 announcement of a narrower full-year loss ($69.1 million) and millionth customer milestone, Xero's shares have broken out of the $15-20 trading range where they've spent a lot of their time since its mid-40s bubble popped in 2014. Shares were flat at $25.80 in early afternoon trading. Click to zoom.

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* Worldwide, Intuit has 2.2 million customers for its QuickBooks Online product at the end of April while Xero had 1.035 million subscribers at the end of March. Intuit;s susbscribers remain heavily concentrated in North America. Sources: Nasdaq and NZX filings.


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1 Comment & Question

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Xero has never had trouble raising funds outside the NZX/ASX double-listing, especially with US-based Thiel a long-time believer in the company, so it makes sense that Drury has the whole US-listing thing on hold, especially since they are now cashflow positive on a monthly basis. I'm actually glad that we are keeping the shares "down under" - might help us retain this great techie for a long time to come, to our countries great advantage!

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