Xro - xero

[JohnnyTheHorse]

When exuberance and blind buying enter the market, you sell furiously.

I don't hold XRO, but if I did I would have no idea whether to sell or hold even longer at this point. Once the dumb money dries up, I suspect that this stock is going to have a massive correction. The dumb money may push it well past $10 before that happens though. Anyone buying now is either brave or stupid... actually no, I'd say they are probably just stupid.

Don't get my wrong, Xero is a fantastic company that has very good future prospects. It's just that the SP is a few years ahead of where it should be.

[Dentie]

Thought I'd throw some interesting numbers at y'all:

Total Issue: 117,188,024
Market Capitalisation: $1,001,957,605 (@855)
Earnings/Share: -11.12 cents
Price/Earnings Ratio: -76.89
NTA/Share: 31.97 cents

Looks like the P/E ratio is bang on for a high-growth company, only that it has been totally turned around and has a - in front of it!

I'm just a learner Moosie ... does that mean I should get in now ??

[Dentie]

Sarcasm? I can't tell. But no, absolutely not. If anything I suggest DIL, it's just starting its rampage as it has just broken through major resistance. Might still have time to buy today...

Yes to the first bit Moosie (sorry!). I am learning this all though so really do appreciate your's and other poster's comments. Thank you.

[Toasty]

I am at the stage now where I get angry when I refresh the direct broking depth page and the share price hasn't gone up in the 3 minutes since I last looked. I may be losing perspective on investing and straying into the "this time its different" and "the market will never go down" mentality. I am almost hoping the market will close soon so I can get some work done.

[Toasty]

LMAO, she is a cruel mistress the depth page she is! If it's making you lose work/sleep/anything else then I suggest you sell up and take some profits and money off the table. It's a beautiful time to sell and you should be happy selling at $8.60, even if you bought at $8 a week ago! Remember, it's only money and most of all, DON'T GET GREEDY!

I am way past greedy. I bought at 90 cents and $1.00. Sold enough to recoup initial investment and some profit and sat on the rest. Now I'm paralysed...:scared:

[Toasty]

I'm one of those people who feel cheated if I sell a stock 1 cent below its all time high. Not ideally suited for sharemarket investing. Lol

[winner69]

Methinks XRO will beat RYM to heading FBU off as #1

The RYM guy spoke too soon

[Stranger_Danger]

Winner69 - would you like a little bet on that?

[winner69]

Winner69 - would you like a little bet on that?

why ... you reckon it won't eh

prob be taken over and we will never know ... but a billion plus may be too rich for that but as the market depends on greater fools there must be one out there who sees 'strategic' value in XRO

[maddog]

What's intriguing about most of the comments made yesterday is that not one was about the fundamentals of Xero's business. It was almost all about what the share price may or may not do and whether or not to hold or sell shares - and all based on speculation about what other people may or may not do.

I have no trouble with those sorts of issues being discussed - it is after all a share "market" where stocks are traded and perception is reality, at least for that moment in time. But I would have thought there would have been some discussion about Xero's business and its prospects which is what after all its valuation is supposed to be based on - that is unless of course it is a genuine bubble when sheer irrationality is all that determines the price and its all a game in which the last deluded person to come to their senses is the one who loses.

There is nothing in the public domain about Xero's business that can possibly explain what has just happened or the level of its share price. That means its either rumour-based speculation (which is what I hope it is) or people trading with knowledge that the rest of us don't have ( I hope it's not). Either way its a dodgy position for a stock to be in.

If anything Xero's market has got harder in the past month. For example Reckon is releasing a new cloud accounting product and Intuit has just dropped its prices for Quickbooks Online. Xero trades in a very tough market, has strong competition and continues to lose money at an extraordinary rate. These are the issues that should be considered. One day the market will catch up with the reality of Xero's business. I think thats more likely than Xero's performance catching up with the current unreality of the market.

[maddog]

Moosie, I did comment on an action taken by Intuit to lower prices on a competing product and Reckon's announcement of a competing product.Those are both fundamental issues that have been announced in the last month.

[Toasty]

Just fresh from reading the latest round of vitriol on NBR. I don't mind comments that explain why people think a company is not a good bet when it is supported with a rational analysis or explanation but I really can't stand the inane "its going to crash", "you are going to get burned","its a ponzi scheme" crap that seems to be the favourite of the commenters on there. For a business publication it seems to have a fairly low quality readership.

[maddog]

Ditto for lack of focus on fundamentals in the NBR. All the discussion is about whether or not it is a bubble.

[CJ]

What's intriguing about most of the comments made yesterday is that not one was about the fundamentals of Xero's business.Hard to talk fundimentals when there is no new news. We need to know the US and UK take up. 1 Jan should have been a big day in the US - time will tell.

I had a buy in target of around 6.5 after selling out at 7.50ish. Didn't quite get that low unfortunately and have now missed the boat. I would be getting nervous at current levels if the sales numbers dont stack up in the next announcement.

[Toasty]

Fair enough Toasty, we have been caught out trying to call the top a few times but have yet to do so. It's a good business and all, and will survive, it's just the Share Price is quite insane. If you are looking at selling out watch the market very closely and get a feel for when the steam is starting to run out. It looks like it is starting to on the depth this morning, but I could be totally wrong and it could hit $9. In the end it is your money and you do with it what you may, but feel good about the decisions you have made (I would) and ignore everyone on here if it's getting too emotional.

Its just the NBR rubbish that I object to. I like the commentary on this site as its overwhelmingly rational and people support their arguments with facts and statistics instead of personal attacks and emotion.

[CJ]

Could index buying have been the driver. Rod and other major holders sold down recently so would that increase the free float, plus the share price is up since the last reset, and therefore weighting in the index.

This whole index weighting seems to be a dark art. They announce who is in but they dont announce weighting, making you rely on your broker (I assume) for more info. Index weighting should be available to all on the NZX website. (or is it and I am blind)

[Dentie]

Looking at the depth....someone looking to sell 2000 at $12.50.

Must think there is still plenty of dumb dosh out there looking for a home

[CJ]

Looking at the depth....someone looking to sell 2000 at $12.50.

Must think there is still plenty of dumb dosh out there looking for a homeSomeone said that about Snakk at 0.35c. No harm in putting a hail mary sell offer in. Your pray may be answered.

[Dentie]

Exactly, who knows what can happen with this kind of exuberance pervading the market. Chuck 'er in and see where she goes!

Can't be long before Rod, Sam and Co start to dribble out some of theirs, if they haven't already (or would that be gush....)

[Toasty]

Can't be long before Rod, Sam and Co start to dribble out some of theirs, if they haven't already (or would that be gush....)

Why would they do that?

[Zaphod]

Yes, Rod always refers to Xero as "beautiful accounting software" in his presentations and always takes the time publically crap upon the competitors. It always keeps me chuckling away!

[Toasty]

I didn't see it but apparently a NASDAQ listing possibility was mentioned on a TV1 news show this morning. I didn't see anyone mention it above. I imagine that this is some of the drive behind the price?

[Toasty]

If you feel better Toasty, I am getting to the point where I need to consider the implications of not selling DIL and looking for that absolute top. Hope you didn't listen to me today and held XRO!

I'm hanging in there. I'm also on Trademe looking at cars......cool cars....

[CJ]

Jeez, beat DIL to it! I doubt it will be too soon as they just listed on the ASX. NASDAQ may be first, but what about the LSE as well? Britain is now a major market for XRO...If they were thinking about the NASDAQ, why would they have bothered with the ASX - Triple listed?

I think they will stay away from the UK after Endace experience. Plus their major VC backers (ie Theil) are US.

[Toasty]

A confidential source (my mum) messaged me this morning to say that she was watching a TV1 segment about Xero and then another source (Uncle) texted to say that a TV Business report had mentioned a NASDAQ listing. Would all these high quality sources put me wrong?

[Toasty]

Cool mate - I hope you didn't perceive my comments as doubting your credibility, or your Mum or Uncle for that matter;) . I just wanted to see the full details for myself!

Not at all. I want to see it as well. I couldn't find the news segment at all. I wonder if they wait a day or so before they put them on demand?

[CJ]

NBR has a article that meantions NASDAQ. well the heading does, it is behind the paywall and I dont have access.

[Toasty]

here an NBR link
http://www.nbr.co.nz/article/xero-market-cap-hits-cool-1-billion-ck-136959
just started reading it - the potential $55 per share by 2019 comment caught my eye though ;)

Its behind the paywall for me. If you could just do a brief 17 page summary that would be great. I see that there are many comments. Is the usual suspects calling it a ponzi scheme?

[Toasty]

Awesome. Thanks Turmeric

[winner69]

55 bucks ..... hey stranger that would put xro ahead of rum and maybe #1

[Toasty]

I'm comfortable with $55. Preferably US$.

[Blendy]

By the way, who else holds both DIL and XRO?? Hi fives all round huh! It's been a bumper week!! Double digit gains on each stock!! And as I write the next ask on DIL is $8!
I do :) It's been a pretty amazing week!! High Fives for sure!

[robbo24]

The Xero Cycle starts again :)

[Everwood]

Xero got about 8 minute segment on Fox Business. http://blog.xero.com/2013/03/why-we-...professionals/ (http://blog.xero.com/2013/03/why-we-love-accounting-professionals/)

[Zaphod]

Until the accounting software incorporates boobs or the Mona Lisa, it ain't beautiful!

LOL! Perhaps there's an easter egg embedded in Xero that will satisfy your requirements! :P

[Stranger_Danger]

LOL! Perhaps there's an easter egg embedded in Xero that will satisfy your requirements! :P

God, don't tell people that. It'll add about 300 million to the market cap.

[Novitiate]

Xero got about 8 minute segment on Fox Business. http://blog.xero.com/2013/03/why-we-...professionals/ (http://blog.xero.com/2013/03/why-we-love-accounting-professionals/)

What a great plug for Xero into the American market.

[Blendy]

i laughed at whoever put in a sell at $37 - surely a joke??!!

But seriously, this is getting crazy - I sold out half my holding last week at $8.50 - I'm tempted to sell the rest now at nearly $10 and be exceptionally happy with the amazing profit. I can always buy back in next week if it does a big correction....

[Silverlight]

So a $9.50 price concludes that on the averege P/E for stable global tech companies of 15 - 25 that XRO will at some point in the "near" future be generating 45m - 74m in profit, which at a forcast margins of 25% is 180m -300m in revenue...

Still a long way to go for the fundamentals to catch up with the price action.

[CJ]

So a $9.50 price concludes that on the averege P/E for stable global tech companies of 15 - 25 that XRO will at some point in the "near" future be generating 45m - 74m in profit, which at a forcast margins of 25% is 180m -300m in revenue...

Still a long way to go for the fundamentals to catch up with the price action.
Why are margins only 25%. Once they get to scale, I would have though 40%+ like DIL

[Silverlight]

Why are margins only 25%. Once they get to scale, I would have though 40%+ like DIL

Sure thing, make margins 40%, still need revenues of 110m to 185m, and then control costs and be profitable...

[Everwood]

i laughed at whoever put in a sell at $37 - surely a joke??!!

But seriously, this is getting crazy - I sold out half my holding last week at $8.50 - I'm tempted to sell the rest now at nearly $10 and be exceptionally happy with the amazing profit. I can always buy back in next week if it does a big correction....

I agree a correction will eventually happen, but I have no intention of selling any of my shares right now. I intend to hold on to my shares for at least another 2 to 4 years, even though I now have 818.53% return on my investment.

[Huskeez]

dentie, was it also you that posted this exact same comment about xro on an nbr article re peb about 5 months ago when the xro price was about $5?? ooooooooooo

[Toasty]

Dentie, was it also you that posted this exact same comment about XRO on an NBR article re PEB about 5 months ago when the XRO price was about $5??

