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Trash talk means rivals are struggling: Xero's Drury

Xero ceo Rod Drury takes rivals to task for "ridiculous" comments and fires some shots of his own. 

David Williams
Mon, 26 Nov 2012

Xero founder and ceo Rod Drury is shrugging off "trash-talking" by rival companies, saying it is a sign they are struggling.

Competitors Reckon, of Australia, and US-based giant Intuit took the start-up to task for "flawed" software and its chances of making more headway into the Australian and US markets.

"If you've got incumbent providers trash-talking us it's shows that we're absolutely having an impact," Mr Drury says.

"We are the No 1 threat to all of the incumbents."

He criticises Reckon for moving too slowly into cloud-based accounting, in which his company specialises, and he says Xero has "poked the bear" of Intuit by moving into its home turf.

Mr Drury also takes a crack at its main Australasian rival MYOB, which he says is more risky than Xero because of the huge debt of owner Bain Capital.

The comments come on the same morning as MYOB announces a $A125 million capital raising, partly to pay off debt.

Money claim 'ridiculous'

Australian rival Reckon's chief executive Clive Rabie said last week Xero might run out of money by September – meaning Xero will need more cash from investors, not that it will go broke.

However, Mr Drury dismisses Mr Rabie's comments as "ridiculous".
"That's not true. We've got plenty of cash and we've got plenty of ability to raise cash."

He would not rule out further capital raising this financial year, however, stating it was "always an ongoing discussion".

Mr Drury says listed company Xero has revolutionised the accounting software market in Australia and New Zealand by putting accountants and businesses on the same database, meaning accountants do not need to be charged.

Reckon and MYOB have business divisions dedicated to selling to accountants, he says, which will be hard to sustain.

He says Reckon does not have a history of building software – the company has grown from "Australianising" Intuit products – and "they haven't acted in the last five or six years".

Some Australian analysts are concerned about Reckon's long-term prospects over its split with Intuit, particularly how it will fund development without revenue from on-selling Intuit's products and how successful it will be moving online.

Reckon's share price (ASX: RKN) is $A2.34, about where it started the year, although it dipped below $A2.10 in May and traded above $A2.50 last month.

He dismisses the prospect of Mr Rabie's company buying Xero as "fantasy", saying Reckon's market cap is not big enough.

MYOB 'more risky'

Mr Drury says MYOB's hybrid software into the cloud has been "panned".

MYOB "community" pages show users of the new AccountRight Live online system are having trouble with basics like opening files and getting their computers to synchronise with the system.

"With that much debt on the books we would think MYOB is a much more risky proposition than Xero."

Xero's US growth has been good but it is early days, he says.

"We've seen lots of New Zealand companies go and blow their dough there by going too quickly.

"We want the team to hit a few milestones and then we'll put some more investment there.

"That's why we're really on the radar of Intuit. We've really poked the bear by turning up in their own country."

On Xero as a takeover target, he says the company has an "open dialogue" with all the "big boys".

"But it's something we're not really interested in and we've made that clear – we're building a long-term business."

"There's no desire at all to sell it."

Xero shares (NZX: XRO) gained 10% last week, and are down 0.6% this morning to $6.40.

David Williams
Mon, 26 Nov 2012
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Trash talk means rivals are struggling: Xero's Drury