UPDATED: Xero shares slammed again

Xero shares [NZX: XRO], which were thumped Friday to fall below $20 for the first time in a year, were down another 6.27% in late trading today to $17.95 — below the price ($18.15) at the time of its big $180 million capital raise close to one year ago today, which sparked a six-month bull run for the company's stock.

On October 16 last year, Xero issued 9.92 million shares at $18.15 apiece, to Matrix Capital Management, Peter Thiel-backed Valar Ventures and other US investors, as part of a capital raising to fund its growth plans in the US market. The escrow period which prevents investors in the capital raising from selling their shares, ends this week.

The online accounting software company was hit by negative commentary after its operating update Thursday.

Several analysts downgraded their 12-month price targets, citing what they described as disappointing US figures.

Xero said it had added 4000 US customers since March for a total of 22,000. Analysts had wanted to see faster progress.

Woodward Partners Securities principal Nick Lewis told NBR on Friday that the 9.9 million shares coming off escrow October 16 put extra pressure on Xero to show progress, or at least a plan for progress, in the US.

Analysts also noted that Xero's quarterly revenue growth (35%) was strong, but a slowdown on the year-ago quarter (31%).

At the height of its run-up, in March, Xero was worth more than $5 billion, making it the second most valuable company on the NZX behind Fletcher Building.

Today, Xero's market cap is $2.3 billion.

Earlier, Xero CEO Rod Dury told NBR his company was still in the early days of its push into the key US market. It was in the process of finishing payroll tax modules for all states, signing on more partners, and building a leadership team ahead of a possible US listing (Xero having hit the $US100 million annualised revenue run rate mark it was targetting before a Nasdaq IPO).

Xero, which has $171 million in the bank, has all the cash it needs for a sustained fight against North American incumbent Intuit, Mr Drury says. The move to the cloud has provided a strategic opportunity to break Intuit's grip on the small business market, and to woo the majority of small business customer who have never used any accounting software.

The company will focus on growth over profit until it hits the million customer mark, he says.

At 4pm Xero shares had settled at $18.09, down 5.54% for the day with just over $3.5 million worth of shares traded.

"The market isn't dumb and knows the new amount of stock is essentially freed up for sale," James Smalley, director at Hamilton Hindin Greene, told Businessdesk. "Particularly if it is a low liquidity stock, that can't help but have an effect on the short-term shareprice. Obviously the long-term share price is driven by the performance of the business, but in the short-term senitment and simple demand and supply is what moves share prices.

"No one is really questioning their dominance of the Australasian market, and to a certain degree the UK," Mr Smalley said.

"The size of the multiple they were trading on and the market capitalisation they had was implying almost a seamless way to move from New Zealand to Australia and to the UK, that they were going to get that sort of take up in the States at the same speed."

Further weighing on the stock, Smalley said, was a shift in offshore sentiment, as investors fret over a possible stall in global economic growth, particularly in Europe where weaker German data is causing concern the continent may slip back into recession. Growing geo-political tensions in Ukraine, Syria, Iraq and Hong Kong as well as the threat of Ebola has added to uncertainty in the market. The NZX 50 Index fell 1 percent in morning trade to 5173.413, to its lowest since late August.

- additional reporting by Businessdesk