Maybe he's "The Doctor"

[Toasty]

That NBR link seems to in the general population now.

http://www.nbr.co.nz/article/xero-market-cap-hits-cool-1-billion-ck-136959#comment-610248

[CJ]

That NBR link seems to in the general population now.

http://www.nbr.co.nz/article/xero-market-cap-hits-cool-1-billion-ck-136959#comment-610248Haters gona' hate.

Chris nailed it with this comment in the article:


But no amount of financial modeling, or analysis of industry trends so far, can tell us whether Rod Drury and co - smart cookies that they are - will succeed in reaching a tipping point in the US as they schmooze their way around industry events and accountant conferences, partner up and otherwise finagle into the North American market. Or whether incuments will get their finally act together, or insurgents suddenly appear over the horizon.

[Novitiate]

Is anyone here using Xero? Am thinking of signing up for the new financial year.

[biker]

So a $9.50 price concludes that on the averege P/E for stable global tech companies of 15 - 25 that XRO will at some point in the "near" future be generating 45m - 74m in profit, which at a forcast margins of 25% is 180m -300m in revenue...

Still a long way to go for the fundamentals to catch up with the price action.

Nothing quite like momentum trading to take your paper profits higher. Until it doesn't...........

[CJ]

Is anyone here using Xero? Am thinking of signing up for the new financial year.Yes. I moved my Brothers company to it so I could help out from 300km away.

Easy to use. bank feeds work great. Different to MYOB so there is a transition period as you get use to it. They took a little while to get use to it and mentioned a few extra clicks needed sometime though they have improved that. Would recommend as it is very intuitive to use.

[Toasty]

Is anyone here using Xero? Am thinking of signing up for the new financial year.

I have two companies on it plus I work at an Accounting firm who moved to it wholesale. Nothing wrong with MYOB but I could never get my head around it. I'm going to sound like an advertisement for Xero but I actually look forward to having transactions to reconcile even if its outgoing. Something about pushing that little OK button. Its also cool being able to see the clients unfolding situation in real time.

[Dentie]

Dentie, was it also you that posted this exact same comment about XRO on an NBR article re PEB about 5 months ago when the XRO price was about $5??

Hi Turmeric. Not sure but if I did, then I'm happy with my consistency. If you are following my posts, then you will know that I am clearly a learner at this game - and openly state so. I am not trying to be deliberately negative - unlike some. I have been asking you more experienced traders/investors to help me understand how XRO's SP has climbed and climbed and climbed but to date I have seen and heard and read nothing that convinces me the price should be more than a couple of bucks - at most. Huge growth in numbers, but no tangible assets, no earnings & none on the horizon (so no dividends), very small volumes, main players are selling down, plenty of competition looming (with deeper pockets) etc etc. I have even heard others use the word "Ponzi". I am not trying to be negative on XRO, just simply finding it hard to justify the SP. I find it hard to believe that people would scramble for this stock on the sole logic that one day it might start making money or that one of the big boys may acquire it. I can clearly understand why the likes of RYM has the SP it does, but I'm flummoxed by XRO. Help me out here please so I can add your knowledge to my ongoing education.

[CJ]

Dentie - somewhere on this thread I did a back of the envelop calc for their market value if they hit their target of 1m customers. Do the same yourself and you will see why people are buying. Costs won't keep escalating at the same rate they are now and at some point, each extra client will cost them nothing addition to service.

Disc: sold out at 7.75. I expected it to drop more and missed the re-entry. Not buying at these levels

[POSSUM THE CAT]

Dentie I am of the same opinion as you it is just like a Ponzi scheme or as others call it The Bigger Fool Theory. each to their own opinion. And only time will prove who is correct.

[maddog]

CJ - its not just about costs to service though that is obviously very important. I've been waiting for some improvement in that metric but am yet to see any signs of it happening. It's been seven years now and the costs keep going up at the same rate as the income - just at a higher level.

Just as important are the costs of acquiring new customers, the rate at which Xero retains the ones its got, and the average spend per customer. I don't know about Xero's retention rate but from what I have seen its costs of acquiring customers are very high and the average spend per customer is less than Xero wants.

For all its profile Xero has not mastered quick, cheap sign-up - if it did my views will change. I continue to suspect it will be pressured to achieve its grand targets because it will prove uncompetitive on pricing. As mentioned here before I'm a big fan of the Canadian accounting service Wave's free business model (and it has mastered quick, cheap sign-up - its growth rate dwarfs Xero). And there are also many other very good and cheaper products now on the international and local market, with more on the way.

As I wrote a few days ago, I believe the current share price is either a speculative rumour driven bubble, or else some people know something genuinely significant that is not in the public arena. Either way its not good news for Xero in the long-term.

[CJ]

Re costs:
IT costs on R&D are the same whether it has 1 customer or 1m. There is a increased cost for customising for different markets but assume customisation is fixed at current markets (NZ, Aust, US, UK).
IT costs on hosting etc are per customer (bandwith and storage) but are minimal
Sales staff is one area where costs have ballooned. They are doing this for rapid growth (ie. targeting accountants). At some stage these should plateau.

I think it is the latter that I am concerned with. They are ramping up sales staff at a fast rate than the sales they are bringing in. Until you see this increasing but at a slower rate than sales, it is not clear whether their strategy has worked.

As noted, I sold out thinking the price got ahead of itself. Until I see traction in the US (or it gets back down to my buy price - which was in the $6 range last time I reviewed) I am not interested in investing.

Wave looks interesting but it isn't as refined as Xero. I think I would use Xero, despite the cost, unless the business was very small. We are only talking $600 per year - how do you value your time. If it saves you 6 hours a year compared to wave, and you charge out at $100 or more (or get in sales at that rate) then Xero is worth it.

[macduffy]

I don't offer a view on the merits of XRO as an investment but the discussion reminds me of the situation with Sky TV back in the days when they were expanding rapidly but making hefty losses. It was argued that they would never reach break-even, let alone make a decent profit, because of the continuing capital expenditure needed to service new customers. Indeed, some said that more customers only meant bigger losses as technology evolved and required new equipment at each point.

Big differences between these two companies of course, not the least of which being the monopoly position that SKT holds in the NZ payTV market. I don't hold XRO but have done very well, eventually, with my SKT holding.

[Anonymous]

Someone asked yesterday about the merits of Xero as a product and I see now some chat about Xero vs Wave. I've had 3 businesses on Xero for a couple of years now and all transferred from MYOB. Xero is streets ahead of what MYOB was when I left. Having had no previous accounting experience I learnt heaps from the simplicity of Xero. There are certainly things I would like done better (mainly around multi currency reporting) but Xero is the best I have found. It seems expensive, especially if you were buying direct from Xero but I think you should be able to justify a discount from you accountant from using Xero due to the ease of use from their end (I certainly have).

Also, having heard Wave talked up on this site about a year ago I have tried it on another small venture I have which I was previously just using a spreadsheet for and have kept using Wave for almost a year now. Wave does not come close to being competition for Xero and I do not believe you could get by using Wave for a serious business. Wave's market is solely for people wanting a free basic service and don't mind the advertising. I agree Xero is missing out on that lower end market by not offering a cheap service but is that really where the money is made anyway?

In saying all that, I am about to have a fight with Xero as I close down one of the companies and want to maintain access to the data for 7 years which Xero is trying to refuse me. If anyone has any experience in this regard please let me know.

[Zaphod]

In saying all that, I am about to have a fight with Xero as I close down one of the companies and want to maintain access to the data for 7 years which Xero is trying to refuse me. If anyone has any experience in this regard please let me know.

I struck a brick wall with this so I ended up running the reports I would require in the future and downloading a copy of the complete dataset.

[maddog]

Most of the possible market of many millions that people talk about for Xero is made up of very small businesses that are very cost conscious. Something like 70% of all businesses in any country have no employees and most of the rest have 1-2. They mostly want simple, cheap products. A product like Wave suits many of them perfectly. Xero is actually overkill for most.

I am not too worried by how good a product Wave is at the moment - they have only been going two years, but are well funded and will keep on improving. What I think is truly disruptive about Wave is their pricing model. Sometime soon another free accounting service will launch, and then another . . . and then those still charging will be fighting for a smaller and smaller market of those prepared to pay.

For all its technical innovation Xero still has an old style commercial model. Sometime soon somebody new will start calling Xero an "incumbent" and beat it with an equally good product but delivered with more value.

[CJ]

Also, having heard Wave talked up on this site about a year ago I have tried it on another small venture I have which I was previously just using a spreadsheet for and have kept using Wave for almost a year now. Wave does not come close to being competition for Xero and I do not believe you could get by using Wave for a serious business. Wave's market is solely for people wanting a free basic service and don't mind the advertising. I agree Xero is missing out on that lower end market by not offering a cheap service but is that really where the money is made anyway?

In saying all that, I am about to have a fight with Xero as I close down one of the companies and want to maintain access to the data for 7 years which Xero is trying to refuse me. If anyone has any experience in this regard please let me know.Xero has more basic offerings only avaliable from an accountant - called 'cashbook'.

I think going forward, XRO will have to offer a data retention plan. Say $50 per year paid x7 = $350 in advance and then pay extra if you actually want to look at it again.

[tosspot]

this is getting insane $9.80 now. and i sold out at 7.60 so frustrating

[Toasty]

$9.80 and climbing. I wonder if we will make the $10 today? My inner resolve is cracking and asking me to bail with the (sizeable) profit. I love the company but I would really like some sort of concrete milestone to make me feel better about the relentless rise. Perhaps a surprise, "we have just hit 300k customers"....or something.

[maddog]

Toasty - like I said - its either a speculative bubble or other people know something you and I don't. Both are worries.

[Blendy]

hmmm. the last little bit of my holding is the next sell. I guess then I'm out! I'm very pleased :)

[Blendy]

hah, in the time of writing that, they sold. Wow!
Hmmm, but now what to reinvest my entire xero holding in? Or wait til it corrects and buy in again?

[Anonymous]

I struck a brick wall with this so I ended up running the reports I would require in the future and downloading a copy of the complete dataset.

Yeah, agree this is what I am going to have to do.


I think going forward, XRO will have to offer a data retention plan. Say $50 per year paid x7 = $350 in advance and then pay extra if you actually want to look at it again.

I also think this is the obvious solution to offer a 'read only' subscription and can't believe they haven't.


Most of the possible market of many millions that people talk about for Xero is made up of very small businesses that are very cost conscious. Something like 70% of all businesses in any country have no employees and most of the rest have 1-2. They mostly want simple, cheap products. A product like Wave suits many of them perfectly. Xero is actually overkill for most.

I am not too worried by how good a product Wave is at the moment - they have only been going two years, but are well funded and will keep on improving. What I think is truly disruptive about Wave is their pricing model. Sometime soon another free accounting service will launch, and then another . . . and then those still charging will be fighting for a smaller and smaller market of those prepared to pay.

For all its technical innovation Xero still has an old style commercial model. Sometime soon somebody new will start calling Xero an "incumbent" and beat it with an equally good product but delivered with more value.

I agree Wave would be suitable for a lot of very small businesses. But I do not think that any business that would otherwise have paid for an accounting service, be it Xero, MYOB or anything else, would choose Wave. It is just not up to much technically and it is a big leap of faith moving your business' financial records online fullstop, let alone to a free provider which makes its money selling advertising.

I certainly would never pay a cent to Wave, but then again you don't have to!

