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."