Xero doubles revenue and goes for growth

SHARES in the New Zealand accounting software developer Xero Ltd surged yesterday as the company said year-to-March revenue will double and it is now running at an annualised rate of more than $NZ20 million ($15.4 million).

By InvestSMART · 27 Jan 2012

By InvestSMART ·
27 Jan 2012

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In the year to March last year, revenue totalled $NZ9.3 million, with the company now indicating this financial year's revenues will reach $NZ18.6 million.

"Committed monthly revenue is now $NZ1.75 million or $NZ21 million annualised," it said. The chief executive, Rod Drury, said the company is chasing revenue growth and is not making any forecasts about when it will be cash positive.

"We're driving the business for growth," Mr Drury said. "The incumbents in the US and Australia have left the door open.

"We're in such a hot space we have a lot of people looking to invest in the company. It would be easy to raise cash if we need to."

Xero, which is listed on the New Zealand Stock Exchange, has raised capital from the likes of MYOB founder Craig Winkler, as well as the PayPal and Facebook Inc co-founder Peter Thiel.

It has an online accounting software offering that has taken advantage of cloud computing to undercut rivals such as MYOB and Intuit, which has accounting software marketed locally.

Mr Drury said that existing accounting software companies were finding it difficult to develop online offerings that could compete with Xero.

Xero shares closed at $NZ2.89, near their all-time high of $NZ2.95.

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Frequently Asked Questions about this Article…

What revenue growth did Xero report for the year to March and what do the numbers mean for investors?

Xero said year-to-March revenue will double compared with the prior year. Revenue was NZ$9.3 million in the year to March last year and the company indicated this year’s revenues will reach about NZ$18.6 million, while also saying it is running at an annualised rate of more than NZ$20 million (about US$15.4m). For investors, those figures signal rapid top-line growth as Xero scales its online accounting business.

Why did Xero shares surge and how did the market react?

Xero shares jumped after the company announced the strong year-to-March revenue figures and a higher annualised run-rate. The stock closed at NZ$2.89, near its all-time high of NZ$2.95, reflecting investor enthusiasm about the growth update.

Is Xero cash positive and has management given guidance on profitability?

No — Xero’s chief executive Rod Drury said the company is focused on chasing revenue growth and is not making forecasts about when it will be cash positive. Management has prioritized building the business rather than providing a timeline to profitability.

How does Xero’s cloud accounting software position it against competitors like MYOB and Intuit?

Xero’s online accounting offering uses cloud computing, which the article says has allowed it to undercut rivals such as MYOB and Intuit. According to CEO Rod Drury, incumbent accounting software companies are finding it difficult to develop competing online offerings, leaving opportunities for Xero to capture market share.

Who are some notable investors in Xero and what does that indicate for potential investors?

Xero has attracted capital from prominent backers including MYOB founder Craig Winkler and PayPal/Facebook co‑founder Peter Thiel. Their involvement can be read as a vote of confidence from experienced technology and software investors, which may matter to everyday investors evaluating the company’s support base.

What does Xero mean when it says 'committed monthly revenue' and what are the figures?

The company reported committed monthly revenue of NZ$1.75 million, which annualises to about NZ$21 million. 'Committed monthly revenue' refers to recurring revenue that management expects each month and is a way to show the stability and scale of the subscription business.

Can Xero raise cash easily if it needs to, according to management?

Yes — CEO Rod Drury said Xero is in a 'hot space' with a lot of investor interest and that it would be easy to raise cash if needed. That suggests management believes capital markets would support additional funding as the company grows.

Where is Xero listed and how can investors trade its shares?

Xero is listed on the New Zealand Stock Exchange (NZX). Investors who want exposure to the company can buy or sell its shares on the NZX through a broker that provides access to that market.