I think Xero shareholders (of which I am not), should be far more worried about one of the big boys (MYOB etc) releasing a product which is just as (or more) innovative than Xero at cheaper subscription rates. The big boys have the brand recognition etc that people would feel comfortable and trusting with moving their records to the cloud without fear of losing everything. I imagine it would be just as hard for some US business contemplating moving everything online to some tech start-up in NZ as it would for me to trust my records to some freebie provider in Canada.

[Stranger_Danger]

I struck a brick wall with this so I ended up running the reports I would require in the future and downloading a copy of the complete dataset.

In all honesty, if it is not possible to keep your records for 7 years in the system, what sane person would use such a system to comply with their obligations?

I wonder if all of the people trying to get their data out are being counted in the customer numbers?

[Toasty]

Why so many off market trades? Really noticeable today.Forgive my ignorance if this is normal

[Toasty]

Thanks Moosie. Does that mean people are selling privately? Who to?

[Toasty]

Whoah, and theres the $10. Now what?

[Dworsf01]

Strange.. I just got a strong wiff of tulips..

[Toasty]

Its whiff, and it might be poppies

[Dentie]

Profit-taking at the top. SP is moving upwards just because it can and people are aiming for $10 now. Ridiculous.

Greater fool theory now applies.

Well, now you've said it Moosie ..... I feel vindicated. Lemmings .............

[CJ]

I would like to know how much tax XRO is going to start generating for NZ when it does become profitable and why the government isn't supporting more firms like this with a vengeance!Quick answer: 28% ;)

Long answer: depends on how they structure their overseas operations and where they locate the IP.

The risk is that XRO could relocate their IP to a low tax jurisdiction. The CFC rules should catch this. But what if XRO gets taken over and the whole company moves overseas. Then all the revenue is lost.

The Government does support - it has receive millions in R&D grants that dont need to be repaid even if sold overseas. Read up on Endace on the NBR for the debate/argument between Selwyn and Joyce.

[Toasty]

State money, handouts, have gone to XRO and his other efforts in the past...

And Xero have a few hundred people working in NZ as a result. State money, handouts have gone to plenty of other people and last I heard there weren't many WINZ or Working for families recipients providing employment for other people.....

[Toasty]

Rods made enough noise about it being a Kiwi company taking on the world etc that it would be a pretty tough sell to relocate for tax purposes. I would like to think they will stick by that stance and pay their tax here.

[lastmoa]

And Xero have a few hundred people working in NZ as a result. State money, handouts have gone to plenty of other people and last I heard there weren't many WINZ or Working for families recipients providing employment for other people.....

Here Here!

[CJ]

Good if they pay their fair share of tax, even at a much reduced level, but the last thing I want to see them do is totally tax dodge like Apple, Google and the likes have in recent years. Lord knows our tax laws (and any laws really!) are pretty weak...First step to paying tax is to have a (taxable) profit, something that has (deliberately) eluded Xero so far. They have over $35m of tax losses carried forward per their last stat accounts.

They are many years away from paying income tax. Lots of PAYE though, based on all those high paid employees in wellington.

[Dentie]

Hi Dentie, first and foremost I am also a learner, so maybe I wont be that insightful ;) I have though been invested in XRO for a while.

My gripe with posts such as the one I referenced is that these tend to be posted without any reasoning what so ever. They come across to me as unnecessary and unhelpful. The post in the NBR article on PEB (maybe you, maybe not) made me laugh in this regard. I am used to seeing these types of comments in the Xero thread, but this one was posted in response to an article on PEB (nothing to do with Xero), it was so out of context it just made me question even more why people would make such comments? Of course everyone has the right to an opinion, I just feel that when people comment on any stock suggesting it is overvalued it is only reasonable to expect some sort rationale to back that up. The thing that I have tried to point out in this thread, to both people posting these types of comments, and additionally to people considering investing in Xero, is that these comments have been made all the way from about $2.5 to $10 and have therefore (to this point) have been way off the money! I happily accept however that an investment in XRO comes at high risk, and long term it may not be succesful. I just hope potential investors in Xero haven’t been deterred by these comments and encourage them to do their own research before making a decision. To this point most people could quite easily have invested in XRO and mitgated their risk by taking their initial investmetn off the table. I have done this as I am sure many others have too.

In terms of my thoughts on Xero, well as a relative newbie, I don't have any fancy formula to determine a fair SP. I was introduced to the company by someone I trust a great deal back when the SP was around $1. I subsequently did some basic qualitative research on the company, looking at the management team, directors, and talking to a some XRO staff members. I also spent a good amount of time talking with accountants and small business owners who use Xero to get their opinions on the product(s) Xero is selling. I have continued to do this as the company has grown and from day one I have been impressed and I still am now. Arguably my rationale for investing may be a little bit weak, but certainly it is great deal more informative than the posts which get up my nose ;)

In terms of addressing some of the concerns you have raised about Xero, there will be many people with far more knowledge than me to do this, but for what it's worth here is my opinion:


I stand to be corrected on this one but given the nature of Xero's business I don't see tangible assets (other than cash in the bank) as particularly relevant. And I reiterate, as at Dec 2012 Xero had $85m NZ cash.


I guess you mean profit, and yes, for me this is the biggest concern and the greatest unknown, but it is prudent to remember XRO is very much still in growth phase and this costs a lot of money. Costs, contrary to what others suggest here, will come down significantly once the heavy investment into entering the US and UK markets subsides (CJ has made this case in mcuh more detail), and I believe XRO will begin to be highly profitable eventually. Using PEB as an analogy, as I know you are invested there, it should not be a surprise when people invest in a fast growing company which is not profitable IF they believe the future is bright. People believe this to be the case in PEB, in XRO, and in many other companies in their relative infancy so I don’t see non-profitability as a big red flag at this very moment.


This needs to be put in context. The sell down from Drury, Morgan et al was off the back of significant US investment, most notably a second round of investment by Peter Thiel. While I agree it is never good news when directors and senior management sell down, in my opinion and in this case it was far far outweighed by the additional investment from the US.

Look, at the end of the day an investment in XRO is not for everyone, I just hope people who are considering it do their own research and are not put off by some of the flippant comments which pop up every time XRO’s SP climbs.


Thanks for your insights Turmeric. Our differences clearly lie in the different way we approach the question ... "why should I invest in this (or any other) company". Whereas you appear to make your decision to invest relying heavily on the fundamentals of a firm, I tend to "check" (& keep checking) the fundamentals, but rely more on Technical Analysis. My questions (& comments) therefore are formed from a technical viewpoint. In that regard, all I was trying to say is that "in my opinion" the technicals in XRO do not in any way justify a SP of $10.00 (& rising by about 50c a day!). I have still not had that answered apart from some who say it is based on what may happen in the future. In that regard then, if the future happens to pan out the way they are hoping, then does that mean the SP will climb even further ... given it has already supposedly been priced in now? This is where I have difficulty understanding.

I very much am invested in PEB - for both fundamental and technical reasons and am happy to be there - for now.

[Stranger_Danger]

Far out, this is pretty much going up in a straight line now.

I've decided to change my mind and declare it undervalued. We are clearly in a "new paradigm" and I'm quite sure "this time is different".

Given the number of eyeballs that look at Xero, and compared to the number of eyeballs that look at other things in other places, I conclude that Xero is trading at a reasonably low Price/Eyeballs ratio and is therefore undervalued.

Crack out the old Prince records. Let's party like it's 1999.

[Blendy]

I've decided to change my mind and declare it undervalued. We are clearly in a "new paradigm" and I'm quite sure "this time is different".

I conclude that Xero is trading at a reasonably low Price/Eyeballs ratio and is therefore undervalued..

Price/Eyeballs Ratio(tm) - love it!

[Whipmoney]

Far out, this is pretty much going up in a straight line now.

I've decided to change my mind and declare it undervalued. We are clearly in a "new paradigm" and I'm quite sure "this time is different".

Given the number of eyeballs that look at Xero, and compared to the number of eyeballs that look at other things in other places, I conclude that Xero is trading at a reasonably low Price/Eyeballs ratio and is therefore undervalued.

Crack out the old Prince records. Let's party like it's 1999.

Brilliant. I'm glad I cashed out of the buble at $10. Whoop whoop.

[Toasty]

Given the number of eyeballs that look at Xero, and compared to the number of eyeballs that look at other things in other places, I conclude that Xero is trading at a reasonably low Price/Eyeballs ratio and is therefore undervalued.



I always wondered what P/E ratio meant. Finally a definition I understand.

[Dentie]

Yes, I think you are spot on in your assessment of our different approaches, you make a lot of sense. I hardly know anything about TA, although I am trying to learn a bit. Someone recently posted on their thoughts of TA v fundamentals, maybe Sparky? and I very much fitted into that viewpoint; while the principals of TA do not sit that well with me in terms of making my own investment decisions, I do believe it is an important aspect of investing to understand, particularly in terms of how the markets work, hence why I am trying to learn.
We can differ on our view point on XRO, I think that is a good thing. I now have a much better understanding of where you are coming from and respect that view point.

From what I can observe Turmeric, Moosie also seems to have a good understanding (& accuracy) of TA and I find his posts quite helpful in this regard. I use them to either confirm (or make folly of) my own attempts at TA analysis.

[Dentie]

Far out, this is pretty much going up in a straight line now.

I've decided to change my mind and declare it undervalued. We are clearly in a "new paradigm" and I'm quite sure "this time is different".

Given the number of eyeballs that look at Xero, and compared to the number of eyeballs that look at other things in other places, I conclude that Xero is trading at a reasonably low Price/Eyeballs ratio and is therefore undervalued.

Crack out the old Prince records. Let's party like it's 1999.

Given it is so undervalued, perhaps Rod & Co will start buying back the stock?

[Stranger_Danger]

Given it is so undervalued, perhaps Rod & Co will start buying back the stock?

Nah, if Rod is as smart as I give him credit for, he'll be on the lookout for his Time Warner...

[Toasty]

Not true. there aer lots of people who are working for families recipients that are employing people .... actually quite a lot!

I amend my quote to WINZ then...I should be on safer ground there? Although you could argue I guess that they require a whole Government department to keep them in money...

[robbo24]

Look at the 5 year chart for XRO.

That big jump since last week isn't based on any amazing announcements... How does one make rational sense of that?

[robbo24]

hope that helps :eek2:

roflmao!!!

[lastmoa]

Look at the 5 year chart for XRO.

That big jump since last week isn't based on any amazing announcements... How does one make rational sense of that?

Interesting to superimpose DIL on the XRO 5yr chart, you mention. Same tracking without the exuberant jump .... yet.

[Toasty]

Explanation of price rise: Bubbles and tulips look pretty to investors and they are attracted like moths. They enter a new paradigm land and live in awe of the unicorns, fluffy kitty cats and other magical creatures. They suck nectar for all its worth.

But low and behold, the nectar is not endless. Once that nectar runs out, they re-enter the universe of the living. Some get trapped and wither and die within the once magical land. Others turn into nasty trolls and eat internet users because they were speared in the bum by a unicorn. Owwww.

Hope that helps :eek2:

Yeah, its all fun and games til you get speared in the bum by a Unicorn.

Interestingly enough I rang Pacific Edge Biotech and they said that I now have enough in XRO that they can build me a unicorn...

[winner69]

Borrowed this from elsewhere

Doesn't the rate at which a bubble inflates accelerate dramatically just before it bursts?

[Toasty]

Borrowed this from elsewhere

Doesn't the rate at which a bubble inflates accelerate dramatically just before it bursts?

That may be so but wasn't it Audrey Hepburn who said "Nothing is impossible, the word itself says 'I'm possible'!"

Something to think about....

[iced]

wouldn't mind putting a straddle on xro at the moment given the option..

