Xro - xero

**blobbles** · 20-03-2013, 08:37 PM

I sold out at $5. At that point, it was overvalued on all my metrics by a long way. The thing it had going for it was it was fairly unique and growing well because of it.

Now, its lost its uniqueness. Intuit has an online offering AND the customers through Quickbooks online. Quickbooks online includes many features including payroll, that Xero doesn't have. How Xero will be able to move customers from a more fully featured accounting system in the US to one with less features is beyond me. Actually, I don't think they will be able to and I believe their growth in that market will stall or go backwards. They *may* be able to take most of MYOB's market share in NZ/Aus/UK. But even that will be a struggle now MYOB offers an online portal, has more features than Xero and has the customers to boot. Xero appears to be very good at getting Accountant firms to sign up, which leads to sales. But will this continue?

This is what I mean about competitors catching up. Good work for those that have hung in there, but seriously, its a good time to at least sell down half your holdings. Sitting on 1000% profits great, but just think about the risk with that company (the bubble bursting) vs the benefits you will get from a good dividend payer over the next 5 years if you utilise that cash. It will probably take 5 years for Xero to get to profitability IF all keeps going to plan for them and if you sell half you will still be in when the time comes. De-risk, de-risk, de-risk. You will still make a 250% profit (i.e. make your money back times 2.5), still be in the game, but can breathe a sigh of relief if the bubble bursts.

I aren't sour graping here (as I made a 100% profit in a pretty short time myself), I am just sending out a warning to all the riders. This appears to be a bubble. And bubbles eventually pop.

**winner69** · 20-03-2013, 08:50 PM

And bubbles eventually pop ....says blobbles

Some 10 years ago there was an outfit called Baycorp whose shares kept going up and up and up .....their sales were only 20 mill but the share price went from 2 times sales ....to 5 times sales ...to 10 times sales ....to 20 times sales ....and still people raved about them ....and it still went up ....and then knowing it was completely and utterly overvalued the chief honcho found a greater fool in Data Advantage who fell head over heels and bought Baycorp out for some ridiculous amount.

That greater fol is the backbone of the share market them .. Without them some shares would never keep going up

But for Baycorp shareholders the bubble DID NOT burst ......even though DAD had to take a huge write down a few years later

So hang in there guys ....there may be that greater fool out there ....the one who sees some strategic value in what XRO has

**blobbles** · 20-03-2013, 09:36 PM

Your right of course winner, there are definitely exceptions.

But as I remember, Baycorp actually made a profit. And dominated a legally grey industry that had two bit competitors before buying out its biggest one.

Xero is far from making a profit. And is in an industry against nimble, aggressive and incumbent giants who have shown they can step up to challengers.

If 9/10 bubbles burst and 1/10 bubble doesn't, then you are risking yourself believing that Xero is that 1/10. Which is why I recommend to people DE-RISKING if they still want to be in the game.

At the moment, the Xero share price appears to be like the current Chinese property bubble. Rich people selling investments to other rich people, with little to no substance behind the asset, with the purpose being the promise of greater profits in the future. There is no chance of profitability within 3-5 years. There is no chance of a dividend for probably 5 years and even then, it will probably be small. So just like the Chinese property bubble, I see it crashing to 1/3 of its value in the mid term (mid term being different for stocks than for property - I give mid-term as 1-2 years for stocks, 3-5 years for property).

But if people are comfortable with an incredibly risky stock, that's their choice. Just don't come whining on sharetrader if the bubble goes POP! Myself, I will look for a job with XRO next year and using my skills (finance database guy), hopefully to help them take over the world. At which point I probably won't be able to comment on here anymore! My current fair value price with future potentials built in for Xero is around $4. But I am increasingly worried over their competitors offerings which will give that figure a downwards trend if they keep stepping up. I want them to succeed though, don't get me wrong, which is partly why I want to work for them.

My question is what will happen to the share price if this year, they come in saying "We only increased our customers by 50% over last year"? Slowing growth at this point is simply not acceptable and will result in a massive sell off of their shares. Once they get to around 2-5 million customers (depending on what they offer) slowing growth will be fine but in the next year or two it would be a massive shock to the SP.

**biker** · 20-03-2013, 10:06 PM

Obviously wish I had bought in months ago, but the risk/reward equation is so out of whack I wouldn't touch it now.
Doesn't mean it won't double again in short order and a share price rising on momentum, expectation and very thin air is always fun to watch.

CJ · 21-03-2013, 06:42 AM

Originally Posted by SparkyTheClown

This is true bubble thinking, the likes of which was common in 1987.

Xero is on a Price/Sales ratio of 33.6 based on $40m likely revenue for 2013, and a market cap of $1.3billion

Intuit, its competitor in the USA has a P/S of 4.5.

Diligent, the only other comparable SaaS provider in NZ, which turns a healthy profit, has a Price/Sales of 10.

Xero doesn't even have a P/E because it doesn't have earnings (profits)

Congrats to those who have made lots of money. You risked, and got rewarded.

Those leaping in now, well, good luck to you.

I could live with a target price of 20x price/sales. It is a fast growing tech company and other US fast growing tech companies have been bought out at this price. 33.6x is far to high and will need some amazing US growth figures to justify that.

Intuit isn't a great comparison as it already has significant market share so its scope for growth is not there.

Diligent looks cheap on comparison and I would have though its price should also increase.

**Dentie** · 21-03-2013, 07:35 AM

I think Rod's talents are wasted in Xero. Given the state we are in as a nation (& the world for that matter), I think it is time we recognised his true value and get him into the Beehive. I am sure with his expertise, he will have things financially sorted in say, 12 months. I'd vote for him - based on his feats with Xero.

CJ · 21-03-2013, 07:37 AM

In the Herald today, Gaynors said he thinks 3 overseas investors are buying using 3 different brokers. Interesting times, this could go much higher but well above true value so far to risky for me.

Traders could have some fun though?

CJ · 21-03-2013, 08:18 AM

Originally Posted by Dentie

I think Rod's talents are wasted in Xero. Given the state we are in as a nation (& the world for that matter), I think it is time we recognised his true value and get him into the Beehive. I am sure with his expertise, he will have things financially sorted in say, 12 months. I'd vote for him - based on his feats with Xero.

Applying Xero's metrics to the country, if Rod was PM we would be facing larger and larger deficits but an exchange rate skyrocketing???