[winner69]

Good week for XRO wasn't it

Inane post but jeez there hasn't been one for half n hour

[Dentie]

You might be right, the trouble I have is that often comments made re XRO, with presumably a TA rationale, do not in fact provide the rationale. So anyone who reads the comment at its face value, may often just infer that the stock is a dud and investors should stay away! You know what I am talking about right? "Watch out below", "it's a bubble", "It's trading on this air"..... If comments such as these could be backed up with some explanation, I could then find them informative, and maybe learn something at the same time. Otherwise, IMO, they should just be disregarded.

The other thing is that while yourself, Moosie, and whoever else might be good technical analysts (and by all accounts there are some very good ones on ST who post very informative comments), TA does not seem to have a very good track record when it comes to XRO, in terms of these types of comments on this thread. So I wonder if a bit more caution should be taken when posting comments which seem to be advising people to stay away, or at the very least, be a bit more explanatory as to why they are posting such strong warnings. I’m not having a go at you here by the way, just trying to explain where I am coming from. What do you think?

I'm sticking to my guns that, even in my amatuer opinion, XRO is so overpriced when considering both TA & FA. It doesn't make sense to me and from what I can see a lot of others as well. For example, my Accountant told me the other day that MYOB online product can either sit on your desktop - or go in the cloud whenever you want...whereas XRO is only in the cloud. I like the former options thanks. The only reason that I can think of for the sharp rises is a possibility of a lack of full disclosure to the market. But, that is impossible right - given our laws in NZ?

[Toasty]

Sold a small lump at $10.80. Feel a bit calmer now.

[robbo24]

But, that is impossible right - given our laws in NZ?

NZ laws aren't so bad, good transparency for investors but not so much as to be a pain to business.

Remember, and this is probably more true for the likes of Solid Energy, sunlight is the best disinfectant and artificial light is the best policeman!

[CJ]

For example, my Accountant told me the other day that MYOB online product can either sit on your desktop - or go in the cloud whenever you want...whereas XRO is only in the cloud. I like the former options thanks.
Xero software, being in the cloud is always the latest version.

With MYOB is is possible your online and offline data can be out of sync.

I also understand myob version isn't as comprehensive. Maybe wrong with their latest update.

Agree it is overvalued though

[Toasty]

Here is *************s take on the matter. He seems to be getting more and more strident about it http://*************nz.blogspot.co.nz/2013/03/share-price-alert-xero-ltd-3.html

I usually like reading his commentary but he really hates this stock. So far he has failed to get any predictions around XRO right... Maybe he's just angry about something...

[Everwood]

There is a positive article about Xero on the Forbes website.
http://www.forbes.com/sites/groupthi...ccounting-fun/ (http://www.forbes.com/sites/groupthink/2013/03/14/kiwi-startup-does-impossible-makes-accounting-fun/)

It’s good to see they are now getting more exposure in the U.S.

[brucea]

Several years ago I took a punt on a few speculative shares - Bis Technologies (great product but poor marketing), WDT (liked the "green" potential), Charlies ( liked the owners), Rakon (seemed promising but - sigh) and finally Xero (liked the concept and the backers). I stuck with all these investments and for a long time the total value of the shares was 30% below the original investment. However recently the portfolio is 50% up due to the rise of Xero shares. I will hold on to my Xero shares as I consider the company has a huge future. I have had so called blue chip shares in the past but have found them boring. I would never recommend any speculative shares however as was embarrassed a few years back for encouraging a friend to buy a small parcel of Blis shares and we know how they have performed! Such a shame with Blis as I thought they had a greater potential than even Xero!

[Toasty]

Now a billion dollar company ... and still to return a profit ... T.O. talks must be underway !!!

I hope so. I am not good with speculative stocks. Messes with my blood pressure. A resolution would take all the uncertainty away.

[Microsloth]

Winkler on a winner at Xero...........

http://www.smh.com.au/business/winkler-on-a-winner-at-xero-20130315-2g5sx.html

[Dentie]

interesting calculation that the current sp gives each customer an intrinsic value of $9000 each when in reality it averages more like $350 p.a.! priced in indeed. xro is going to need to maintain that phenomenal growth or were going to see some major pain soon since a takeover is not going to happen. anyone thinking of buying in right now is insane.

Oh don't worry moosie, the myopic believers are that entrenched by all the whoopla ... they'll be back again tomorrow at 10am with chq books open scrambling to get in while they can. And where did they get the funds from????....my guess is from what has dripped back from their last investments ...ie - finance companies and other second tier lenders etc.

It would be interesting to know out of all those who have clambered to get XRO shares from about say, $??? onwards - how many have done the type of background research and analysis that most informed investors would normally do? And, given from what I've read on here, I qualify my comments based on just how many investors/traders/founders couldn't get their original investment capital off the XRO table quickly enough. Are they true believer's? I certainly know what their answer would be ..... risk management. However, it is very easy to invest when you're using somebody else's dosh.... if it works great - but if not, who cares eh? In the meantime, the XRO casino moves on ......... roll the dice please.

And no, I am not a XRO hater. Like more and more commentators & posters are saying, I just do not think the business performance justifies the SP and it hasn't done for a long time. Hopefully it will in the future, but for now, it is gambling - plain and simple. It just happens to be XRO in this case...it could be any business.

[Stranger_Danger]

Surely you're not suggesting someone would buy Xero shares with borrowed money?

That would be pure madness. The management have disclosed - from day one - that this is a risky venture (executed wonderfully well, so far) and I doubt they'd be a big fan of buying the shares with borrowed money.

That isn't because the company is bad or the shares are overvalued - you just wouldn't buy a non income producing stake in a loss making company with borrowed money.

If you did, then frankly, I have no sympathy for you and ask only that you don't ask for yet another Government bailout or something!

[lastmoa]

Yeah, attributing the meteoric rise of Xero's SP to the opportunity investors are realising in the SASS model sure spells signs that others (eg, DIL) should also see comparable rises. The subscription models for good SASS coy's that have a good product (that's gaining traction) is a good space to be. Additionally beneficial that many are only just cottoning on to all this now.

[Blendy]

Thiel's $24 million and US hedge fund Matrix Capital Management's $58 million > Toasty, Blendy, and Turmeric :eek2:

oh i don't know - with our powers combined.... oh wait, I don't think we come anywhere near multi millions of dollars :)

@Dentie - I've been trading Xero since the mid-$2 and sold out completely over the last few weeks between $8.50 and $10. It's not that I couldn't get my investment capital off the table quick enough as you say, it's just that while I think Xero is a great company, I felt the price was pretty outrageous and I might as well take advantage of that and cash up. I fully expect to buy back in if/when there is a sensible correction. Hope that helps!

[CJ]

@Dentie - I've been trading Xero since the mid-$2 and sold out completely over the last few weeks between $8.50 and $10. I fully expect to buy back in if/when there is a sensible correction. Hope that helps!Given you started selling at $8.50 you need a big correction, or does the fact it got upto $10.50 mean your buy in price is above that. Do you have a ball park buy in range.

Disc: when I sold at $7.75, my buy back was target $6.50. It never got there and I missed the bus. Haven't recalculated and am waiting to see US customer numbers before I do so.

[Blendy]

I haven't done any recent calculations to be honest, and will probably reinvest into something else (don't know what yet) while I wait to see what happens with this. I would be aiming for something in the $7's, but who knows - like you say it might never get there and I could be out for good. Even so, I am very pleased with my selling decisions.

[Xero]

In saying all that, I am about to have a fight with Xero as I close down one of the companies and want to maintain access to the data for 7 years which Xero is trying to refuse me. If anyone has any experience in this regard please let me know.

Hi all - I just wanted to pick up the comments about accessing data - as you’re aware we do archive customer data for 7 years if a subscription is cancelled, but yes, access is currently dependent on the payment of subscription. There is the ability to export your data before cancelling a subscription. In regards to read-only access, this isn’t something we currently offer, but we're certainly actively discussing this.

If anyone wants to discuss further in general or for a particular subscription or getting access to your data please feel free to email our Billing Manager, Tina on billing@xero.com - she's offered to call or email anyone who is concerned. Thanks.

[Toasty]

If anyone wants to discuss further in general or for a particular subscription or getting access to your data please feel free to email our Billing Manager, Tina on billing@xero.com - she's offered to call or email anyone who is concerned. Thanks.

Well, thats pretty responsive. Share price should rise on that response...

[Jay]

Also shows they are monitoring the sight - good on them

[Anonymous]

Hi all - I just wanted to pick up the comments about accessing data - as you’re aware we do archive customer data for 7 years if a subscription is cancelled, but yes, access is currently dependent on the payment of subscription. There is the ability to export your data before cancelling a subscription. In regards to read-only access, this isn’t something we currently offer, but we're certainly actively discussing this.

If anyone wants to discuss further in general or for a particular subscription or getting access to your data please feel free to email our Billing Manager, Tina on billing@xero.com - she's offered to call or email anyone who is concerned. Thanks.

Hi Catherine

Firstly, thank you very much for your response. I have noticed Xero has always been very proactive in responding to comments etc on various websites which must be good for PR.

However, my first step was obviously to take it up with billing@xero.com a month or two back before complaining anonymously on an internet forum. Unfortunately their response was "Thanksfor your email, however as you're not the subscriber for an organisation inXero we're limited in the information we can provide to you."

This response was presumably because my subscription is via my accountant with the implication being that it is my accountant that 'owns' all the financial data about my business and not the business owner (me). This response was also something that I wasn't particularly happy about and short of asking my accountant to take up the argument (at more expense which I obviously want to avoid for a business that I am closing) I guess I have to accept the inevitable that my data is inaccessible going forward. It will be interesting to see what happens when an accountant and their client have a falling out and the accountant essentially has the power to lock the business out from accessing their own accounts...

Anyhow, yes I can (and will) export out all the data but getting it in raw form on a spreadsheet is not quite as helpful as being able to drill down into historical sales etc for which I will need (I am actually merging the two businesses so I do need to be able to go back).

From a Xero's perspective I feel that Xero is missing out on another very simple to effect revenue stream. There would be no additional 'coding' or website development needed as all you would need to do would be to take over the subscription yourselves and change my user permissions to 'Read Only' and I would happily pay a nominal fee to keep this going. Plus you would be able to keep me on the books as a subscriber when you next release your subscription numbers and want to rocket up your shareprice another $5...

Anyway, thanks again for your response and despite the above, I do like the product.

Cheers

[Lease]

Have a look.

[winner69]

Following on from hoops fund managers chats over drinks -


Jeez that XRO done well for us lately

Yes haven't they .... didn't have a clue who they were or what they did until the got into the 50 and we had to buy some

Yep me too .... couldn't afford to be out of step with the market could we

Doesn't seem right holding so many when they don't even make a profit

And heck they are priced at 20 times sales

Buit just as well for indices otherwise we would have missed out - at least our investors think we are pretty smart

Way its going up at the next reweighting will have to buy even more .... heck even more invested in a loss making venture

One of early mentors said never never never speculate with other peoples money on a dream of one person but I keep telling myself the times have changed

Just as well for the index eh .... gives you a chance to do a bit of speculation eh

Yep - if it wasn't in the index mandate would not have allowed me to buy XRO

Easy game this looking after peoples money eh .... hardest part of the job is convincing people we are gurus

What sort of car you going to upgrade with this yaers bonus

[Toasty]

$11! I'm speechless.

[GRIFFIN]

Ok sharetrader family what are the chances of XRO doing a share split.

[Everwood]

Ok sharetrader family what are the chances of XRO doing a share split.

This might happen in May when they release full year results, if the stock retains these price levels.

[blobbles]

Prediction for next week's Xero announcement:

Rod Drury takes a dump, looks like virgin Mary.

Result: $15 share price!

I have no idea how the price of this stock has made it an over $1 billion company, to me it just doesn't make sense. Everyone seems to wet their pants over any announcement they make which to me screams wildly over valued. People do realise other companies are catching up with Xero's tech right?

[Toasty]

I'm very confused, how do you even begin to analyse a fair price for these shares?

DISC: Not holding

Its actually very easy. You sit glued to the screen at work and click on the refresh button every 30 seconds or so. Then frantically search Google for some news that drove the latest rise. Finding nothing there you refresh to check the latest rise. Work doesn't seem that important when you are making your monthly salary every couple of days. Occasionally the pressure gets to you and you involuntarily unload a block of 500 or a 1000 and that calms you down for a while.

[lastmoa]

My oh my, I leave for days and XRO is way over $11! The SP crash is coming, can't wait to watch it, just as I watched it go up!

I would use the word 'correction' rather than 'crash'
Sure the SP seems to have gone up further than I would have envisaged, I still do believe in Xero and have been impressed with the delivery. Whilst there next quarter results will show increased expenditure (and subsequent loss), as indicated by Rod, if there is still good uptake figures, in particular from USA and UK, I feel we might get some correction but then who knows how far it will go. There BHAG of 1million customers seems doable given time.

[Stranger_Danger]

Ok sharetrader family what are the chances of XRO doing a share split.

Higher than the chances of reporting a profit?

[tosspot]

wow this is incredibly painful to watch. It just keeps flying and im missing out on all these profits becuase I keep thinking it wont go any higher. surely $12 will be cap for some months to come.

[cloesd]

wow this is incredibly painful to watch. It just keeps flying and im missing out on all these profits becuase I keep thinking it wont go any higher. surely $12 will be cap for some months to come.


6 Months ago they were saying it won't go above $5,

Now they're saying it won't go above $12.

6 months later they'll be saying it won't go above $24.

You know what they say you gotta do if you hesitate...

[JohnnyTheHorse]

I suspect people are going to get seriously burned here. Anyone buying in at these prices is absolutely thick. It is in bubble territory now. All it takes is one announcement saying that new sign ups have slowed and this stock will be at $5 in no time at all.

For those who bought in MUCH cheaper, well done! Must be great to have 100% increases on your original investment each day. Just make sure you get out if it looks like its heading south.

[cloesd]

Why does the price keep going up?

[winner69]

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.

Don't be a party pooper sparks .....alls fine on the western front

I never had any XRO cos I got pissed of with the software ....just didn't seem to work the way it was touted for a couple of medium size businesses I have an interest in .....and no payroll or interface as part of the package was another problem ....that was a year or so ago so things may have changed

For me that makes the XRO story even more amazing but heck what the hell do I know...those who have stayed on board have done well .....congratulations to you all

[winner69]

Both have persevered with XRO but still wouldn't rave about it ....the software that is

[Everwood]

Even if the stock goes down, it is nice to see 1,011.90% return on my investment. I do believe this company will be worth a lot more than $11.50 in the future, but not right now. This is becoming little bit ridiculous.

[blobbles]

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]

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]

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]

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]

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]

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]

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]

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???

[Toasty]

Good to hear Moosie - that should take us up to $12 by days end...unless the PM has anything to do with it ;)

Yeah. Its a new paradigm and its different this time.

[Whipmoney]

I'm cringing at the small retail investors who have bids in for blocks of 220, 780 and 80 at $11.80 + ...... lambs to the slaughter :(

[Whipmoney]

Hate to be a broken record, but these are the same small retail investors that everyone felt sorry for at $5, at $7, and again at $8.50 right?? Just trying to ring a little balance to the thread.

Whilst you may be right, they must have a very strong sense of anticipation of some (more) good news.

Even if the news is consistently good at some point the company will have to be valued on it's real (positive) earnings and even if the company were to have earnings per share of say 10 cents ($11.71m NP) then the company would still have an insanely high P/E Ratio of 115 x.

Given that the company is yet to have even turned a profit, and that even at the above earnings level it looks overvalued then i'm happy with my view.

Time will tell I guess however and I wish the best of luck to those still buying in.

[JohnnyTheHorse]

This could be worth a short sell. If you can time it right you will absolutely cream it! Might hit $20 first though ;)

[Newman]

The trading volume is very small. It would keep going up until a big shareholder start to sell. It is an exciting game for those who could tolerate a potential loss.

[CJ]

Even if the news is consistently good at some point the company will have to be valued on it's real (positive) earnings and even if the company were to have earnings per share of say 10 cents ($11.71m NP) then the company would still have an insanely high P/E Ratio of 115 x.Back of the envelop:

1m user target x $360 average revenue per year = $360m Revenue
Assume they get efficiencies so costs capped at $100m
NP $260 x PE 10 -15 = $2.6 - $3.9B

So they are half way towards low end of range. The issue is:

- they are only 135k/1m = 14% towards there target number of customers.
- they have shown no sign that costs will plateau as their customer base increases (Note: DIL costs as a % of revenue is falling sharply and I would expect the same to happen to XRO at some stage, provided Rod doesn't change the target from 1m customers to world leader!)

[cloesd]

The trading volume is very small. It would keep going up until a big shareholder start to sell. It is an exciting game for those who could tolerate a potential loss.

The big investors will hold on until the price stops rising. The price won't stop rising until they sell out.

Whop, there it goes. Reaching towards 12. So much doom and gloom on this thread lol.
This thing is like the apocalypse first they said 2000, then they said 2013, now they're saying some other date/price.

Itl'l stop rising when it stops rising. People seem to have big demands for this share, maybe they know something we don't.

[CJ]

It's a sellers market in XRO right now. Just depends when the biggies want to start selling. As soon as one gets started, it's all over...
The biggies are mostly 'insiders' so only have specific windows when they can sell.

[Toasty]

I think the wonderful thing people are forgetting is that no matter what the company markets, it's still a company and therefore needs to make money. They could have a billion customers yet still be a failure if they did not turn a profit and were simply going deeper into debt. This is what happened during the dotcom crash; debt piled up while the SP went up on expectation and when the companies did not deliver to shareholders expectations, they crashed. A SP of $12 might be defendable one day far in the future, but right now it is built on hopes and dreams.

At the end of the day, INCOME IS KING.

Always has been always will be.

Except this time...because its different and a new paradigm. Have you placed your shorts yet because you are keen for this baby to come down...

[CJ]

Yes, so you can't realistically value Xero at its current price based on a 1m subscription number yet when they are 14% of the way there.

14% of $3.9B is $540m, and $540m / 117m shares on offer is about $4.62.If you are going to cut it down to 14% based on current numbers, then you should apply a higher P?E than I did. Say a higher P/E of 25 since it is in growth mode = $910m or $7.77 per share. Still well short of $11.90 it is currently at (50% overvalued per my calc).

Which completely coincidentally, is only 2c higher than what I sold out at.

[Toasty]

Sold half my remaining at mid $11's. About an 1100% return. I suppose thats ok. Now to get the next big thing. PEB perhaps....

[CJ]

MYOB had over 1 million customers in 2010. That delivered them revenue of $175 million, EBITDA of $69 million, and an EBITDA margin of 40%. So if Xero had 1 million customers and was earning $360 million - this would make their product almost twice as expensive as MYOB. Do they have enough of a competitive advantage and product differentiation to maintain such a whopping price differential? My guess is MYOB was inflating its customer numbers. It may have that many using its product but how many are using the latest version. YOu buy MYOB for ~$500 in year 0. They make some updated the following year but you decide not to upgrade - you are a customer, but not a current customer as you haven't given any income in the past 12 months. With Xero, you are paying to have the latest version all the time.

I worked somewhere where we had to migrate data through 5 versions of software to get to the latest version of the software which was needed to run the latest version of windows. I assume they had been a customer for over 10 years but had never upgraded the software in that time.

[Toasty]

Not over yet. Still got a viperload left. Well and truly into gravy territory. The problem with these kinds of stories is that it makes it hard to buy shares which actually do what they are supposed to, like go up slowly over time and pay out a dividend now and then.

[Toasty]

My third one...congrats Toasty

Thanks Drongo. Of course now it will really take off and I will agonise over it...

[Toasty]

Meh. I don't know. Probably just watch and wait. I have spoken to a few of the call centre people at Xero and they seem to be buzzing. Apparently the customer count is climbing rapidly so I am keen to see what the results are when they are released. Is that june?

I don't pretend to know why the share price is so high but Rod is a singularly focussed individual and I respect his vision. He is also well connected in the states so who knows whats going on over there. It may come back in the short term but I still believe that there is greatness here beyond the scope of most NZ focussed companies. Hope thats not too grandiose.

Now off to the Porsche dealership...

[CJ]

Its accounting software. It has to be kept updated otherwise you are not complying with the tax legislation. How useful is a software program that accounts for GST at 10% when its now 12.5% or 15%? Ditto for PAYE payments when everyone's tax bracket changes each time the govt changes. Tax updates are not optional features like other software, its mandatory, otherwise you find yourself in jail after a nasty audit.Accounting software tracks debits and credits - has been doing so since the Romans (or was it the Greeks?)

Income tax calcs are not done in the accounting software (Xero has an add on in Australia and working on for NZ and US).
GST is normally a criteria that can be set, not require a new update (though transition can be hard)
PAYE is not done in accounting software (MYOB has payroll software but Xero doesn't, except for in Australia.
Even accounting standard changes (ie. IFRS) are just more debits and credits.

I can still use MS money for my personal finances and I bought that 8 years ago in the UK.

When I updated my Brothers business to Xero, their version of MYOB was out of date.

[Snow Leopard]

Bongo (Darren Rickard's nickname) no longer posts on Sharetrader and went and set up his own site due to people having a gutsful of him years ago. Or maybe he had a gutsful of everyone else. Others might be able to share.

He suffered a bad stroke around a year ago, so I don't really want to speak negatively of him, but I have had dealings with him in the past, and am pleased he doesn't post on Sharetrader anymore.

Would you be willing to bet, say a XRO share, on that?

best wishes
Paper Tiger

[Everwood]

Meh. I don't know. Probably just watch and wait. I have spoken to a few of the call centre people at Xero and they seem to be buzzing. Apparently the customer count is climbing rapidly so I am keen to see what the results are when they are released. Is that june?

I don't pretend to know why the share price is so high but Rod is a singularly focussed individual and I respect his vision. He is also well connected in the states so who knows whats going on over there. It may come back in the short term but I still believe that there is greatness here beyond the scope of most NZ focussed companies. Hope thats not too grandiose.

Now off to the Porsche dealership...

They will be releasing operating update in early April, and the full year results should be out in May going by previous years. Congratulations on your sale, but I have no intention of selling any of my shares just yet. I will make a judgement call after studying the numbers, but I will probably be holding for at least another 2 or more years.

Even though the stock fundamentals are out of whack right now, I do believe this stock has got a lot of more growth in value in the coming years. I don't really have any interest in selling right now, then guessing the re-entry point for this stock

[CJ]

It also says that PieFunds is invested in Diligent instead.From memory, PieFunds got out of Diligent for a while, locking its gains, then had to quickly get back in again. I think Milford is heavily in DIL as well, but not XRO.

[Toasty]

A couple of big international buys this morning. $11.51 and $11.83.

[Toasty]

I guess if you compared the two forecasts against the current situation you would have to argue that FB is well off the mark compared to Woodwards who seem to have been on the money with $12 albeit a few months out of synch...

[Toasty]

Thanks Drongo. Jeez there are some bitchy commenters on that site.

$600k sold overseas already this morning. Weird price spread as well. I bet the guy who paid $11.83 is a bit cheesed.

[CJ]

A couple of big international buys this morning. $11.51 and $11.83.Q - How do you know they are international?


Drongo - thanks for that. Can you provide the link as well?

Interesting that a price/sales of 20 appears to be validated as "normal". I'm not an expect in P/S, but it "felt right" for a growing company in the SaaS space.Its from the continually updating NBR article: http://www.nbr.co.nz/xero-nasdaq

I first saw the 20 x P/S mentioned in relation to US tech companies last year some time and was the basis of my buy into Xero as, on that basis, it was undervalued (really!!) at the time. I think it was the based on a number of big $ value take overs that were occuring. Yammer being one $B buyout by Microsoft. There have been a number of buy outs of new, fast growing tech companies by the likes of Oracle, microsoft etc who, in theory, can take the technology of the company and apply/sell it to their huge existing customer bases. By using their exsinting customer bases, I assume that justifies the high multiples.

Drongo - that $55 needs 4.2m customers. That is a long way off and not even XRO is targeting that (at least not publically).

[Toasty]

Q - How do you know they are international?



They have a little international abbreviation next to them on my depth list

[Newman]

[The article at NBR is password protected for subscribers only.

http://www.nbr.co.nz/article/xero-shares-‘over-valued-–-fund-manager--nk-p-137564

It also says that PieFunds is invested in Diligent instead.]

What is the MOTIVATION for a fund manager to say the share price of a particular company is over-valued or under-valued? Even the God would not know the exact value of a company.

[CJ]

They have a little international abbreviation next to them on my depth listInteresting.


What is the MOTIVATION for a fund manager to say the share price of a particular company is over-valued or under-valued? Even the God would not know the exact value of a company.My guess is they were asked so they answered. Fund managers get money because they make the right decisions. By putting out there for all to see, they can then be judged in the future as being right or wrong (risky but separates the strong from the weak). Whether you invest with Woodside or PieFunds in a couple of years time may well depend on which direction XRO takes, (or XRO in comparison to DIL). Plus to be managing millions of dollars of peoples money, you have to be strong in your convictions so why not disclose (once your position is taken - PieFunds newsletter is an interesting read)

[777]

CJ if you go to Direct Broking and click on "need some help" and then from there click on glossary you will find all the codes.

[Newman]

They have a little international abbreviation next to them on my depth list

What other abbreviations stand for? e.g., SP and OL. Thanks.

[Toasty]

What other abbreviations stand for? e.g., SP and OL. Thanks.

Sp is an off market trade and OL is a market trade too small for price setting.

I notice that there is an overseas code as well so not sure how thats different to international?

[CJ]

CJ if you go to Direct Broking and click on "need some help" and then from there click on glossary you will find all the codes.I use ASB. Their info doesn't seem to be anywhere near as comprehesive as Direct.

[Toasty]

Its dropping away gradually. Moosie will be happy. Nice round $11.00. I feel vindicated about the decision to get a chunk out yesterday although nothing emphatic yet...

[777]

ex Telecom workers have hope with XRO.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10872891

[Silverlight]

Thanks Drongo. Jeez there are some bitchy commenters on that site.

$600k sold overseas already this morning. Weird price spread as well. I bet the guy who paid $11.83 is a bit cheesed.

The International "trades" are not real trades. When brokers execute a trade on the ASX, or another overseas exchange, they re-report them back here from their own purposes, particularly market share statistics. Sometimes, they are genuine trades like arbitrage trading.

However trading in WBC or ANZ in NZ are good examples of trades that are not arbitrage, but solely market share stats boosting. No one has actually bought or sold those shares in NZ, more likely the NZ entity of a broker has some hand in the trade made on the ASX, and to boost their daily share of the market they report them on the NZX.

[maddog]

Its not just a case of worrying about a company (singular) coming up with a better product. Rather the worry is more about other parties (plural) coming up with products that provide better value or products better fitted to the various market niches. Xero is trying to suit multiple niches in multiple markets and thats a very tough game to win at.

BTW it is already a packed market with many excellent products - some already better suited to particular niches than Xero.

[blobbles]

Moosie,

SaaS (Sofware as a Service) startups (actually XRO is a bit past this stage) must move very, very fast as software development (DONE PROPERLY WITH THE RIGHT PEOPLE!!!!) doesn't actually take all that long and competitors can quickly catch up (6 months or less) unless you already have significant market penitration (> 40%). This isn't XRO just yet but it could be! They are doing it right!

BTW, if XRO are getting the right people they'll be paying $120k and more for them. In software development its better to have 10 of the right people than 40 of mediocre type. I suspect that many ex-TEL employee may not fit this description (as I hope TEL will be keeping the right people and losing the huge numbers of dross that seem to infest TEL).

Bang on belgarion, in fact in software development having 1 of the right person is better than having 100 of the mediocre type, as one person can completely revolutionise/drive/invent something new and exciting while the 100 simply drain resources compared to their input. Some ex Telecomer's though will fit the bill, I know a few people who are stifled in the Telecom environment, breaking out into something like Xero would be great for them and for Xero especially after a few years of being in the doldrums...

[Zaphod]

We pay experienced C# and PHP developers between $70-$85K depending upon experience. Highly experienced developers could see over the $100K mark.

I'd expect similar rates in USD for XRO's USA based team, but with the added costs such as health insurance plans etc.

[POSSUM THE CAT]

Zaphod At those rates are you employing trained Monkeys. Daughter thinks $85.00 per hour is petty cash for senior developers

[Zaphod]

Zaphod At those rates are you employing trained Monkeys. Daughter thinks $85.00 per hour is petty cash for senior developers

Try searching for the average salaries for developers in NZ - that should give you a good guide. To earn $176k+ as your daughter has quoted as being petty cash, you would need to either be a contractor or in a highly specialised field (e.g. SAP Developer).

[CJ]

Interesting read for anyone investing in Cloud/SAAS companies: http://techcrunch.com/2013/03/23/grow-to-dominate-in-2013-or-watch-someone-else-do-it/

I am not all the way though it but points 4 and 5 seem relevent to Xero.

For those not understanding the recent spike in XRO shareprice as US investors read point 4 - Paraphrased: "It doesn't matter if you pay 50% to much as it will catch up in 6 months".

[CJ]

And what happens when the price dives because the company never makes a nickel? Then you paid 100% too much!I out at the moment as well. Just using that document to explain the rational of US investors. If they are taking a VC type approach, they only expect 20-30% to do better than break even and make their money when one hits it out of the ball park.

If you were in Xero from day one, then it would count as hitting it out of the ball park - currently over 10x return. At current prices, I dont see it going 10x again, at least not for a long time, even if successful.

[Toasty]

C'mon Moosie. When is the collapse happening? It seems to be stalled at the current price but plenty of activity. Waiting on results maybe? What if the customer numbers support the whole growth theme. What do you think might happen?

[CJ]

So you're telling me those future numbers are not already priced in at $11 a pop? That means you believe there is plenty more upside short-medium term, correct? If there next release of customers justifies the current high price, then the SP probably will increase based on the next expected increase in numbers (ie. one step ahead)

[Toasty]

For the record Moosie. I don't mind your predictions as your opinion is consistent. You are either right behind the company or ready to push it off the cliff. NTL/PEB vs XRO, but I don't sense any ill feeling behind the comments. If I need negativity for any reason I just go to the NBR....

[Toasty]

And right on cue, XRO appears to be sliding away from its euphoric high. I hate to admit it but I would probably be okay if it retreated back a dollar or two because unless some fundemental change to the story arises I would be keen to put some of my profit back in.

[CJ]

Guess I just need to think outside of the box and wrap my brain around Mr Drury's style of thinking for a bit. That link I posted this morning is how US investors (VC's) view tech start ups and it is pretty much the play book that Drury is following. If you are interesting in investing in this space, it is worth a read as traditional TA or Fundimentals will never explain it.

[Stranger_Danger]

If you are interesting in investing in this space, it is worth a read as traditional TA or Fundimentals will never explain it.

Is that because....this time is different?

[yabster]

Great Post KW.

[CJ]

Is that because....this time is different?you are miss reading me. I'm not saying buy. I posted a 30 page doc which sets out very clearly the way that some US venture Funds look at SaaS companies.

These US investors are now buying in. The doc explains why they are will to pay more than most people.

Whether they are right or wrong, time will tell. But they only expect to break even 30-40%.

Thinking about it more, this is a reason not to invest, because unless you have the same business model as them (lots of early stage investments hoping for 1 or two biggies), you can't justify their prices.

[icekiwi]

Hi all. My first post here :).

Well, I was one of the people who jumped in at .90 or so with about 3000 shares, bought max amounts during all the SP offerings and I cashed out last week at 10.56. I really like XRO as a company and would like to still be invested, just not at these levels. Although they could run up to 20 dollars or so based on the bigger fool stuff, I'm kind of just relieved to be out now. I'll keep watching them and dive back in again if for whatever reason they get to 7ish.

I read the comments on one of the news articles about them a couple of weeks back. Someone posting that they were "addicted to doing their accounts" since they started using xero, to me there is no question it's a fantastic product that seems to be garnering a lot of customers. Not a very qualitative analysis but sometimes it's great (imho) to just listen to what the average person says about products or services to get a feel for it. But then again, some of the discussions in this thread have been great in terms of giving a more qualitative appraisal and I think mixing the two approaches together is a good way to go about it.

Example: you could have looked at the numbers and said RIM (blackberry maker) was a great company to invest in during 2008 (just after iphone launch), based on their profit making abilities, but their products were getting a bit ****e in comparison...

[GRIFFIN]

Welcome icekiwi well done, you would have to be happy with that result. It is difficult to know where the XRO share price goes to next and sitting on the side lines at these price levels may be the prudent call.

[Toasty]

Hi icekiwi and welcome aboard. I can attest to the addicted to accounts theme. I mentioned it in this thread a while back I believe. The first accounting package that actually grabbed my attention.

I also got in at .90c and $1.00 with all the extras and sold about half at 11:20 recently. Hard to know where this company is going as the traditional metrics don't seem to fit, so risky play. Happy to hold remainder however and watch the unfolding story, good or bad. Plenty of other commentators on here with good analysis skills, so keen to sponge off others knowledge.

[CJ]

Welcome IceKiwi ... I get what you're saying but RIM isn't a good comparison. RIM did fashionable devices and some basic software. XRO is pure software.I intrepreted differently. MYOB is like RIM with good profits but a crap product. XRO is like iPhone, a great user experience which will drive customer growth.

[Anonymous]

I intrepreted differently. MYOB is like RIM with good profits but a crap product. XRO is like iPhone, a great user experience which will drive customer growth.

And look at the performance of AAPL & BBRY in the last 6 months. Apple down 30% and Blackberry up 115%.

[Silverlight]

Just on some basic fundamentals:

XRO price to book ratio is over 20, compared to most technology stocks I track in the US the average is just over 3. There are exceptions where investors will pay a higher price because of intangible assets, but this usually alludes to a far superior brand power, like IBM, Salesforce or Micron, which have high single digit price book ratios.

XRO Price to sales was mentioned earlier at over 30, again my universe average is about 2.7 for tech stocks, again some trade at higher multiples, but the highest ratio in my US universe was again only high single digits, for the likes of Waters Corp or Red Hat. While XRO is an SaaS company these "tech" comparisons are a good indicator.

Now on the product side, I saw the Xero iphone app the other day, didn't download it but a lot of negative comments about the functionality.

[Toasty]

lol, want to compare apples with Apples please (excuse the pun)? BBRY (or the more sinister RIMM) is down 90%+ from its 2008 highs with massive debt and another full year loss ahead. Apple is down a meagre 30% from being the largest market cap company in the world with billions in profit and sitting in the bank. :t_down:

Lot of money in fruit produce obviously...

[Toasty]

Thanks KW. Just to confirm that I have no problem with your prposed scenario. If you could tell them to compress the timeframe I would be immensely grateful. Me and working just don't get along.

[CJ]

I know many tech entrepreneurs here in Australia, and its amazing how all of them have no intention of building the next Facebook or Google. They all just want to be bought out by Facebook or Google. I believe that if you have that mindset from the beginning, that you are not building a viable long term business, you will not be very successful and will be ultimately be shortchanging yourself. Why exit with a few million when you could have a few billion?

There is a company called Rocket Internet and all it does is copy successful online businesses in geographic areas where the original does not operate. They have over 100 online plays in about 40 countries. Their entire business model is to throw money at marketing the business until it is the #1 site in its location (in web traffic), then sell it to an offline company who feels threatened by it. Sometimes copying an overseas model works out for the founders - refer Trade me

And sometimes it works out for the purchasers - refer trade me.

[maddog]

Thanks KW

You ask some very good questions. From what I have seen and read Xero does not have any technology that is better than anyone else's and did not make any key advances. Xero has a wide range of price points but in general is more expensive. And it has no proven ability to generate profit margins.

I think there are four areas they have done well in. Their design is better than average. They have enabled a wider array of add-on partners than other online accounting plays. They have gained several key backers with deep pockets and they have created a nice sounding story about themselves and "serial entrepreneur" Rod Drury.

Is all that enough to be worth north of NZ$1 billion? Personally I don't think so, and I know many people who think likewise, but obviously enough other people do because that's the market value.

[Milky]

I've been a follower of this forum board for a while now and I've found it really useful to hear many different sides on XRO.

I've held XRO shares for a few years and bought into them after setting up my own company (sole trader) and needing something to manage my accounts. I found it to be extremely simple to use and when I compared it with Quicken and MYOB for me there was no contest. What's more is I found an accountant that supported XRO and got reduced fees because it was less work for them. Accounting systems are really "sticky" once you're using it it takes something special to get you to switch. This was the reason I bought into the shares, I could see how good it was and saw the potential for the future. That was at $2.50. (I also took advantage of the shareholder offer) At $7 I was happy to stay in a let my investment ride, considering this was one of my higher risk holdings. However the talk last week of this getting to $20 made me very nervous. I've been burnt before with other tech stocks, provenco, rakon, and a UK start up that was a 15 fold increase but went from conquering the world to bust in a matter of days.

So I've got out of XRO this week at $11. I'm happy with that profit. Unlike Toasty I'm not off to the Porsche dealership! That money is going to get me a new kitchen and bathroom. How middle aged is that!

It's not that I no longer believe that XRO is a great company with a great product but the rapid rise, particularly over the past few months, isn't merited in my opinion and I'm taking my profits before it comes back down to earth. When its at a more realistic price and is making a profit then I'll look at reinvesting.

Remember quitting while you're ahead is not the same as quitting!

I want to thank you all for your comments and I now need to start looking for my next investment. Any ideas for further research gratefully received

[Milky]

Thanks Sparky. We're about to get our house repaired after the Chch earthquakes so in in 6 months time our 110 year old villa will be as good as new. Actually better than some new homes with the leaky building issues.

[kizame]

Its very interesting also to note the chart of XRO, If you know the basics of Elliot Wave Theory,this stock does look ripe for correction.
But what will be the catalyst,or even if it will happen,but if you look at the chart,it has risen way too steeply,and for no other reason than the fact that a few more people know about it maybe.
Will be interesting to see what happens.

[artemis]

Brian Gaynor's take on XRO in today's Herald is worth a look. It focuses on how overseas investors see the company, which the NBR article did not do.

An extract: "Meanwhile, there is considerable debate over Xero's share price at present with many observers, including a highly successful fund manager, claiming that the company is hopelessly overvalued. This column is not attempting to justify the company's high share price but it is important to understand the way overseas shareholders, which now dominate Xero's share registry, may view the company. High-risk-oriented US investors buy into companies that have extremely aggressive revenue growth or land grab strategies as they try to obliterate their competitors."

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10874390

[winner69]

Interesting in the disclosures to that article in the herald milford don't own XRO shares

So the guru fund manager is truly active...prepared to not include a nzx50 stock in their portfolios instead of just hugging the index....good to see

[Stranger_Danger]

Just a thought. 4 out of 5 small businesses fail in the first 2 years. Doesn't bode well for continuity of the customer base.

That is the thing that most worries me about XRO. There is never any mention by the company of churn, nor any sign of it in their figures.

On the other hand, you see regular posts on their support forum, and elsewhere, from customers wanting "read only" access to their data after they cease using the service, and not being able to do so without continuing to pay.

We all know lots of businesses come and go. So, are they still paying under duress to access their data, or have they lost access to their data, or something else? What sort of numbers are we talking and where can we see this in the figures?

It isn't a massive issue whilst they're growing so fast, but would be nice to have some numbers.

[Huskeez]

That is the thing that most worries me about XRO. There is never any mention by the company of churn, nor any sign of it in their figures.On the other hand, you see regular posts on their support forum, and elsewhere, from customers wanting "read only" access to their data after they cease using the service, and not being able to do so without continuing to pay.We all know lots of businesses come and go. So, are they still paying under duress to access their data, or have they lost access to their data, or something else? What sort of numbers are we talking and where can we see this in the figures?It isn't a massive issue whilst they're growing so fast, but would be nice to have some numbers.They are praying interest rates go up :)

[Stranger_Danger]

Whilst the smiley suggests a tongue in cheek comment, that is something I hadn't pondered. The amount of cash they're now holding means the interest - even at low rates - will offset a decent amount of their loss.

[Huskeez]

Whilst the smiley suggests a tongue in cheek comment, that is something I hadn't pondered. The amount of cash they're now holding means the interest - even at low rates - will offset a decent amount of their loss.Other companys that fit the criteria eg Twitter, which is worth an estimated $10b

[winner69]

Whilst the smiley suggests a tongue in cheek comment, that is something I hadn't pondered. The amount of cash they're now holding means the interest - even at low rates - will offset a decent amount of their loss.

Now they listed on ASX you get to see quarterly cash flows and how much interest they get

https://www.nzx.com/files/attachments/170137.pdf

[BIRMANBOY]

Always interesting to see these growth stocks and how they develop. My partner sells/trains Quickbooks and tells me many new and existing business are wanting and moving to Xero. My comments are as follows...beware of growth stocks that stop growing because there is NO loyalty amongst shareholders. This means could be very volatile and if it stutters could cause a massive selling down and big losses for those slow on the trigger. Also at some point one might think that perhaps the company would become interested in actually making a profit instead of losing money. I know the model is expand and build market share and customer base but problem underlying is how much of the new growth and market building would be lost if the company priced products so they were making not losing money. Cloud based product is growing and lots of potential competition.

[CJ]

Agree. If they stopped their growth drive, they could be a successful small NZ accounting software provider making a good profit - but who wants to invest in a 25-50m company.

[CJ]

I would have liked to see more in the US as this is the key market. Australia looks promising but I think most of that had already been signalled??

[maddog]

My quick analysis suggests the results are mixed.

The Australian customer numbers are very strong.The New Zealand growth rate is slowing in percentage terms though steady in real terms - perhaps just starting to shown the first signs of saturation? The UK performance is poor considering the length of time Xero has been in that market and it is too early to tell anything about the USA.

There is the interesting comment that Australia has overtaken New Zealand as the largest regional contributor to revenue - despite there being 73,000 customers in NZ compared to 51,000 in Australia. This can be partially explained by pricing differences between the markets but the most likely explanation is that a much higher proportion of the NZ customers are on the much cheaper ledger service.

In hindsight, Xero should have gone into Australia in 2008 instead of the UK. At the time I thought this was a strategic error and I think this has proven to be the case. The UK is a much bigger market that Xero has been in much longer, and it now has 22,000 customers compared to 61,000 in Australia.

The New Zealand market is declining in relative importance as its growth rate shows the first signs of tailing off. And if growth in NZ is coming largely from ledger customers it is poor growth. That is a worrying sign.

Xero's long-term success clearly depends on what happens in the USA market. Will it grow strongly like Australia or be a disappointment like the UK? The SP seems to be based on the presumption that it will be like Australia, but it is too early too tell what will happen.

[maddog]

Hi Turmeric

I'm sorry I was not to be able to read your post that got deleted. I'm always interested in your thoughts.

Back in 2008 Xero chose the UK as its first offshore market to enter in terms of onground market presence. It targeted the UK, ahead of the more obvious Australia, as it must have thought there was more potential in the UK market. Hamish Edwards went over there and they put a lot of time and energy and presumably money into building the market. Five years later they have 22,000 customers and 27 staff.

A couple of years later Xero put staff into Australia, a market 1/3 the size of the UK. Three years later they have 51,000 customers and 71 staff.

Despite the greater potential in the UK Xero is now in a proportional sense reducing its focus on that market. It would not have done this if it had gone as well in that market as expected. Of course you can argue that what has really happened is that the UK has gone well but Australia has done even better than expected but I don't buy that.

Comparing the numbers versus the market size and the time in the market lead me to the conclusion that their performance in the UK was poor. Yes they are still growing there but not at the rates that I believe were anticipated.

If the USA turns out like the UK after 5 years there will be trouble for Xero. If it turns out like Australia it will be quite a different story.

[CJ]

UK not looking good so the fear is that US will go the same way.

To be fair to Rod and the Xero team, they have hit their forecast for the year (even if that forecast was a $15m loss). If they hit their forecast of 1m users, then all will be happy.

[Hooper]

Foreign Chartered Accountant’s view on Xero

I moved to NZ 4 years ago and have worked in CA in that time. I fell in love with Xero straight away and would call myself an expert in it now.
Xero thrives in NZ. NZ is the closest country to a cashless society as you will come across, along with Canada (it’s not a coincidence that cloud accounting is so popular there too). Xero & cloud accounting thrive in a cashless businesses.

I came from Ireland/UK. Far from a cashless society. Cheques are widely used (Very unpopular in NZ). Use of cash and cheques negates most efficiencies Xero provides. Multiple & complicated GST/VAT rates also means loss of Xero efficiencies. HSBC feeds costs an extra £5 a month, you can’t get HSBC feeds in NZ for this reason.

My little knowledge on US tax and sales tax (gst) tell me they vary state to state. Checks are very popular. Xero does not work well with cheques at all.

How will Xero compete and win in the United States? How will Xero compete and win in the UK?

Everyone seems to be saying it’s a superior product (I’d never make such a claim as I have never used the UK or USA competitors) It has created its eco system here in NZ, which is ideal and does make the product untouchable here. I would say it is impossible to create such an eco system in the UK or USA.

Australia is similar to NZ with one GST rate. Not as cashless which won’t help but it is the only market Xero should concentrate on. Itthen might actually make a profit.

There is a reason why MYOB never ventured beyond Australia & NZ.

And my view on the share price is accountants throughout the country are buying as my firm along with many many more have been converting all their banklink clients to Xero’s cashbook for the past 3-5 months to be ready for 1 April.

[CJ]

Boom - this is the sort of traction that I am looking for to make numbers grow quickly : http://www.accountingtoday.com/accounting-technology/news/Armanino-to-Shift-Small-Business-Accounting-Clients-to-Xero66275-1.html?tech

[oc01]

First post for me as a newbie to this cool site. Thanks everyone for sharing your knowledge here! I've had some Xero sice early days, so very happy to date of course. Any opinions on the following http://www.nbr.co.nz/article/xeros-share-price-one-pundits-analysis-ck-137900 (http://www.nbr.co.nz/article/xeros-share-price-one-pundits-analysis-ck-137900)

[CJ]

Good Q&A if you want to ask Rod any burning questions: http://blog.xero.com/2013/04/march-2013-operating-update/

[Banksie]

Thanks, good link CJ.

In particular I like this nugget of information:

"Over of two thirds of customers via our accountants and bookkeepers channel.


This year we’re gearing up to do more direct activities to small businesses but we’ll still connect them to our partners as we believe that is the secret to making small business more productive at scale and we love providing new business to our partners."

My experience with accounting packages in the small business field is that accountants/bookkeepers are the ones that ultimately make the decisions regarding long term accounts package loyalty.

[oc01]

Good Q&A if you want to ask Rod any burning questions: http://blog.xero.com/2013/04/march-2013-operating-update/

Thanks CJ.

[Toasty]

Good spotting. I can't believe that I missed $14 mill... I keep expecting the share price to fall away as well, given that there is unlikely to be any more customer number announcements etc until mid financial year.

There has been quite a lot of analysis around Xero's plan so I think that this is keeping the mood bouyant. Certainly a lot of accountant testimonials floating around on the net about how adopting Xero has transformed their business etc...

[blobbles]

An interesting line from their market update:

Paying customers At 31 March 2013 At 31 March 2012 Year on year change
New Zealand 73,000 47,000 +55%
Australia 51,000 16,000 +219%
United Kingdom 22,000 11,000 +100%
United States/Global 11,000 4,000 +175%
Total 157,000 78,000 +101%

Why do they need to put United States/Global together? Is it because the product is the same or is it because the performance in the US was underwhelming so grouping the Global in with it made it seem like more than it actually was? Clearly investors were interested in the number from the US only, one has to ask why they didn't give only the US number?

They did go on to say "The US team grew from 19 to 29 in the first 3 months of calendar 2013 with teams in San Francisco, Los Angeles, and Atlanta. A further 14 staff begin employment in April." but does that translate to more customers?

Just seems like some convenient grouping to me...

[lastmoa]

One interesting thing I have noticed about XRO, press releases and the SP, is that quite often the SP takes some time to react to news. Don't quote me on this but if my memory serves me correctly it has often been a few days before the SP reacts after material news. Im not saying it's going to happen this time, but it will be interesting to see where the SP is by the end of the week.

I find this, not just on Xero, but most NZX stocks, especially tech. Don't think our general fund manager/investor is quite on the same page as a US comparative and waits for consensus before acting.

[Toasty]

Maybe because the US views itself as the global power? But that would probably mean there would be just one customer number...hmmm

[Banksie]

Why do they need to put United States/Global together?

Someone asked this question on the Xero blog (http://blog.xero.com/2013/04/march-2013-operating-update/).

Anna
5 April 2013 #
When will be separating the results for United States/Global instead of combining both results together? It Will be interesting to see how many customers you now have in the United States or is this commercially sensitive?


Rod Drury
5 April 2013 #
@Anna, when the numbers get meaningful. A lot of our global product is US customers and Canadian customers. Still early days and if we create a dedicated global team we’ll likely split them out.

[CJ]

Xero's free competitor Wave just got better (and by that I mean it now has a feature that Xero does have, unless you pay for an addon like shoeboxed):

http://diversity.net.nz/wave-takes-on-the-scanned-receipts-market/2013/04/10/
http://techcrunch.com/2013/04/10/wave-accounting-free-receipt-scanning/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29

[maddog]

Wave is a very interesting company with a truly disruptive "free" business model. They entered the market later than Xero so their core accounting product is not yet as sophisticated as Xero's - but in the couple of years since they launched they have already gained more users. Being based in North America (albeit Canada) they are likely to be a significant challenge to Xero in the USA.

[CJ]

I am far from convinced that comapring user numbers between Wave and Xero (or any of the other main accounting software providers) is much use. Wave's product is free so naturally they will have a lot of "users" but how many of them are actually actively using Waves product as their sole accounting software?Users, active users and entities.

Xero has a lot more users than entities (the number it reports). For example, the one entity in Xero I use has 8 users. On Wave, I have 3 entities set up so I assume I cam counted as 3 users though I haven't actually used it in the past 18 months.

I should really have a look again to see how much it has improved.

[maddog]

A few months ago I am sure I saw something on Wave where they talked about having over 100,000 bank feeds coming through. If so they would all be active users. I am sure they would also have some active users who don't have bank feeds above this number. But as Turmeric points out they will also have people signed up who used it once or twice and decided it wasn't for them. Nevertheless, the 100,000 or so with bank feeds is still an impressive number for a company only 2 1/2 years old.

[CJ]

A few months ago I am sure I saw something on Wave where they talked about having over 100,000 bank feeds coming through. If so they would all be active users. I am sure they would also have some active users who don't have bank feeds above this number. But as Turmeric points out they will also have people signed up who used it once or twice and decided it wasn't for them. Nevertheless, the 100,000 or so with bank feeds is still an impressive number for a company only 2 1/2 years old.The entity on Xero that I work with has 4 bank feeds so again that doesn't necessarily represent entities.

I guess for Wave though, entities isn't important as they don't bill by entity. However, there is likely to be only one decision maker, or ultimate one purchase per entity of any of the business offers refered to on the site.

[maddog]

There's been an interesting and slightly worrying discussion about bank feeds and Xero over in Australia over the past couple of days:

http://boxfreeit.com.au/2013/04/11/unreliable-bank-feeds-checking-xero-saasu/

[kizame]

This stock just defies gravity,when you look at Diligent and how profitable it is,and then you look at XRO,No net profit,just more losses and a mountain of cash not earnt, to burn. yes i am a wee bit jealous but thats beside the point.it even rises when the market is nervous.
I hope for shareholders sake that someone buys this baby out.

[kizame]

Yep very true.

[CJ]

I have heard XRo will be piggy backing of team NZ and TradeNZ at the upcoming Americas Cup. Also heard good things out of the US but still not seeing it in the numbers yet it seems to be priced in.

A bit to rich for my blood at this point and like Sparky, happy to be overweight in DIL at this stage.

[Everwood]

I have heard XRo will be piggy backing of team NZ and TradeNZ at the upcoming Americas Cup. Also heard good things out of the US but still not seeing it in the numbers yet it seems to be priced in.

A bit to rich for my blood at this point and like Sparky, happy to be overweight in DIL at this stage.

You're correct. They intend to launch fully into the US market in July to coincide with America's Cup.

[Toasty]

$12.50 and on it rolls. Still no real news that I have seen. Annual meeting coming up in June? I am hoping for a large rise over the 157,000 announced recently. Hopefully good signs of traction in the US.

I wonder if $13 is a psychological barrier or if it will just steamroll up to $15?

[Toasty]

Its different this time as it is a new paradigm...

[lastmoa]

This thing has no barriers anymore and is defying gravity. Have given up trying to put support/resistance levels on it. Outside forces are at work here...

LOL. Whilst the SP does seem high compared to over NZX stocks, and therefore analysts have big problems with it's valuation (and most have no evaluation skills in this area anyway), I'm still not in total agreement. Xero has pretty much delivered thus far and whilst it's BHOG of 1mill customers does seem far off they are going in right direction. If they pull off half of that this price will seem a bargain. Add that to an inevitable US listing ....
I do own Xero and Diligent and I don't fall into the 'defy gravity' camp. If there is anything defying gravity in NZ, it's real estate prices.
8-)

[Novitiate]

Anybody read the NBR article on Drury's comments on MYOB IPO rumours? I'm not a subscriber.

[Toasty]

I always like the comments section.

[Toasty]

$12.50 and on it rolls. Still no real news that I have seen. Annual meeting coming up in June? I am hoping for a large rise over the 157,000 announced recently. Hopefully good signs of traction in the US.

I wonder if $13 is a psychological barrier or if it will just steamroll up to $15?

I guess the market answered my question. $13 Holy S%@t

[tosspot]

ive been saying to myself in not buying in at these elevated levels since $8 now I feel like a fool. its almost tempting to say screw it and jump in because at this stage it really doesn't look like going down. but I guess I just dont have the balls to.

[lastmoa]

God no, but I've been saying it since $6! I bought in at $5.50 (what seems like years ago) and got out for a quick profit because my father, who went through the dot.com bubble, warned me off it. Whoops! Ah well, ya live ya learn.

My hopes are pinned on SNK now.

Showing your age there, Moosie. 8-) I remember the dot-com bubble when anything Internet related, that had a glossy idea behind it, was traded at crazy-money prices. Many of these ideas had no remotely sound business model which differs from that of SOME of the latest IT offerings to investors, namely SAAS. So understand how people may see similarities but there are differences enough too. Your Dad obviously didn't see these.

[lastmoa]

No, he was looking at fundamentals and just seeing "ticking time-bomb" written all over it with the market cap and negative earnings growth.

I'm turning 27 this weekend. I remember my father never sleeping at night, constantly checking his stocks and coming home stressed all the time. He developed diabetes around that time and it all facilitated our move over to NZ as he could not take the rat race anymore (was an IT manager at a large insurance company in Toronto).

So, I am hoping to hop in where he left off. Maybe it will be "different" this time... (talking about SNK, not XRO)


Yes, if you look at pure fundamentals Xero would never meet his comfort levels. Had an experienced trader-friend stay clear of my recommendation at Xero at $4 'cause it didn't fit his modelling. DIL at $7 is still undervalued, imho.
All best with SNK ... I'm in there with you. 8-)

[stoploss]

12 years ago, so hard to remember. I think I sold out at $4.50, might have bought in at a dollar in the initial offering, or not long after it.

Went into receivership in the end. Got caught up in that WorldExchange saga in the USA (was a huge scam of some kind)

here you go , bit of history....



http://www.sharechat.co.nz/article/ac6b8a5c/going-down-with-the-joneses.html

[Everwood]

Will have a look now.

Got a meeting and back in an hour or so, if someone else hasnt already I will try and summarise Drury's comments. On first glances though it just looks like Drury taking the chance to bag MYOB again.

When you have enough time it would very nice if you could summarise Drury's comments.

[Everwood]

Sorry about that, I got busy then forgot. Like I said though IMO it was Drury doing the usual thing, taking the chance to talk up Xero while at the same time putting down MYOB.

I appreciate the summary. I hope you have a good day.

[Toasty]

An entry on the Xero Blog from a few days ago. No numbers or anything and obviously self serving but an interesting summary of the countries that Xero is active in outside their four main markets. It seems to me that getting a million customers should be relatively easy given the size of the world SME market and Xeros approach of getting accountants to evangelise the product.

Not sure what percentage of the world sme market 1 million is but it must be pretty small?

Dics: I hold shares. That should be obvious I guess since I keep saying it.

[tosspot]

its so damn crazy thats it feels like its starting to lose its risk. but I just cant bring myself to do it and buy for some reason

[JohnnyTheHorse]

its so damn crazy thats it feels like its starting to lose its risk. but I just cant bring myself to do it and buy for some reason

Don't become the "bigger fool".

[Toasty]

its so damn crazy thats it feels like its starting to lose its risk. but I just cant bring myself to do it and buy for some reason

I know how you feel. I am starting to regret now selling a big clump in the $11's. But I can't make myself buy back in. I will just let the rest go to its conclusion...whatever that may be.

Its a weird feeling when you sell something but the next day the remaining portfolio has increased to the same value...

[JohnnyTheHorse]

Always think it prudent to remind readers that these comments were made during the run up to $4, again during the run up to $5.70, to $7.70, to $11 and now to $13.50 ;)

Okay, I rephrase that then... Don't become the "biggest fool" :eek2: