Xro - xero

[zyreon]

[quote]quote:Company Code Released Type Headline
New Zealand Exchange Limited NZX 11 May, 2007, 12:19 GENERAL Xero announces initial public offering of $15 million
Full Text of Announcement
Xero announces initial public offering of $15 million

Xero Live Limited ("Xero") has today confirmed that it will proceed with an initial public offering on the NZSX to raise $15 million, reserving the right to accept a further $3 million in
oversubscriptions.

The offer, at $1.00 per share, will open on Monday 14 May 2007.
Xero, based in Wellington, provides an online accounting system for small and medium sized enterprises (SMEs), which typically have less than 20 employees. Its product has been available in a limited release since April 2007 and Xero has already attracted more than 100 paying customers. Short-term plans include expansion within New Zealand initially, then into the UK and Australia.

Xero was established in July 2006 by Rod Drury, an experienced technology entrepreneur with a record of building successful software businesses, and Hamish Edwards, the owner of a SME accounting business and a commentator on SMEs. Mr Drury is Chief Executive Officer and Mr Edwards Chief Financial Officer. Xero has recruited a strong management team and currently has 27 employees.

Mr Drury said Xero's product had received strong endorsement in testing and marketing to date. "We believe the convenience and flexibility of an online accounting solution, adopting a
'software-as-a-service' model, is highly attractive to SMEs and their owners. It means they can keep up-to-date accounts that are simple to maintain, always accessible online, can be shared easily with advisers, and do not require up-front costs such as software installation and maintenance."

Xero is chaired by Phil Norman, an experienced company director, advisor and investor with more than 30 years' involvement in information technology and telecommunications. The other independent directors are Graham Shaw, Guy Haddleton and Sam Morgan.

Mr Norman said the board was delighted to offer the public an opportunity to participate in a New Zealand based technology venture. "The business has achieved considerable momentum in a short time, based on a strong business concept with demonstrated appeal to a large target market. The number of SMEs in our target countries - New Zealand, the UK and Australia - is around 5.8 million. The proceeds of the IPO will fund Xero's continued
market development and growth."

Mr Norman said "We have considered a number of models for raising the additional capital required, but we believe the profile and transparency created by a public offering will be most effective in accelerating our business plan."

Xero's financial adviser and joint organising sponsor is Cameron Partners Limited. First NZ Capital Limited is lead broker and joint organising sponsor.

The independent directors intend to subscribe for $1.35 million of Shares under the offer, and strategic partners and other investors for approximately $5 million. None of those persons
guarantee the Shares. The balance of the offer is reserved for clients of First NZ Capital, and for other investors on application.

The Offer Document (being a combined Investment Statement and Prospectus) will be available later today at www.xero.com/investors, and is expected to be available in hard copy from First NZ Capital by mid next week. The minimum application is for 1,000 shares, and thereafter in multiples of 500 shares. The offer closes at 5.00pm on 30 May 2007 and Xero
expects that its shares will be quoted on the main board of NZX from 5 June 2007. Future announcements through NZX will be released under ticker code XRO.

Application has been made to New Zealand Exchange Limited ("NZX") for permission to list Xero Live Limited ordinary shares on the NZSX Market and all of the requirements of NZX relating thereto that can be complied with on or bef

[lakeside]

Fishers have invested in Rekon on the ASX and it's growing well.

There are so many of these business software businesses, I guess there is a market and a killing for the top dogs.

Sometimes it's not the best product but the best marketing that wins as once a business has the product they don't want to change.

So money is in the on going support not necesarily the initial seale.

[lakedaemonian]

As a business owner, I'll be keeping a close eye on this one...both for possible use as a cuistomer and as a possible investor.

The concept certainly has potential for our market......there are competitors(netsuite, etc).....but I'll be cheering for the home team......I'll likely wait and see how much trqaction they get first, and asking around the small business communtiy on the uptake before takin a plunge.

[Stranger_Danger]

These guys have clearly followed the 42 Below story closely.

Everything is the same so far - promising product, no revenue or profits, good team with successful past setting themselves a "take over the world" goal. Even the sort of money they want, the percentage of the company that money buys public shareholders - all very similar.

Like 42 Below, it is totally a bet on management, and, management get the majority of the rewards while you put up most of the money.

However, unless you're an entrepreneur yourself capable of founding such a business, it is the only way you'll be involved in such a venture, and they are not being dishonest about the risk.

Like 42 Below, I'll probably watch from a distance, but best of luck to them I say.

[hairdresser]

The only thing of substance I could see in the offer doc is the that founders suddenly become very rich.

My main take home points from prospectus are:

1. Prospective 2008 revenue from customers of $550k does not look compelling. This eqautes to straight line growth over year from zero to 1833 customers each paying $50 per month. This seems a little light for software that is set to take over the world.

2. Operating expenses forecast to be $5.4m.

3. Total shares outstanding will be 55m so this company is valued by the offerers at time of IPO of $55m.

4. $300k of the cash raised will be used to lend to the directors at 4%, so they can buy shares.

5. No forecasts or projections to support valuation.

My take on the service as an SME owner [ie I am their target market]

1. Accounting software is a highly competitive busines dominated by large incumbents, switching costs are high in terms of time. You would need to see a large benefit to switch, its worse than switching banks.

2. SME's who don't already use accounting software usually have good reasons for this. Being available on the internet is not a good reason.

3. Simple to use means only useful for simple things.

4. No fixed asset register

5. No payroll

6. No inventory

7. Each county has its own standards and requirements so its not quite as easy as alluded to in the prospectus, to transfer accounting software from country to country.

Unanswered questions

1. Is Hamish getting paid good appearance money.

2. Did Chris know his comments would be headlined in the prospectus?

3. Who was the ad agency who wrote the prospectus?


My overall take on the IPO

1. I find it difficult to see where their customer base will come from

2. $600 per year seems expensive for what most of us SME's can do on a simple spreadsheet... and with internet banking

3. Most of the writing is in the special language of advertising and marketing people that sounds like it is saying something but it isn't really.

4. I think you will get a better risk adjusted return betting on the Africans to take out the RWC with the TAB at $6.00.

5. Makes my BIO shares look attractive.

6. If you have a compelling offer you dont need ad people to write your prospectus or to refer to other successful companies/people to try and get a pseudo halo effect.

[Stranger_Danger]

I haven't seen the prospectus yet - is it available online?

[Stranger_Danger]

Duh, ignore that. Got it now. Should learn to read!

[hairdresser]

Its a qucik read if you skim over the advertising speak LOL

[etrader]

have a friend who's just launched www.1place.co.nz this is for small to medium business for accounting software maybe he will float after xero.. Free 3 months trial available on their site

[Billy Boy]

I use "BOOKs ARE US"
The main reason is coz it downloads straight into my accountants system for finial tax returns etc.
But will keep an eye on this one.

[warthog]

quote:Originally posted by etrader

have a friend who's just launched www.1place.co.nz this is for small to medium business for accounting software maybe he will float after xero.. Free 3 months trial available on their site


The hog notes that many NZ companies - amongst them Trademe (but not Xero) - do not profile on the website the people behind the venture.

In the words of a high-flying banker mate of the hog, "if I can't see who's running the show when they want my attention, what are my chances if I want theirs? - don't touch websites like this with a bargepole".

[kura]

I liked the bit about customer receipts for the period ending 31 March 2007 "NIL"

But to be fair it is acknowleged in the prospectus, that it is "high risk" and even a casual read will confirm this, but putting a value of $55 million (post issue) on a company with no income, seems out of touch with reality, didn't anyone tell these guys the dot com boom was over ?

I'll be interested to see how much this company manages to get for the IPO, if it's fully subscribed, I'd be astonished.

Disc: Will stick with MYOB myself.

[Anna Naum]

With Sam Morgan of Trade Me on the board this one will fly, at least to start with.

[waikare]

quote:Originally posted by Anna Naum

With Sam Morgan of Trade Me on the board this one will fly, at least to start with.


A couple concerns I have........

With Sam Morgan on the board and Rod Dury as CE, betweeen them they can fund this without talking to their bank manager.

Secondly how many other similar on line accounting software / websites are all ready out there.

Taking it world wide? each country has is own particular rules and regulations relating to accounting practices.

[warthog]

quote:Originally posted by waikare


quote:Originally posted by Anna Naum

With Sam Morgan of Trade Me on the board this one will fly, at least to start with.


A couple concerns I have........

With Sam Morgan on the board and Rod Dury as CE, betweeen them they can fund this without talking to their bank manager.

Secondly how many other similar on line accounting software / websites are all ready out there.

Taking it world wide? each country has is own particular rules and regulations relating to accounting practices.


Funders seldom act alone - they spread the risk.

Credibility and reliability are two major factors when it comes to SaaS applications. NZ has a way to go both in infrastructure and inclination when it comes to web services.

Rules and regulations? Watch Xero tackle the markets that are closest in practices to NZ.

One huge advantage is starting Xero in NZ. It's the ideal testing-ground. Cynical and stubborn. Ideal for ironing out the problems.

Launching an internet-based service? If you do this in the UK - and I speak from experience here - and you're successful, watch your focus move quickly from product development to just keeping your servers from falling over. In big markets, things that become popular do so very quickly. If you're not ready for the hammering that the servers get, then it may just kill you as soon as you get the crowd's attention, which is really when you should be ready to change gear.

I'm not saying Xero is an automatic success, but for a startup they are going well, and are probably holding back quite a bit. It's amazing what's going on behind the scenes that isn't visible to the market ... yet.

[warthog]

quote:Originally posted by kura

I liked the bit about customer receipts for the period ending 31 March 2007 "NIL"

But to be fair it is acknowleged in the prospectus, that it is "high risk" and even a casual read will confirm this, but putting a value of $55 million (post issue) on a company with no income, seems out of touch with reality, didn't anyone tell these guys the dot com boom was over ?

I'll be interested to see how much this company manages to get for the IPO, if it's fully subscribed, I'd be astonished.

Disc: Will stick with MYOB myself.


MYOB is like a slug. Watch Saas move with the times.

Xero has nothing to do with the dot com bubble. There are high-risk propositions all over the market - why single out an internet-based business?

Who said Xero wanted income before 300307? Maybe their current goal isn't income?

[warthog]

quote:Originally posted by Anna Naum

With Sam Morgan of Trade Me on the board this one will fly, at least to start with.


The presence of SM isn't enough to make anything fly, per se. But check out Xero's website - there's a significant amount of other credibility there besides SM.

[Dazza]

i like the part 'money raised to give to directors @ 4% interest so they can buy the shares'

lol

[Stranger_Danger]

Warthog,

The problem I have with Saas is that the internet was supposed to make things cheaper. Saas seems to make them more expensive, despite promoters self-interested blather to the contrary.

Sam Morgan got $700mil for Trade Me because, cost wise, its offerings were too compelling to ignore when compared to other offerings. Pay far less to get far more? Yeah, people will go for that over time.

The $600 to $1200 Xero want from a small business for their system is not compelling and I have yet to hear of any "killer app" aspect to Xero.

That said, they are not wrong to sense an opportunity. Scratch beneath the surface by talking to 100 MYOB customers in detail and you'll see what I mean.

The opportunity for Xero definitely exists but having not yet seen anything of real substance (apart from the fact they're choosing to use our money and not theirs to chase the dream) I'll sit on the fence for a bit.

[kura]

quote:Originally posted by Stranger_Danger

Warthog,

The problem I have with Saas is that the internet was supposed to make things cheaper. Saas seems to make them more expensive, despite promoters self-interested blather to the contrary.

Sam Morgan got $700mil for Trade Me because, cost wise, its offerings were too compelling to ignore when compared to other offerings. Pay far less to get far more? Yeah, people will go for that over time.




I recently sold a property through trade me, the listing cost $110 , If I sold it the traditional way, the agents fees would have been around $25,000...$30,000 Yes, I also paid for a valuation report and some signage, the eventual sale price was at the top end of the valuers price range, (sure, the process also took up about 60 hours of my personal time etc ) To me the potential savings were so compelling, that I thought I simply had to give it a go !

Why would I want to transfer my bizz away from MYOB, to a SaaS service which has the potential to cost me a lot more in the long run ? Just can't see anything compelling at all myself. The cheapest XRO option is $50 per month, what does MYOB cost now (about $500 ? ) I purchaesd MYOB about 6 years ago, (got sick of doing everything on a spreadsheet) if I had been using the XRO service over the same 6 years that would have been a total cost of $3,600

[kura]

quote:Originally posted by warthog


Who said Xero wanted income before 300307? Maybe their current goal isn't income?


Let me guess, the reason you get up and go to work in the morning, is beacuse it is for the overall benefit of humankind, and has absolutely nothing to do with that insignificant little detail called "income" ?

[warthog]

quote:Originally posted by Dazza

i like the part 'money raised to give to directors @ 4% interest so they can buy the shares'


Actually this is relatively common practice around the world. Other ways to achieve the same thing, with less risk to directors, is to issue options.

[warthog]

quote:Originally posted by kura

[quote]
Why would I want to transfer my bizz away from MYOB, to a SaaS service which has the potential to cost me a lot more in the long run ? Just can't see anything compelling at all myself. The cheapest XRO option is $50 per month, what does MYOB cost now (about $500 ? ) I purchaesd MYOB about 6 years ago, (got sick of doing everything on a spreadsheet) if I had been using the XRO service over the same 6 years that would have been a total cost of $3,600


Current Xero pricing may or may not reflect eventual pricing.

If things change, MYOB will charge you for an upgrade. It's part of the revenue model. Xero will make the change, and you keep going.

At some price-point, Xero will make sense for busy people. We kiwis are world-famous for wanting to do everything ourselves and forgetting that if we stuck to our knitting, we would earn more. Same goes for tax avoidance.

[warthog]

quote:Originally posted by kura


quote:Originally posted by warthog


Who said Xero wanted income before 300307? Maybe their current goal isn't income?


Let me guess, the reason you get up and go to work in the morning, is beacuse it is for the overall benefit of humankind, and has absolutely nothing to do with that insignificant little detail called "income" ?


No offence intended :D but there are times for everything. I reiterate - what is the point in having an online service if sudden popularity means that the servers are hammered so bad they fall over?

[kura]

quote:Originally posted by warthog


quote:Originally posted by Dazza

i like the part 'money raised to give to directors @ 4% interest so they can buy the shares'


Actually this is relatively common practice around the world. Other ways to achieve the same thing, with less risk to directors, is to issue options.

Quite right, if the worst happened and went belly up, who would want a loan that could be attacked by liquidators ?

Regards their pricing & bizz model, I would like to see them charge minimal (or zero) fees for the basic service, then make their money out of advertising/support/additional services. Owners of SME's would be a marketers delight, just think of that buying power logging on to your website every other day. Team up with an enterprising accountant, and you would have a one stop shop for SME compliance issues. (Someone might do it one day)

Now a free service, that sure would put a strain on your servers !

[warthog]

quote:Originally posted by kura


quote:Originally posted by warthog


quote:Originally posted by Dazza

i like the part 'money raised to give to directors @ 4% interest so they can buy the shares'


Actually this is relatively common practice around the world. Other ways to achieve the same thing, with less risk to directors, is to issue options.

Quite right, if the worst happened and went belly up, who would want a loan that could be attacked by liquidators ?

Regards their pricing & bizz model, I would like to see them charge minimal (or zero) fees for the basic service, then make their money out of advertising/support/additional services. Owners of SME's would be a marketers delight, just think of that buying power logging on to your website every other day. Team up with an enterprising accountant, and you would have a one stop shop for SME compliance issues. (Someone might do it one day)

Now a free service, that sure would put a strain on your servers !


Pricing: who wants to watch ads or be marketed widgets when trying to get your accounting done? The ads would drive a hog to drink.

Free: if you pay for something, you can expect something in return. Try complaining (not that complaining about an accounting tool is very useful - you just want the damn thing to work) about something you got for free. Get you anywhere?

Certainly, a cheaper option that would attract interest from those not wanting to go the whole hog (sorry) and then once their data is there it's easy to continue or upgrade as the case may be. However, the time for that may not be now. Remember, if you start with higher pricing, you always have the option of lowering your prices. You can guess what happens in a competitive market if you start your product off cheaply and raise pricing as you start to build marketshare ...

[Mothman]

There is no reason I would think of to invest in this IPO over better risk/reward options out there. My prediction of share price: Stagnation (unless the boys selling the business prop it up)

[contrarianinvestor]

Looking at the cash flow statement I see XERO receipts from customers! $55 million seems excessive for projected revenues of only $550,000. Even if projected earnings were $550,000 that would have given a P/E of 100! I will be more fun gambling my money at the TAB ($5.50 for SA to win the RWC!)

[lakeside]

Well it is a start up from nothing so it will be all go to get it all going in NZ, then Aus and UK. Some risk, a lot of faith needed but potentially big gains.

42 below led the way with IPO of a non operating company.

There must be something different from Quicken, MYOB which have internet access parts but are not fully internet based.

Might be how they get income - eg the trademe type thing where you pay bit by bit and have lots of advertising but no up front fee. Ie a free service. That could appeal to Kiwis.

[kura]

quote:Originally posted by warthog

No offence intended :D but there are times for everything. I reiterate - what is the point in having an online service if sudden popularity means that the servers are hammered so bad they fall over?


No offence taken, but rather than getting into a discussion over needless details, the real point of my arguement was that at listing of IPO there will be 55 mill $1 shares on issue, of which the public will "roughly" own 15 mill, meaning the existing owners are rewarded with holding the remaining 40 mill, if the idea was that brilliant then fair enough, maybe their bizz model is worth $40 mill.

Trouble is that I'm sure that a few of us could come up with an even better bizz model, just by sitting round a BBQ one afternoon, and throwing round a few ideas.

Disc: Would love to have $40 million for every BBQ I've been to this year !

[Stranger_Danger]

Well, whatever happens next it must be said they got it listed and it ended up 10% after day one.

Congrats Rod Drury and co.

The other thing I suspect it proves is there plainly an appetite amongst some investors for risky, potentially high growth companies. Expect to see more.

Disc : None

[kura]

Yep, Fair enough, credit where credit is due, well done, I sure didn't think they would get this far !

Disc: Not even tempted !

[whatsup]

Down to below to issue/float pricing now =.90c wheres the bottom = good byeing (pun intended!!!)

[peterb]

Xero moves to General Release


Xero Live Limited ("XRO") today announced the move to a General Release of its small business accounting software.

General Release means Xero now has systems and processes in place for expected future growth, including streamlined customer sign-up and the introduction of a Xero "demo" for prospects wishing to trial the software.

Xero has been releasing software approximately every three weeks, in line with its schedule. This frequent release of functionality is underpinned by Xero's unique Software as a Service business model, where software updates are delivered over the Internet at no additional cost to the end user.

Xero's move to General Release confirms the company's goal set out in its Offer Document that it would have the operational capability required in August to move from Limited to General Release.

Xero Chief Executive Rod Drury said the company had achieved another key milestone.

"Since we listed 11 weeks ago we've had our heads down building a platform for growth in three key areas - building our team, delivering software and forming partnerships with accountants."

Mr Drury said the company had continued to hire the best people in a very tight labour market. Xero now has a core team of 41 people across its Wellington headquarters and Auckland offices.

Xero has also made significant investment in its back office management systems, which are fundamental to building a scalable business.

Xero's marketing activities since listing have primarily concentrated on accountants. Xero's national roadshow in August introduced Xero to the New Zealand accounting community.

"Accountants are key advisors for our target market. Their input helps us refine out product roadmap so we can create the most compelling offer for all small businesses," Mr Drury said.

Xero's Partner Programme for accountants includes a listing on Xero's "Find An Expert" section of its website, training, and joint marketing to small businesses.

As Xero moves into General Release its sales focus will initially be on a small segment of the overall target market.

"We are confident we have a great product for start-up and professional services businesses. This is where we'll be focussing our initial customer acquisition activity while we continue to create a more comprehensive offering for the broader market," Mr Drury said.

"These are early steps in a long journey. We are pleased with the progress we are making, executing our plan."


For more information, contact:
Kate McLaughlin
Market Communications Manager, Xero
+64 21 481 554
kate.mclaughlin@xero.com
www.xero.com

[Stranger_Danger]

I missed the part with the earnings guidance?

[peterb]

I missed the part with the earnings guidance?

earnings guidance would be a bit irresponsible at this stage I'd say. Once they get some sort of idea how sales are going then they should provide some sort of guidance. But nonetheless this is a good step.

disc. hold none. not interested

[Stranger_Danger]

So the head sales guy and the head finance guy are both leaving. Sales and finance are pretty key areas once you're past the idea stage and are trying to build an actual business.

Negative because the two guys now see Xero has its work cut out so bailed? Or positive because they weren't right for the job and the company has acted quickly and nudged them out for better prospects?

Interesting nonetheless this early on.

[biker]

So the head sales guy and the head finance guy are both leaving. Sales and finance are pretty key areas once you're past the idea stage and are trying to build an actual business.

Negative because the two guys now see Xero has its work cut out so bailed? Or positive because they weren't right for the job and the company has acted quickly and nudged them out for better prospects?

Interesting nonetheless this early on.

Your byline gives you the answer and it is to the negative question.

[FarmerGeorge]

Been watching this company as the idea behind it is sound and I met Drury a few weeks ago and his enthusiasm got me interested. One of the main advantages of XERO is that different businesses can use it to connect their accounts payable/receivable thus if a good number of people start using the software it will begin a snowball effect. But that's also the problem. How much does the average NZ business owner trust internet security? Enough to input all their businesses financial data? Well maybe but I'm not sure just yet. Success will occur if/when a critical mass of small businesses trust the security enough use the software and the rest of the SME community follows suit.
The size that critical mass needs to be depends on how connected the NZ SME community is. The more connected, the fewer needed, the more disparate the greater. I'm not investing in XRO right now because it is a complete punt and I'm better at blackjack but if we start to see evidence of SIGNIFICANT top line growth (indicative of the growing customer base and approaching the 'tipping point') this could be an excellent investment.

[TwinkleToes]

Haven't read through whole thread so forgive me if already mentioned - time constrained.

Internation Herald Tribune today article on Netsuite IPO which does what XRO does plus a few other things. Current revenue around USD 80m. Ellison acting as banker and suggested original idea to founder. In same space as XRO ; SME.

Just thought I'd show that this idea is getting serious. Presumably NASDAQ listing.

[FarmerGeorge]

Interesting article TT, and my (wildly uneducated) guess is that US SME business owners are probably more tech comfortable than NZ ones so they might get a roll on faster than XRO. Will be interesting to see the response (if any) from Drury & Co. If this gets traction and becomes the standard in the US you can probably say goodbye to any multi-bags in xero.

[Steve]

This bit of self-publicity got me laughing...

Rod Drury: How to start a business (http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10485312)

Rod Drury is CEO and founder of leading NZX-listed accounting software provider Xero (www.xero.com)

Is there another NZX-listed accounting software provider that is not doing as well as XRO?

In order to be the leader, surely there must be someone following?:confused:

[dmmd123]

Regarding NetSuite:

I think this is in a different space than Xero. They are trying to combine, CRM, accounting, and CMS. Having gone through the pain of trying to integrate these systems myself in a pervious job it sounds like a good idea. That is however, until you think of how many businesses fit this model. Ultimately a one size fits all solution will fit 1% of businesses and be a work around mess for the rest.

Xero is just making a move into the accounting side. It seems like a much simpler concept than NetSuite. Again it suffers from the same problem of how many businesses want to run the way Xero says. I would say there are a far greater number for the Xero model than the NetSuite model.

On another note, the Xero price has been making its way steadily down for quite some time now and is around 0.70. With no announcements/updates to shift the price I could see this continuing for a while. I will be interesting to watch what happens around the start of the new financial year. If Xero's subscription numbers go significantly up it might be a point to jump on?

[warthog]

This bit of self-publicity got me laughing...

Rod Drury: How to start a business (http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10485312)

Rod Drury is CEO and founder of leading NZX-listed accounting software provider Xero (www.xero.com)

Is there another NZX-listed accounting software provider that is not doing as well as XRO?

In order to be the leader, surely there must be someone following?:confused:

Just to chip in here, the hog was familiar with much of what Drury had to say in that series of articles, but nonetheless this old wallower thought it was all good, solid advice from somebody who has been there before - a number of times - and is taking on some very established players in the SaaS space, most of whom are very well resourced compared with XRO.

Disc: no XRO, no links with the company or people behind it.

p.s. if you're the only one in the space in NZ, surely you're a leader! (and a follower)

[Stranger_Danger]

In their last announcement they said

"- 204 paying customers, with 404 users, running 240 organisations;"

Today they say

"- Xero has doubled the number of customers from 240 to more than 500 in
New Zealand during the four month period, 1 October 2007 - 31 January 2008;"

The 240 they used in the second statement is the "240 organisations" not the "204 paying customers" used in the first statement.

Therefore, the "more than 500" is presumably the number of organisations, not the number of paying customers?

Therefore, how many paying customers?

[Steve]

At least they are in-line with their projections...

[dmmd123]

I have been following along quite closely to Xero. The week after this announcement the price has jumped from 0.68 to 0.95 (~40% increase).


The announcement didn't seem that impressive considering their burn rate..
I thought it might be low liquidity and Morresey's buying of shares:
http://www.nzx.com/market/market_announcements/by_company?id=160077
In which case, was Morresey's move vanity, to prop up a failing share price?

Does anyone know what is going on here? And why has the price made such a jump?

[Stranger_Danger]

My guess would be an impending share issue, or acquisition involving shares, or something similar.

In other words, a situation where laying out a small amount of money to bid up shares now saves a lot of money a little further down the track.

You see it with small caps in aussie all the time, but less over here. The buyer seemed willing bordering on happy to push up the share price so some issuance related news wouldn't surprise me.

Disc : No inside info, just a wild (and quite possibly wrong) guess.

[warthog]

Four letters. As in alpha, not numeric.

[Stranger_Danger]

Warthog - Nah, not yet.

[nwood]

Xero teams up with Telstra

Online accounting software provider Xero (XRO) has joined forces with Telstra,
Australia’s largest telecommunications and media company, becoming part of their
innovative T- Suite service offering.

The T-Suite service is Telstra’s Software as a Service platform, offering a range of
leading hosted applications for small business customers throughout Australia.

Xero’s accounting system, delivered entirely over the internet, is a perfect fit for the
T-Suite service, as it allows businesses to avoid the expensive upfront costs normally
associated with purchasing business accounting solutions and to cost effectively manage
their finances with confidence.

Other services offered from the T-Suite service include hosted business productivity
software from Microsoft, and on-demand security software from McAfee.

Xero will be available in the T-Suite service to over 700,000 of Telstra’s small business
customers from June 2009.

Xero has a similar relationship in place with New Zealand’s largest telecommunications
company, Telecom, through their online Business Hub.

[Stranger_Danger]

Wonder how much cash they have left 31/3/2009?

Guess we'll find out soon.

[Peitro]

The Telstra Deal is huge, as it will tie in with the Australian Financial year which is Xero's prime customer sign up period.

If Xero can continue this growth over the next two years, (help from Teltra in Aus, Andy Lark in USA) Xero will be a massive success.

DISC: Looking to Jump aboard once the hype dies down a little bit

[Stranger_Danger]

**PE** multiples?

Don't get me wrong, I'm a fan of Xero, but a PE multiple is a bit optimistic!

I'm more interested in becoming a shareholder after they raise more money.

[Peitro]

Xero will announce a massive loss for the year in May ($7m?)

This will make the headlines - because misinformed reporters will not understand that this "loss" is an investment in infrastructure to support the massive growth that Xero is starting to generate.

These headlines hopefully will create some cheap packets for me to pick up.
(I should have got in two weeks ago at 67c =])

[nwood]

Big Bounce on good new, how long until it drops back....

[Stranger_Danger]

And now an announcement about capital raising.

I take my hat off to them - they could teach Nuplex a bit about spin, timing and the art of getting your price up before a raising, as opposed to shooting yourself in the foot.

[Peitro]

Incredible timing!

[Peitro]

Online software provider Xero has raised $23.2 million through a share placement, with the co-founder and former major shareholder of Australian rival MYOB, Craig Winkler, taking a large chunk.

Winkler has subscribed for $18 million of new Xero shares at 90 cents per share. Xero shares closed at $1.15 yesterday.

The Winkler deal includes $450,000 from parties associated with Winkler, including:
- the Bank of New Zealand, an existing Xero shareholder which will take up $1.6 million worth of new Xero shares;
- two Independent Directors of Xero, Trade Me founder Sam Morgan and Graham Shaw, who have subscribed (in aggregate) for $1.45 million worth of the new capital.

Xero chief executive Rod Drury said he was delighted to welcome Winkler as a strategic investor. MYOB was recently acquired by private equity investors and Winkler is no longer involved in MYOB as a director, executive, shareholder or any other capacity. Nonetheless, the investment from Winkler and his associated parties is subject to Xero shareholder approval, which is expected to be sought in May.

Xero, which sells Internet- based accounting software to small and medium-sized businesses, said other investors including an un-named institutional investor had taken up the remaining $2.15 million worth of new shares.

"The new capital will enable Xero to accelerate its growth plans in the UK, Australian and US markets," the company said.

Winkler's financial advisor will subscribe in cash for $450,000 of new shares in Xero at 90c per share, which will be held by Binalong Rural Pty Ltd and Mordes Howard Pty Ltd.

Craig Winkler, his financial advisor and the entities holding their respective investments, totaling $18 million, are all deemed to be associated parties.

"We are delighted to have secured a large amount of funding from strategic investors such as the BNZ and Craig Winkler," Drury said.

"Craig Winkler is very experienced in the market for the provision of accounting software and services to small businesses. His investment is a strong endorsement of the Xero business model, its market and growth opportunities."

Winkler and his associated parties have agreed to embargo arrangements with Xero under which they are not able to sell any of their shares for a period of 12 months from the date the shares are issued.

Drury and Hamish Edwards, the founders of Xero, have also separately entered into embargo arrangements with Xero under which each of them is restricted from selling any shares for 12 months.

Xero also intends to offer a share purchase plan to its existing shareholders at 90c per share.

Xero listed on the NZX in June 2007, raising $15 million at $1 per share

[Stranger_Danger]

I'll admit to being surprised. Very few founders switch teams and try and kill their baby.

I'm astonished that the private equity buyer of MYOB didn't have some sort of clause in the non-compete that would stop Winkler from doing that. If I was handing over 400 mil, I wouldn't want this happening a few months later.

[Peitro]

Very surprised that the deal did not include a non-compete clause, Drury has stated that

"(Giving Winkler a working role in the compnay is) a board decision once we have approval. Personally I would love to have Craig involved as much as he can."

I cannot see any reason why Winkler will not take up a position, which is a massive coup for Xero.


I am also surprised at the size of the capital raising - they are obviously going to take a very aggressive approach from here with a high burn rate

[CJ]

What % does this give the new guy and what percentage does Rod Drury (and the other founder) hold.

With two significant owners, you have to hope thier vison for the future is the same.

[nwood]

How will this new issue effect the SP with a 38% increase in the number of shares.

When is their next report due out?

[Stranger_Danger]

I suspect the share price will be reasonably solid now, for the forseeable future. Raising all that cash makes a real difference.

Despite all the bluster and spin about raising money from a position of strength and not having any bank debt (well, duh, no bank would have lent to them!) the reality is despite their progress, without a raising they would have been out of business in 6 months.

With the raising, the prospects change significantly and they should hit profitability well before the money runs out, even with aggressive growth.

For a company at their stage of development to raise that amount of money in this market is a real achievement and one can only admire the way it was done.

[CJ]

Guys look at the share price movements and volumes before the announcements.

This is the most obvious inside trading seen in recent memory.

People should go to jail for this. Where is the NZX, what is its point if it is not investigating this?They announced the hook up with Telstra just prior to the new issue which could explain part of it?

There should be a please explain though

[Ponda]

XRO have announched this morning details of their Share Purchase Plan

[Peitro]

No limits on quantities reported? weird

[Ponda]

I thought that generally with a SPP that there is a limit of shares that you can purchase, i.e. you can only buy a maximum of $5,000 worth, regardless of how many shares that you actually own. This way it benifits the 'mum and dad' shareholders and stops the big institutions from getting their mitts on to huge amounts.
Also with other SPP's that I have been involved in, you are advised if it's on a 'first in, first served' basis or a scale back.
I have not been able to locate any further documentation in respect of this offer.
Maybe it is still coming.

[Ponda]

Thanks for that link.
Very informative.

[nwood]

The SPP will enable each eligible New Zealand based shareholder to apply for new Xero
shares up to NZ$5,000 at NZ$0.90 cents per share. The total amount to be raised from the SPP will not be capped and Xero will be accepting all applications (up to the maximum
amount of NZ$5,000 per eligible shareholder in accordance with the NZX Listing Rules).
The SPP will give Xero shareholders the opportunity to participate in the capital raising
and to increase their shareholding in Xero.

[Raven]

This seems a bit odd to me. Does this mean people can buy a very small amount, say 1 share, at market price and if they make it on the registry by the 23rd April they are entiltiled to buy up to $5000 worth at $0.90. If you're a small investor this seems a little too good to be true. What am I missing here?

[Peitro]

Maybe a stupid question - but how many shares do I need to hold to be an 'eligible shareholder'?

[nwood]

"eligible shareholder in accordance with the NZX Listing Rules" whatever that means

[Peitro]

" in accordance with the NZX Listing Rules" whatever that means

I think that part of the quote actually refers to the $5000 limit?

[Ponda]

Generally it is $500 worth of shares (at least that is what it is when I get involved in the ASX SPP). This benefits the small shareholders as you are only able to purchase the $5000 worth. The big instos, no matter how many shares they have can still only get the $5,000. It is not worth their while to apply for such a small amount.
Sorry, Peitro but I think that the quote refers to what is deemed to be a shareholder i.e. holding $500 worth.
Being able to get into SPP's can be very lucrative and there are a lot of them around, especially on the ASX. The risk is very limited.

Ponda
DISC Hold XRO (for the SPP)

[POSSUM THE CAT]

Raven Imposible to buy just one share. Look at minimum holdings & marketable Parcells rules

[nwood]

I currently hold approx 150 XRO after selling off some of my portfolio. Will this still entitle me to SPP?

[Raven]

Raven Imposible to buy just one share. Look at minimum holdings & marketable Parcells rules

Thanks Possum. Typing before thinking. Went through minimum holdings rules a while ago when transfering holdings from a custodial facility. For the benefit of others in this thread I'll add them here but I'm not sure how they will effect eligibility for SPP. Would be a good oppotunity to bump up a whole lot of small holders so even if somehow people are below the thresholds they still might be able to top up?

http://www.nzx.com/asset/Appendix_2_Minimum_Holdings.pdf

minimum of 500 units where the share price is between $0.50 and $1.00
minumum of 200 units where the share price is between $1.00 and $2.00

Other ranges also but can check the link if you want them.

[nwood]

Just spoke to ASB Securities they said that at long as I hold shares at the specified data than I should be 'eligible' for the SPP.

Would I be right that you can't make a purchase of less than the minimum units. but if you buy say 1200 shares then sell 1100 shares you still remain an eligible shareholder?

[whatsup]

Looking at the amount that this SPP will bring into XRO I wonder how much it will bring into the coffers and what the company will do with the cash--- expansion, if so where?

[Peitro]

Is there a place I can see how many 200 share parcels have been purchased in the last fortnight?

From what I have seen, every man and his dog have been jumping in to access the SPP.

I think the take up on the SPP is going to be huge with people dumping the shares once they have been allocated, I'm just wondering how big an impact this dilution and SPP profit takers is going to have on the SP.

[onlinesid]

Sam Morgan loads up on Xero shares
Chris Keall | Thursday April 16 2009 - 03:51pm

The Trade Me founder is backing his own horse. Today Xero director Sam Morgan disclosed the purchase of 1.1 million shares in the company on April 6, bringing his total holding to 2.91 million or around 5% of the company.

Mr Morgan paid $1 million or 90 cents a share for his parcel of 1,111,111. Xero's shares closed at $1.15 on the day of his purchase.

http://www.nbr.co.nz/article/sam-morgan-loads-xero-shares-101245

Darn, I was so close at buying some at 0.70!

[whatsup]

Received my offer docu, looks an interesting opportunity, taking on the world could be a problem but this could the ground floor for something interesting or blah!

[nwood]

definitely interesting stuff, I sold down some of my portfolio in the past month and plan on taking up my full purchase option.

[nwood]

$5000 worth of Shares at 90c is looking like a good thing!

[onlinesid]

$5000 worth of Shares at 90c is looking like a good thing!

It's damn good, I beat myself for not buying when it was 70c!!! I had a good feeling about the company and the product but didn't have enough guts! So close to buy lots when it was 70c. I bought TEL instead which is good, but too safe.

[Jess9]

This one feels like Advantage Group a few years ago. Bought in at 20c bailed at 50 feeling great but then watched it top out around $5.00 from memory. This story is much much greater. While there will inevitably be short term dips on profit taking, IMO a nice long uptrend ahead for more patient holders. Also great that it still has a relatively low cap level post cap raising.

[Peitro]

Reported Loss of $6.75m (in line with expectations)

7,500 Customers = $250,000 monthly Revenue

[Stranger_Danger]

Yeah, but once again the numbers don't really add up.

Look at the customer count and the revenue, track back through the announcements and try and make it add up. I can't.

I think it is pretty clear they've had to offer deals etc to get to this point - and probably rightly so.

What is needed for the next 6 month reporting period is $50 x 7500 x 6 to be the absolute minimum sales figure. If this happens, then real customers are happy to pay - and keep paying - a monthly fee for this service and word of mouth should build too.

In that case, my optimism would increase a lot. If not, memories of Commsoft (in particular) will come flooding back.

I reckon the jury is still out, but, thats good enough for now - they're doing whatever they can to make a dent and having some success.

[nwood]

Anyone attend the shareholder meeting?

[Jess9]

... And they've only just got going .... 616% rev growth ... flash in the pan? I think not! ... 2000 customers in UK, doubled customers in first qtr 2009! ...

BTW ... to compare XRO to Advantage Group is a joke as they are absolutely nothing like ADV in any way, shape or form ... (except they both did web sites ... but come to think of it - so just just about everyone nowadays including my granny!)

You didn't by near that top did you ; )


Agree the XRO story is much better. Great management/Directors. Massive real growth via leverage of real product/service and all delivered via web to MASSIVE international markets (this side has just begun) and all operated from this side of the world. Lets see if this one can get to 5 bucks quicker, and stay there : )

[manxman]

Agree the XRO story is much better. Great management/Directors.

Anyone get the feeling that this is another 42Below or TradeMe. Will be managed to grow like hell, and then sold internationally for a truckload.
Not going to be a dividend play. Hang on for a wild ride.

[Stranger_Danger]

... And they've only just got going .... 616% rev growth ... flash in the pan? I think not! ... 2000 customers in UK, doubled customers in first qtr 2009! ...

BTW ... to compare XRO to Advantage Group is a joke as they are absolutely nothing like ADV in any way, shape or form ... (except they both did web sites ... but come to think of it - so just just about everyone nowadays including my granny!)

Wow, you've had a lot of the Kool-Aid huh?

Don't get me wrong, I have a lot of time for Xero, but if you work out how much they've spent adding each user, how can you *not* grow at 616%, especially off a base of nearly zero?

If I stand on a street corner selling $1.20 cans of coke that I bought for 80 cents for 40 cents each, I'm gonna have a *hell* of a growth rate.

If you bought shares in me, then you'd be buying the profits I can make in future - clearly, with that model, it only works with new capital being continually added and, once the money flow stops, it is then we see the difference between a business and a ponzi scheme.

There is nothing wrong with spending money to make money but at some point, you *do* need to make money, or at least record sales that match your number of customers.

Truth time is coming up for Xero, and despite my devils advocate nature, I give them half a chance too. However, as an investor, I reckon you're paying a very, very high price for a speculative punt.

I'd much rather buy them for a P/E of 18 in 2-3 years time once the "blue sky" crowd have got bored.

[Stranger_Danger]

Belg - have you looked at ebay recently?

If you believe that they have anything that borders on a long term durable competitive advantage, you'd have to be damn tempted at todays price. I am, its just the exposure to the USD I'm not as keen on.

[nwood]

Shares have been issued...

I wonder how deep the sell off will be and if the price will bounce back....

[Peitro]

I think the sell off will be pretty deep, lots of players got in the game for a quick profit on the SPP

[nwood]

I'm out at 1.35 looking at buying back in after a bit of a dip

[Peitro]

me also - I am expecting $1m+ turnover in the next 2 days.

Will be interesting

[nwood]

Interesting indeed especially since daily turnover is typically very low

[Ponda]

How are people selling off already. I haven't recieved notification that my shares are available to sell yet

[nwood]

I checked the Link website and shares were showing up about 9am today

[Peitro]

Check the share registery

http://www.xero.com/investors/yourXero/

[Ponda]

Thanks for that.

[nwood]

Interesting article

http://www.samstewartnz.com/?p=110

Thanks for the link, interesting reading indeed

[Peitro]

Multi-Currency is being released on the 22nd, Opens the door to a lot of international customers.

Picked up a small parcel today.

[MPC]

Quite a few people are quietly picking this company to do big things over time.
I have snuck a few of these into my portfolio as a punt on other peoples picks.
Cheers,
MPC

[buns]

Nice move pre multi currency Pietro. I never realised the importance of that release. The SP has followed.

I just checked out the demo of it on Xero’s site – quite an impressive piece of work. It’s been said before, but boy there are some good things going on at that place. Scary potential.

[MPC]

I Like this company but not much interest on this site.
Who else has some of these...?
Cheers,
MPC

[Jess9]

Holding and content to wait for the market to revalue. This one is lower risk but still has A LOT of upside IMO : )

PS nice steady grind up over the last wee while...accumulation occurring now?

[MPC]

Decent revaluation will occur once they reach break even point. Keep an eye on customer sign ups, seem to be increasing at an impressive rate and in more countries all the time. Management seem to want to keep us updated as much as they possibly can as well so a lot of positives.

Cheers,
MPC

[winner69]

Wonder if that Sam Stewart is going to do another update .... that analysis linked above was pretty good

[Jess9]

Xero's product by all accounts is impressive. It is also beautifully scalable. With the right channels in place (which appear to be in place) uptake could well be, well amazing. An interesting one to follow.

[Stranger_Danger]

Revaluation once they reach breakeven point?

My experience with these sort of stocks is, yeah, they do get a revaluation as they approach break even point....usually downwards!

Once you have even the glimmer of an "E", it makes people actually look at the "P" rather than assume it *must* be a bargain because the company is about to take over the world.

Don't get me wrong, I like Xero. But a lower risk stock as someone above said? No way!

[buns]

I’m expecting another jump July/August when BT in the UK and Telstra in Aussie start pushing this product in their ICT offerings.

The big make or break in my mind is whether this can come off in America where integration with banks could prove difficult.

[Raven]

I agree that from July/August forward will be very important in terms of customer growth. I imagine that it will take a little while for Telstra and BT marketing to get traction but hopefully will result in a much improved rate of customer growth. I'll be looking forward to the regular updates about paying customer number and average revenue per customer. Sam Stewarts analysis will be useful for comparison.

I should mention as well that I got in with capital raising so hold a small parcel. Could sell for not a bad little profit but think the company has a way to go yet. Not sure how long it will take though.

[MPC]

Stranger danger,
I actually agree with you.
Re rating will happen once we know that break even point will almost definitely occur at some time in the near future. It will then get priced in. Maybe then drop as it approaches that actual point.

I don't think this is a high risk stock, I am quite happy with the risk/return potential on this one. Happy to have a few of them to keep it interesting though.

Cheers,
MPC

[COLIN]

I started to take an interest in these but got cold feet when I studied the recent charts - not that I am a charting expert, by any means, but I know enough to indicate that the present does not seem to be an auspicious time to buy in.
Will keep watching from the sidelines, for the time being.

[MPC]

Hi Colin,
Can you expand on your charting views please?
Share movements seem to reflect the recent capital raising and profit taking from being given cheap shares.

Cheers,
MPC

[COLIN]

Hi Colin,
Can you expand on your charting views please?
Share movements seem to reflect the recent capital raising and profit taking from being given cheap shares.

Cheers,
MPC
Sorry MPC, nothing sophisticated, its just that the trend seems to be flattening out. I would want to see more evidence of distinctly "higher lows" before I took the buying plunge. However, if I was an existing investor I would continue to hold for the time being.

[MPC]

Sweet. Thanks Colin

[Jess9]

OBV, RSI and slow stocastic looked good for an entry about 1.25 a week or so ago. Since then OBV and RSI have continued to increase. From my limited chart knowledge this seems good so far.

Any thoughts Phaedrus?

[Peitro]

Nice movement since the multi-currency release.

I look forward to the announcement of the UK CEO for Xero. According to a recent blog post^, it will be an "accounting vendor rock star"

I wonder if the have managed to snaffle up a big name from one of the incumbents

^ http://www.accmanpro.com/2009/06/27/weekend-musing-sponsor-success/

[buns]

Was defiantly not expecting a reaction like this to that release. Still, I feel the true value of this share will be apparent after its next market announcement. The 3 key factors I see are:
1. How they have went in acquiring resource – the big one being the 40-50 or so developers required in Wellington which would not be easy.
2. Proof of Xero being a strong part of BT/Telstra’s ICT offerings
3. Proof of subscriptions growing on top of the huge increase they saw between Q3/Q4 last year

Some sort of strategy around entry to the US market would be nice as well

[kiwi_on_OE]

Maybe they could get someone from BT for a year as UK CEO. (Staff have the opportunity to take a year off on 25% pay)

http://news.bbc.co.uk/1/hi/business/8134123.stm

[Peitro]

Sounds like Xero have their 'man'

"Later today, I will be able to reveal Hamish’s successor. In my opinion, they’ve snagged one of the brightest and best minds on the UK accounting circuit. Watch this space."

http://www.accmanpro.com/2009/07/06/hamish-edwards-ceo-xero-talks-success/

I look forward to finding our who it is tomorrow morning!

[Peitro]

Hope the competitors feel the wrath...

http://en.wikipedia.org/wiki/Gary_Turner

[Peitro]

AGM is in just over a week (23rd) and will most likely update the market on customer numbers.

Any predictions on this magic number?

6000 as of the 31st of March
7500 as of the 10th of May

at a continuation of this rate they would have 10275.

I doubt that the will have this many though, as the previous rate was over the start of the financial year NZ/UK

Big factor will be the OZ growth over their FYE.

9500 is my guess.

[Peitro]

4 posts in a row is definitely a case for accusing me of ramping =]

Massive turnover today ahead of the AGM, any idea of the cause? Gary Turner buying in?

[buns]

Hope the drop relates to a buy in...

In regards to your predictions on paying customers - I think you are dreaming if you think you can get within 5-10% of that..

Lets hope its on the high side..

[Jess9]

big trade at 1.35. Nice to see market confirm value is well north of 90c issue.

[Peitro]

10,000 Customers - Hockey stick growth in full flight!

[Stranger_Danger]

10,000 customers is awesome. That should be 500k in revenue per month.

Watch the numbers closely. If they are for real the actual cash coming through the door per month is about to take off.

[Peitro]

10,000 customers is awesome. That should be 500k in revenue per month.

Watch the numbers closely. If they are for real the actual cash coming through the door per month is about to take off.

They stated in their Annual report that their Average revenue per Customer was $33 or something to that effect.

[Stranger_Danger]

But that is substantially less than their minimum price, and they stated that they only count paying customers?

[Peitro]

"Xero currently has in excess of 7,500 customers who, in aggregate, are committed to approximately $250,000
of monthly revenues. Revenue collection and recognition is subject to timings of customer promotional
periods."

Lower than $50 Month due to:

-Annual Payment discount
-Not for profit discounted rate
-Xero Accountants edition (lower functionality available through accounting firms only - at a discount, but usually bundled with accounting services)
-Telecom, Telstra & BT taking a cut?

[Peitro]

"10,000 paying customers is a ten-fold increase in our customer numbers since March 2008 and, in aggregate, these 10,000 customers generate approximately $330,000 of committed monthly revenues"

Ha Share buy-back announcement today - so soon after the SPP

[Jess9]

Market likes : ) Expect some more favorable price action as XRO forward momentum pick-ups further and traders again enter.

[buns]

I expected XRO to race away a bit more than this on the 10k news, and the other positive signs out there. We were at 1.42 before the good news. So that raises the question - is XRO still at value to an investor?

To tell the truth I have no idea how to value XRO - does anyone?

The stock has so many unknowns, all good, but how good?. In the end it does come down how you value the benefits of these future possibility’s.

I'm expecting news from XRO is going to slow down a tad and really enter a BAU phase. As;
- Telco contracts in place
- Major system upgrades complete (multi currency)
- UK office set up
- FY09 and AGM behind us

The announcement on treating the USA with care, to me is a huge hint they are a long way away from pushing into that market. This obviously means they feel very comfortable easily making that break even in good time without the US. Another nice display of confidence.

In the medium term, I'm thinking about 3 things:
- Continuing to bulk up XRO accounting functionality
- Looking into adding value added services integration, i.e Web 2.0 Payroll apps. To lift that $33 ARPU.
- A stronger force in Aussie. Road shows have just completed, hopefully these have spread the word as they have very small market share over there.

Defiantly a slow down in advancements/news though. So a decent time to value XRO - anyone?

[MPC]

My thoughts as well Buns. I was thinking today what the company would be worth once they have 20000 or 100000 customers. 10000 is a drop in the ocean but a nice start.

I am happy with progress and with the company in general. Nice to see positive articles in the media but words of caution from the company itself is also reassuring, they know what is needed and how hard it will be to become a big player. Interesting future.

Regards,
MPC

[winner69]

I
To tell the truth I have no idea how to value XRO - does anyone?




From an earlier post here's a dudes detailed valuation and a worksheet to play around with


Interesting article

http://www.samstewartnz.com/?p=110


Mentions 360,000 customers needed to get a decent return from a share price at 1.40

[MPC]

Winnner, that is picking a sentence out of context to make a point.
That number of customers needed in 5 years time to get a 5x return on investment.

Cheers,
MPC

[Peitro]

That figure is based on an Average revenue of $35... Currently it is $33 but Xero have intentions to raise this through added functionality/intergrations

[Jay]

I keep hearing Xero being mentioned by more and more accountants as I talk to people and or accountants.
And apprently MYOB is working on an online product but way off producing somethimg at present

Still worth inveting into I think - but not right now as it is falling back a bit.
Don't buy into a down trending share - Phaedrus must have taught me something!

[buns]

yep I expect XRO to go through a bit of a lull for a while. They are well past building the product, and are in an accumulation of customers stage.

They have just integrated with sharesite though, quite interesting.. I had a trail and loved the 2.0 interface.. Then got over it and went back to my trusty excel sheet.

http://blog.xero.com/2009/08/sharesight-and-xero/

Not too much to get excited about. The revenue share from this would be minimal

Anyone use sharesite?

[Cannibal]

All quiet from Xero for a couple of months now - not like Rod Drury at all - he loves publicity. Something must be announced soon.
They have taken on a load more development staff in the last two months and are looking for more staff in NZ, Oz and the UK.
So - what will they announce next - increased functionality or the latest number of customers? They must be close to the magic 30,000 mark by now.

[Peitro]

All quiet from Xero for a couple of months now - not like Rod Drury at all - he loves publicity. Something must be announced soon.
They have taken on a load more development staff in the last two months and are looking for more staff in NZ, Oz and the UK.
So - what will they announce next - increased functionality or the latest number of customers? They must be close to the magic 30,000 mark by now.


Xero's 6 month results due out on the 1st of October

the customer numbers will not be anywhere near 30,000...
12,000-13,000 would be a good result...

[Cannibal]

Ta for that.

I got a beer that says 15,000 minimum!

[Peitro]

As much as believe in this company

I have a beer that says it's sub 15,000...

It's pretty hard to sell accounting software in August and September.

[Cannibal]

Nothwithstanding the time of the year I stand by my 15,000+. 12,700 is straight-line growth and I think that they will do much better than that.

[Cannibal]

GENERAL: XRO: Xero throws the net wider
28 Sep 2009 10:25 am

XRO 28/09/2009 GENERAL

REL: 1025 HRS Xero Limited

GENERAL: XRO: Xero throws the net wider

Xero throws the net wider

Market release 18 September 2009

Online accounting software company Xero (XRO) is extending its reach within the SME market.

Since listing in June 2007, Xero has generally been available under a 'one size fits all' pricing plan of $NZ49 per month. From October 11 Xero will add two new price points so that it will be available in Small, Medium and Large.

The change broadens Xero's appeal to more customers across the SME spectrum. For instance the Large plan priced at $NZ64 per month includes sophisticated features that only some customers will need, such as multi-currency conversion for exporters and importers.

Small at $NZ29 a month will deliver all the standard features of Xero but the cost is more affordable to customers who have low levels of transactions, such as small property investors and freelancers.

"We're delighted to get to the point where the feature set in Xero has become comparable, and in many cases exceeded, the last generation of desktop software," says Xero CEO Rod Drury.

"With recent investment in our hosting capability we can now deliver Xero at a price point that will make Xero compelling to a further, large segment of the market - many of whom have been doing accounting manually or using spreadsheets", he says.

The new plans will also be available in Australian, United Kingdom and Global versions of Xero at appropriate pricing for each market.

[nwood]

Email Received today:


Flexible pricing to suit you

Hi there,

We’ve been investing heavily in new features and our platform. With this investment we can now appeal to more of the SME market.

Instead of a ‘one size fits all’ we’ll be offering Xero at a further two price points. For customers who do a small number of transactions, such as small property investors and freelancers there will be a lower cost entry. Rather than limit the features that make Xero great or limit the number of users, we’ve simply set some transaction limits.

When we released multi-currency we signaled that this was a premium feature – one not everyone needs but which is a fabulous tool for exporters and importers. So for those of you wanting this and more sophisticated features we plan to release over time, we’ve come up with another price plan.

The plans are pretty simple really – Small, Medium and Large.

The Detail



What happens now?

We’ll move you to the Medium plan and make allowances for any multiple organisation discounts or special pricing. This will ensure you pay the same as you pay now. As a valued, loyal customer you’ll receive multi-currency for free just long as you stay on the Medium plan.

What do I do?

You don’t need to do anything - unless you think it is worth your while to downgrade. Just remember the Small plan has a limit on transactions and does not include multi-currency.

The Timing

The new pricing comes into effect from 11 October. Your next invoice will reflect the period before and after the changes are introduced.

We’re excited about extending the reach of the Xero and hope you enjoy this new flexibility.


Best regards,

The Xero Team

[nwood]

New Pricing Structure:

SMALL - $29per Month
- Up to 5 Accounts Receivable and 5 Accounts Payable
- Up to 20 reconciled bank statement lines per month

MEDIUM - $49per Month
- Unlimited invoicing
- Unlimited bank reconciliation

LARGE - $64per Month
- Multi-Currency
- Unlimited invoicing
- Unlimited bank reconciliation

[Peitro]

24 Oct 2008 Consolidated financial statements 6 months to 300908
24 Oct 2008 Half year results for the 6 months ended 300908
1 Oct 2008 Operating update to 30 September 2008

I would expect the same time frame this year... will still be running at a massive loss IMHO.

[CJ]

With Mint in the US just being bought out by quicken(?) in the US, I wonder if they will expand that outside the US and the implications that will have on Xero.

I know Mint is personal finance but if people know how to use that, it is a natural progression to use whatever business version they also offer.

[Cannibal]

Xero doubles customer numbers in six months

MARKET RELEASE

Xero doubles customer numbers in six months
01 Oct 2009


Key operating metrics

- Xero’s paying customers double to more than 12,000 since March 31 2009. This compares to 2,200 customers at the same time last year (Sept 30 2008).

- Xero now has paying customers in more than 50 countries. Key markets include New Zealand, the United Kingdom and Australia.

- Total staff numbers have increased to 73, including new development staff in Wellington and sales staff in support of new bases established in Melbourne and Sydney.


Product Highlights

- Xero invests in a major upgrade to its hosting environment, which will allow the company further capacity to scale and grow.

- Xero releases its most significant feature, multi-currency, to the market. This offers real-time exchange rate conversion in up to 160 currencies.

- Xero offers automated daily bank feeds from HSBC – the first bank to do so in the UK. Xero already has automated daily bank feeds from most of the major banks in New Zealand and Australia.

- Xero broadens customer reach within the SME market, introducing price points that cater for those with low levels of transactions and those who need more sophisticated features such as multi-currency.

- Xero releases version 2 of its API (application programming interface) which allows software partners to integrate their solutions more easily and quickly with Xero.


Capital Raising

- Xero raises a total of $29 million. The capital raising includes the following:

- A strategic capital raising of NZ$23.2 million at NZ$0.90 per share from key investors including Craig Winkler, a founder and former major shareholder of Australian based accounting software company, MYOB. With shareholder approval Craig Winkler went on to acquire NZ$18.0 million of new Xero shares.

- Xero Share Purchase Plan raises $5.8 million and receives 70 per cent take-up among existing investors.


Company news

- Microsoft executive and former Pegasus Software MD Gary Turner is appointed to head the Xero UK operation.

- Xero co-founder and former UK managing director Hamish Edwards focuses on driving global sales.

- Former MYOB founder and Xero corner-stone investor Craig Winkler joins the Xero board.

- Marketing partnerships with British Telecom and Telstra in Australia commence. Xero is now available to a collective 2.4 million small business customers via BT’s business application portal and Telstra’s software-as-a-Service platform T-Suite

- Key sales and customer care staff are appointed in Sydney and Melbourne. This is part of Xero’s Australian growth strategy and is designed to build on the success of roadshows held in the main centres in July.

- Share buyback results in the purchase of 500,000 shares at a cost of $744,085. The share buyback was intended to eliminate any increase in capital arising from Xero's employee restricted share plan for the year ended 31 March 2010 and any consequential dilutionary effect for existing shareholders.

- Xero wins the category for best business application on the internet at the New Zealand Internet industry Awards.

- Xero wins two Webbys - the Oscars of the internet, in the banking/bill paying category.

Summary

It's been a very busy half-year for Xero. The company has completed its capital raising and continued to build the Xero platform and team, ready for the next stage of growth. Xero is pleased that the strong customer acquisition experienced at the March 31 year-end, continued beyond the seasonal peak.

Expanding the development team has been successful in a market where experienced and talented people are still in short supply. This supports Xero’s quest to deliver a feature set that exceeds desk-top software functionality on offer from incumbent providers.

Following on from overseas market entry activities in the last half, Xero recruited experienced senior sales staff in Sydney, Melbourne and the UK and has made significant progress in developing these markets.

Xero continues to execute its plans and is well positioned for growth in coming years.

[Peitro]

Was hoping for the 15,000 figure though. =]

Will be interesting to see the cash burn, to be fair they have a lot and it is there to be used.

Interesting to see the new pricing structure, wonder how many current users will be able to downgrade. This move will likely decrease the ARPU and with increased staff levels, I expect the breakeven point to climb well above 30,000 users.

[Cannibal]

Xero has established New Zealand and Australia country manger positions, with former NZ sales general manager Leanne Graham taking the local country manager role, and Wayne Schmidt taking up the Australian post.

Schmidt comes to the Xero Australia from automated mobile communications specialist Whispir and has also held positions with MYOB.

In a statement posted on the NZX, Xero CEO Rod Drury says "We're delighted to have someone with such knowledge of the Australian accounting industry lead out team there.

"It's an exciting time for us in Australia. Xero is starting to get some traction with the establishment of sales offices in Sydney and Melbourne and out marketing relationship with Telstra," Drury says.

Graham, who joined Xero in April as sales GM, was a co-founder of Enprise and held the roles of sales and marketing head, and managing director of the company's global business.

[Cannibal]

If accounting software company Xero continues adding customers at its current rate of about 1,000 a month, its disclosed break-even level of 30,000 customers should be reached in less than 18 months from now, says First NZ Capital retail research manager Barry Lindsay.

"There is nothing to say that (growth) should slow; in fact, it may well accelerate, given the additional sales staff that have been employed and the strategic partnerships set up with Telstra and British Telecom," Lindsay says.

The indications are Xero needs annual revenue of about $12 million to cover its operating costs. "The $12 million in annual sales could also be reached sooner than earlier suggested as the company has recently moved to a new pricing scale," he says.

This will see Xero charging large customers, who need additional features such as multi-currency options, more.

Lindsay estimates Xero could achieve a $1.5 million net profit in the year ended March 2012 and that could jump to $4 million the following year.

"The operating leverage this company enjoys is enormous - it costs very little to add a new customer. Our 2012 assumption is based on 45,000 customers by year end and, by the end of 2013, 60,000 customers." Xero had more than 12,000 customers at September 30.

BROKER CALL: First NZ Capital rate Xero as "should appeal to those investors who are willing to back the skilled, committed people driving this business."

[buns]

Yeah I think something is up...

[Cannibal]

XRO 02/11/2009 GENERAL

REL: 0918 HRS Xero Limited

GENERAL: XRO: Xero to break into the consumer market

Online small business accounting software provider Xero (XRO) will launch a personal money manager in early 2010.

Xero Personal will allow consumers to have a complete view all aspects of their finances. They'll be able to see ALL their bank accounts in one place; accurately track where their money is going; set savings goals and monitor the progress toward these - all in a way that's not been seen before.

"There's an increasing blur between consumer and SME services and personal/consumer finance literacy is a hot topic on the global stage,'' says Xero CEO Rod Drury.

"Recent evidence of this is US financial and business solution giant Intuit acquiring Californian based online personal finance service Mint.com for US$170 million."

Xero Personal extends the Xero service, exposing it to a vast, much wider consumer market.

"Xero Personal is a spectacular hybrid model, which we believe is a world first," says Rod Drury.

"We looked at the current stand alone offerings and solutions provided within Internet banking sites and decided to take a different approach that combines the rapid innovation Xero customers have come to expect, with the power of the transactional banking platforms."

To develop Xero Personal and to help take it to market in New Zealand, Xero has formed a partnership with the BNZ, which is a strategic investor in Xero.

"We're delighted with what we've been able to achieve with BNZ," says Rod Drury.

"As a long term partner of Xero, BNZ is excited about being involved with such an innovative product which will allow our customers to see at a glance where their money is being spent and how they can reach their savings goals quicker," says BNZ's Director, Retail, Chris Bayliss

BNZ will be offering a co-branded version of Xero Personal to its customers. This version will allow bank statement details to be imported automatically each day, giving BNZ customers an up-to-date snapshot of their finances.

While Xero Personal will be available to Xero customers who don't bank with BNZ, bank statements from other banks will need to be imported manually.

Xero is looking to partner with banks in other offshore markets and jointly promote the Xero Personal offering to their customers. For customers who use Xero's online business accounting service, Xero Personal will give them the ability to lodge and track business expenses - paid for from a personal account or credit card, directly back into Xero.

Xero personal has been in development for the past 6 months and an internal pilot will start next month in conjunction with BNZ.

[CJ]

That should be interesting. Shame they are limiting it to BNZ (for automatic updates).

Also no mention of pricing. I assume BNZ will foot the bill initially for their customers but for non bank users.

It would be interesting to if it became quasi ad funded. Mint apparently while tracking your expenditure also gave recommendations - ie. your credit card fees are too high, consider this product. Mints income came from those referals adding true value to users at no cost. It is a shame it never released outside the US.

[CJ]

Also no mention of pricing. Apparently less than $5pm so $4.99?? or $60pa. Compared with Quicken personal at $179 it doesn't sound to bad (3 years to breakeven if you buy quicken).

[whatsup]

6 month report out this morning , more of the same !

[Cannibal]

Xero CEO and successful technology entrepreneur Rod Drury is to become a Director of NZX, effective today.

A passionate business person with a clear vision for New Zealand's entrepreneurial future, Drury is distinctive for his ability to turn technology ideas into thriving companies, recognised internationally for their excellence and ongoing growth potential.

NZX Chairman Andrew Harmos said, "NZX's current businesses, and its future capabilities, are founded on a unique combination of strategy and people, technology and determined loyalty toward a successful New Zealand. Rod's credentials reflect all of these.

"Rod shares the same vision of success for New Zealand business on a global scale, and we're confident that NZX, and the companies in our markets, will benefit from his insight and energy."

Rod Drury said, "Listing on NZX - our national stock exchange - should be an aspiration of all New Zealand business owners. Our businesses need the capital to grow, and create attractive investment opportunities for other New Zealanders to be part of that growth.

NZX CEO Mark Weldon said, "Rod's belief in what Kiwi companies can achieve is evidenced in the success of his own businesses - AfterMail and Xero - Xero having been strongly supported by the market, and having grown rapidly since listing with NZX in 2007.

"Technology is the great 21st century enabler for businesses in all sectors, regardless of their scale, and for timely and transparent access to markets here and around the world. This is the right time for NZX to add a technology expert and entrepreneur to its board and we're excited by the possibilities of what we can achieve."

Drury's first official role as an NZX Director will be to address the final 2009 Global Entrepreneurship Week event at the NZX Centre on 20 November.

[Cannibal]

From Xero this morning -
Today is our last major feature release for 2009 and as usual the elves have been hard at work.
In this release we have completed our end-to-end creditors functionality with the introduction of batch payment features. Xero is now a powerful solution for restaurants and cafes or anyone that needs to manage lots of payable invoices.

http://blog.xero.com/2009/12/what-santa-has-for-you/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+xerolive+%28Xero+News%29&utm_content=Twitter

[Peitro]

Xero have done the hard yards and got themselves in a strong position for growth.

They now have acquired 15,000 odd customers (reported 12,000 as of 30/9 and reported current growth of 1,000 per month)

The next 3 - 6 months are going to be very interesting, XRO are likely to double customer numbers over this period with the FYE in NZ UK then AUS.

Xero Personal edition to be released soon, this is going to be an incredible marketing/branding tool.

[Peitro]

Xero has increased Bank feeds from about 10 to 11,000 with an agreement with Yodlee...

This is going to be huge for the US market and opens up a whole lot more customers in the UK and Australia. The floodgates will open, hope the customer service team is ready!

[ratkin]

Have a few thousand of these from float time and a few more from the capital raising.
To be honest i have never really bothered looking into them in much depth, just put my faith in the management.

Prompted by an article i read in one of yesterdays aussie papers i decided to have a look at what they were upto.

First thing to note is the share register has some very clever people on board . Including ex MYOB people and the founder of trademe.

Secondly the capital raising has strengthened their position considereable , they now have no debt and plenty of cash reserves. They did remarkably well to gather so much cash at a time of market turmoil.

Thirdly , they have been growing customers at a decent rate and if yesterdays reports are anything to go by takeup will be accelerating.

Fourthly , they are moving into the area of personal finance and will be releasing new software mid year , they have now expanded their network of banks etc to enable customers to update live all their account info etc.

They seem to be doing a very good job and have made significant progress since listing .

Question is , is it a good time to buy a few more ? Certainly no intention of selling those i already have , they going back in the bottom draw , and will have another look next year

[CJ]

Fourthly , they are moving into the area of personal finance and will be releasing new software mid year , they have now expanded their network of banks etc to enable customers to update live all their account info etc.will this strategy work?

- How many people will pay for personal finance
- Most banks are now rolling out their own versions (ASB, Kiwibank, westpac) though clearly not as good.
- With the makers of Quicken buying out Mint, willl there be a global roll out of mint?

[Peitro]

An update on customer numbers is due 1st April, wil be interesting to see how if the seasonal rush is even bigger this year.

Im conservitively picking 19,000 customers at 31/3/2010 = approx $600,000 rev per month, which is getting closer and closer to breakeven.

I am looking forward to the Yodlee bank account link up due later this year. This could really open up the floodgates...

[winner69]

Speaking to an accountant who has quite a few clients using Xero the comment was made that they (as well as their clients) are getting more and more frustrated at the slow response time of the Xero servers and that they urgently need to do something to fix that problem ... maybe breakeven is about to go up

[Corporate]

Speaking to an accountant who has quite a few clients using Xero the comment was made that they (as well as their clients) are getting more and more frustrated at the slow response time of the Xero servers and that they urgently need to do something to fix that problem ... maybe breakeven is about to go up

I'm an accountant and one of my clients uses Xero. They rave about it. However, I have never had any experience with it.

[winner69]

I'm an accountant and one of my clients uses Xero. They rave about it. However, I have never had any experience with it.

Yep ... apparently happy with the product. Great concept the online delivery ... only speed of access seems to to be an issue

[CJ]

Speaking to an accountant who has quite a few clients using Xero the comment was made that they (as well as their clients) are getting more and more frustrated at the slow response time of the Xero servers and that they urgently need to do something to fix that problem ... maybe breakeven is about to go upXero uses servers based in the US. NOt sure why they dont use or set up a server farm in NZ or Australia to service us.

Or maybe that is why Rod is planning to lay a huge cable to the US.

[Peitro]

Schools annoucement today, Xero Personal launch on Monday, then thier market update... Exciting times

[Peitro]

Xero personal $5 a month, looks pretty damn good... http://moneymap.bnz.co.nz/section/updates-and-info/

I have wanted something like this for a long time!

[brettdale]

Have to do some serious research on the company, I know of a few people who are seriously thinking of investing heavily.

[Sideshow Bob]

I prefer these guys

http://www.pocketsmith.com/

[Zaphod]

Xero uses servers based in the US. NOt sure why they dont use or set up a server farm in NZ or Australia to service us.

Or maybe that is why Rod is planning to lay a huge cable to the US.

The reasons for the servers not being in NZ are cost & growth - RackSpace are pretty cheap, and servers sited in the USA provide excellent coverage for Xero's growing US and UK markets.

[Peitro]

Just Playing with Xero Personal now... good fun! the whole Xero website has changed but looks just as 'sexy' as before!

[ratkin]

does personal track stock portfolios as well as bank accounts?

[CJ]

does personal track stock portfolios as well as bank accounts?no. It can link with another online software solution but that also carries a monthly charge.

I will stick with MSMoney till it breaks I think.

[Silverlight]

Xero triples revenue

https://www.i-search.nzx.com/blobs/NZXXRO/2010/328527/NZXXRO-116974.pdf

[Peitro]

Over $3m revenue for Last year,
With 17,000 Business customers @ ARPU of $33 thats a committed revenue of $6.7m for this year, so revenues will be doubled again this year, even if they add no more customers.

Will be interesting to hear the update in May, especially as people tend to wait until April to change accounting systems.

[Peitro]

Growth Chart Attached, Illustrates the seasonal signups in April

[Stranger_Danger]

I'm clearly a luddite but, as a general rule, are you guys into buying shares on a P/S of 46, or is Xero an exception?

[whatsup]

I'm clearly a luddite but, as a general rule, are you guys into buying shares on a P/S of 46, or is Xero an exception?

Is that P/S or could it be P/E ?

On another note NO movement today , possible under every ones radar on a down day !!!

[winner69]

Is that P/S or could it be P/E ?

On another note NO movement today , possible under every ones radar on a down day !!!

Sure Stranger was talking price;sales

$145m market cap is 46 times last years sales

With the growth announced since a lot less but still inxcess of 20 times sales?

PE needs earnings to calculate

[Stranger_Danger]

My estimate was based on the "over 3 million" sales figure that was announced today, not sure what "growth announced since" refers to as todays announcement is the most up to date data we have. My estimated P/S is on estimated figures for a year that ended only yesterday.

Don't get me wrong, Xero are doing lots of good things. I just have a suspicion that when/if these things come to fruition, the valuation will be less than today. I like the product and the company. The stock at this valudation? Not so much.

They are not close to profitability but lets say they shock the market and announce a net profit of 1 million tomorrow.

Is that good news?

All it would do is clarify the situation, ie, a P/E of 140 or so.

[Peitro]

Stranger:

The $3m Revenue is equal to a weighted average of 9000 customers throughout the year. This year they are starting with 17,000 customers, which is what I believe winner is talking about.

Sure looking at P/S or P/E short term, this looks like an absolute lemon... Xero is all about growth, if they can manage to maintain their hockey stick growth, the revenue numbers get pretty big pretty quick.

[whatsup]

My estimate was based on the "over 3 million" sales figure that was announced today, not sure what "growth announced since" refers to as todays announcement is the most up to date data we have. My estimated P/S is on estimated figures for a year that ended only yesterday.

Don't get me wrong, Xero are doing lots of good things. I just have a suspicion that when/if these things come to fruition, the valuation will be less than today. I like the product and the company. The stock at this valudation? Not so much.

They are not close to profitability but lets say they shock the market and announce a net profit of 1 million tomorrow.

Is that good news?

All it would do is clarify the situation, ie, a P/E of 140 or so.

I have it from good connections that the exit strategy for XRO is some what simular to Software for Excellence once the T/O and profit are established that XRO will be taken out, if we shareholders do nothing else it is to hitch our waggon to this rising star, so far XRO is meeting its targets, the rest will follow and people are taking note.
With the penetration of customers in many countries the XRO system is gaining recognition for reliability and flexibility.

[Stranger_Danger]

Taken out by who?

Until MYOB from taken over by private equity, I would have agreed with you. I strongly suspected that Xero was basically formed to sell to MYOB.

I can't see how buying Xero fits into a private equity model - borrow 200 million to get a few million of sales, and no profits? Paying interest with what?

Therefore, I can't see MYOB being a buyer.

This leaves.... ?

[Stranger_Danger]

Further to the above, I know someone is going to answer "no, MYOB would wait until sales/profits are X 20 and then buy it!".

Whilst this makes sense in theory, for it to happen, MYOB's existing business would probably have to have been impacted to the point where it could no longer afford to buy Xero.

[Silverlight]

Borrow 200m?

Xero rasised 15m on IPO? and then another 20m from SPP/ placement last year. They have no debt. Also I think Drury made it clear when they first listed, that he was looking to make Xero a multi-billion dollar business.

His words were pretty short at the pre IPO presentations that they would tell any takeover suitors where to go.

[Stranger_Danger]

MYOB is owned by private equity. Unlisted company. Couldn't issue shares to buy it.

Generally PE deals are funded by debt. Xero would want a premium. Thats where my (totally pulled from the sky) figure comes from.

I'm not talking about Xero borrowing money, as you say, their cash position is strong.

[whatsup]

Taken out by who?

Until MYOB from taken over by private equity, I would have agreed with you. I strongly suspected that Xero was basically formed to sell to MYOB.

I can't see how buying Xero fits into a private equity model - borrow 200 million to get a few million of sales, and no profits? Paying interest with what?

Therefore, I can't see MYOB being a buyer.

This leaves.... ?

Certainly NOT a PEP, this thing has world wide appeal and ,please forgive me not MYOB.

[Stranger_Danger]

So who then?

I just don't see who the natural buyer is.

[Peitro]

Cant see XRO being sold off anytime in the next 5 years, as silverlight said - Drury stated early on that he has played that game before but this time he was looking to make Xero a multi-billion dollar business...

[ratkin]

Well , they have gone from 11.000 customers in september to 17.000 at the end of march . Quite an impressive ramp up which ever way you look at it.
Pointless trying to value this company via the usual methods , its all about rapid growth at this stage. No reason why growth should slow anytime soon , if anything it should accelerate , and all this excludes their new personal product.
If they continue to grow at current rate then by this time next year they should be well over the 30.000 they need to breeak even , again excluding new product

[Cannibal]

Rod has told me that he will not sell Xero. He wants to show that, with the weightless economy, NZ can produce and sustain a world class multi-national company from a base here.

[Peitro]

full year financial announcement and strategic update due soon, wondering if growth has plateaued... (In NZ) of course UK & OZ hopefully have some way to go

[Peitro]

$8.5m loss, (which no doubt is what the uneducated press will focus on!)

$12,874,000 expenses translates to a breakeven at around 32500 customers (based on average revenue of $33 per user)

This should still should be obtained within the next 12 months... (although costs should increase as they push into the US and they should make use of the cash that they have)

no official update on customer numbers unfortunately, so no new news really...(I estimate that this will be somewhere between 18,500 and 20,000)

[Stranger_Danger]

How is it uneducated to focus on a $8.5 million dollar loss?

Affection for the product aside, I must admit there are days I "don't understand" this story in much the same way I "didn't understand" the dot com boom.

[Peitro]

Uneducated was probably a poor choice of words...

But,
Whats the point of going to war with lots of ammo if you are not going to use it?
Through all this expenditure Xero have more than doubled their customer base in the last year, if they do that again over the next year they will break even... From there they are self-funded and all growth will be profit.

If Xero want to be THE online accounting solution, this is the way to go.

There are low funded solutions out there above breakeven, but a myopic focus is going to means that they are never going to be world beaters...

[Stranger_Danger]

I was hearing constant radio ads for Xero during the key selling period - I sense that a lot of ammo was used.

I agree with Xero's decision to be aggressive but not *too* aggressive and to keep plenty of cash on hand.

They have done an A grade job when it comes to getting listed just before the crash then raising a large wad at the first sign of better conditions, catching Craig Winkler on the rebound to give extra credibility. Superb work.

It would be arrogant to assume money will always be easy to raise - it will be easier to sell Xero to an accountant with 20 million in the bank than it would have been at near zero.

I actually think they're by and large running things right and doing good things. I just think the stock is wildly overpriced and better opportunities will be there to buy it after breakeven.

[Peitro]

Well said stranger, points noted..

[Stranger_Danger]

Belg - do you think it should be valuing Xero higher, or lower?

[whatsup]

Belg - do you think it should be valuing Xero higher, or lower?


Higher imho, one only has to look at the history of Sky T V , it took years of business with a low s p but once the bean counters sniffed that it was close to break even and could churn out real cash the instos all piled in, fair weather friends et al, its all about the "valley of death" and how long that lasts!!

[Enumerate]

The 42 Below IPO in 2003 issued 31 million shares at $0.50 ($15.5 million). The owners had prior to the float issued the foundation shares at cents per share (issue price of $0.50 translated to a $60.5 million capitalisation - at the time, 42 Below had negative earnings and no near term prospects of breakeven. The ultimate sale to Bacardi at $0.77 saw the IPO holder earn about a 15% annual rate of return on their capital - in no way compensation for the risks they undertook.

Xero IPO'ed in May 2007 issuing shares at $1.00 (raising $15 million) with an implied company capitalisation of $55 million. Again the foundation owners have been royally compensated for their efforts in founding the company - the company was founded with 1.5million shares, expanded to just over 1.7million in March 2007 and then boosted up to 40million shares by dividing existing shares 23.2:1 just before the IPO.

So, the founders contributed, apparently, about $2.8milllion to control 40million of the 55million issued shares. The public contributed $15million to control 15million shares.

In 2006 Drury and partners sold Aftermail to US software company Quest Software for US$14.7 million up front plus a performance-based consideration of up to US$30 million over three years. There were 5 partners in Aftermail - lets say Rod made at least US$8million. He already had whatever he made from selling Glazier Systems to Provenco in the dot com boom.

Guy Haddleton is also a very wealthy investor - founder of Adaytum and sold to Canadian software company Cognos for $160 million in 2002.

Sam Morgan - nuff said.

Craig Winkler - nuff said.

Why do these rich guys need your money, at $1 per share, to build a company that they have paid cents per share to found?

Maybe they simply want to do you a tremendous favour in giving you a small piece of what will prove to be a fabulous opportunity for only $1 per share. Their skills and experience more than compensate for the difference of cents per share some of the founders paid and the $1 you must pay. If you believe this ... then there is another stock you should own ... BurgerFuel!

[Peitro]

-18% This month...

Pretty big swing after the annual results came out. ouch

Rod almost sounds like Mel Gibson talking about MYOB releasing their "online" product:

"We’re excited MYOB is finally hitting the market, their marketing campaign has already been fantastic for us.

We’ve been looking forward to this for a while and surprised its taken them so long.

We’ve had a very experienced team working on Xero for over 3 years now, building the foundations and all the support systems. We’re now 90+ strong and passionate about what we’re doing. We love writing and deploying software and making life easier for small businesses and accountants.

MYOB’s model has been to outsource development to an offshore 3rd party. While we’ve been hiring, they’re reducing their local teams and offshoring, slashing their costs and ramping up maintenance revenue, presumably for their Private Equity owners to break up and sell the company – which is what PE plays are all about.

Software is hard. I’m not sure many have seen a live version of the new MYOB product yet but when/if it does come out I’m sure there’ll be lots of good comparisons. Accounting applications are big, with a broad minimum feature set and take time. We’ve managed to develop a world class product factory that is shipping quality software regularly. You need to get a lot of things right to do that and maintain that.

Given we are three years ahead, their feature set will be thin and their values are different to ours – we’d expect them to have to lead on price. But we’re very confident that we are providing a lot of value.

MYOB’s last online product Business Basic Online got no traction, meanwhile we’re going very well.

We may sound a bit harsh on MYOB but I have to tell you, that their lack of innovation has slowed down small business productivity for many years. They were a good company back in their day but when I had to use it for my own businesses I was shocked by how hard doing the books was. I’ve done the late nights trying to get my reports right in MYOB. So this is personal and we are incredibly focused on this and will compete very hard.

We have a clear vision of what we’re doing, and we’re only just getting started.

I’m sure MYOB is more worried about us than we are about them. As we release final accounts on Xero and can replace Accountants Office (for free) and they have to upgrade servers and database licenses ($10’s of thousands) in their next big upgrade they’ll really know what competing on price is.

So far it’s 17,000+ to nil. Bring it on."

- Quoted from Braveheart / Stolen from Xero's blog

[Raven]

Interesting announcement. I'm wondering how this fits in with Telstra deal in Aus and BNZ in NZ. Sounds positive though.

XRO
03/06/2010
GENERAL

REL: 0830 HRS Xero Limited

GENERAL: XRO: Xero enters into distribution agreement with ANZ

MARKET RELEASE

3 June 2010

Leading online accounting software provider Xero (XRO) has entered into a
regional agreement with ANZ to distribute its online accounting services to
ANZ customers. The agreement allows for exclusive distribution in Australia
and to explore opportunities in Singapore, New Zealand and more broadly
across the Asia Pacific region.

Xero will offer ANZ's 450,000 small business customers in Australia an
online, integrated banking and accounting solution that allows them to
understand trading performance and cashflow position in real-time.

"This agreement reflects the synergies that Xero and ANZ share in supporting
small business owners to meet the challenges of operating a small business by
giving them the tools to take greater control of their finances," says Xero
CEO Rod Drury.

"We're excited about the prospect of working on more sophisticated
integration between our respective online systems for the convenience of our
customers,'' he says.

Nick Reade, ANZ General Manager Small Business, says managing cashflow is one
of the main issues for small businesses. "The integration of Xero's software
provides our customers with a simple and convenient solution to manage their
cashflow and provides greater transparency around trading performance."

Mr Reade says this agreement confirms ANZ's commitment to support small
businesses through both traditional and value adding services to help them
start, grow and thrive.

For more information contact:

Helen Matterson
Communications Manager, Xero
helen.matterson@xero.com
+64 21 125 8434

Rod Drury
CEO, Xero
rod.drury@xero.com
+64 21 457 012

[Stranger_Danger]

Anyone see this? http://www.techday.co.nz/start-up/news/xero-lets-down-small-business-customers/16621/

Just one guys view I guess but I haven't seen any info released by Xero about this, which is weird as they're normally very vocal. No idea whether this story is true or not.

[COLIN]

Anyone see this? http://www.techday.co.nz/start-up/news/xero-lets-down-small-business-customers/16621/

Just one guys view I guess but I haven't seen any info released by Xero about this, which is weird as they're normally very vocal. No idea whether this story is true or not.

Seems strange having regard to this morning's trumpeting of ANZ deal.

[nwood]

Xero reaches 20,000 customer milestone (http://research.iress.com.au/ids/pds.asp?uid=4BE1DF097915B7FB2CADA076673602F1E44A00 009E158D04EBB2E340F1AB0000F4120000&dt=NZCR\20100614&id=NZXXRO-120963&mp=1)

[Zaphod]

Seems strange having regard to this morning's trumpeting of ANZ deal.

There's not enough information in the article in order to pin the issue on a particular party. Besides, things do go wrong and there's never a right time for this sort of thing. What is important is how Xero dealt with the matter and how quickly the issue was resolved.

[Peitro]

May 2011 for the 30,000 then, based on a conservative flat line growth of 30 signups a day.

Will see over the next year if the hockey stick really exists.

[CJ]

May 2011 for the 30,000 then, based on a conservative flat line growth of 30 signups a day.

Will see over the next year if the hockey stick really exists.Given their strategy to target accountants, not clients, the hockey stick may happen. Once the accoutnant is on board, they will slowly transition their clients across at the next software update (ie. do you renew MYOB or move to Xero). They have 1000 accountants now. Lets say each accountant has 100 entites (ie one client may have multiple entities), that 100,000 potential Xero customers.

[Peitro]

Annual Report Out... a bit of info to consume

[CJ]

Xero just got competition:

https://indinero.com/

Cost is from free to US$100 per month

Will get a lot of press in the tech scene from these guys:

http://techcrunch.com/2010/07/02/indinero-launches-as-the-mint-com-for-small-businesses/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+Techcrunch+(TechCrunch)

[Ripeka]

I am a Financial Administrator who set up MYOB for our organisation (after changing from Quick Books 2 yrs ago) - dont think you can consider Indinero as real competition imho. it seems like small fry and very clunky to use comparatively. I spent Friday playing with Xero after our organisation's accountant recommended I take a good look as he is encouraging all his small - medium sized clients to move to Xero from MYOB. Xero is very intuitive, their Demo is brilliant to play around with, followed by the free trial before you have to put any $$ down. The whole layout is so easy to get your head around even though its a completely different way of thinking about accounting software. Xero seems to make everything so simple as opposed to MYOB that seems to make accounting complicated! Comprehensive help is available right from the start, and in addition there is specific email help if needed. Reporting is extremely in depth. Simply put, I loved it. I dont do the nuts and bolts of accounting in our organisation-someone else does this and I oversee. I love the fact that with Xero I could log in anytime, from anywhere in the world and see what the accounts lady has been up to LOL. In my personal life, my husband & I both contract for our income, claim business expenses and own investment property - I set up everything I needed in a very short time and will be going with Xero for our personal business from now on. GST options are brilliant (you can set different GST rate on each category if you want - great for automating the GST portion of motor vehicle expenses where I cant claim the whole amount but only a portion). I came hunting for the share AFTER using Xero last week because I think it has such potential to kick MYOB into touch here in NZ and in Aussie. Just gotta time an entry point....
P.S. Accountant's opinion was that MYOB was dead in the water once Xero got some serious uptake. DYOR.

As far as cost goes, if you want support from MYOB it costs abt $600 p.a. anyway (then you get "free software upgrades"!) so price wise Xero is cheaper @ $29 USD per month.

[Peitro]

It looks like Canterbury University is teaching Xero in one of its compulsary NZICA courses. Xero assignment is apparently worth 10% of the paper.

http://www.acis.canterbury.ac.nz/outlines/ACIS243-10S2.pdf

Not sure if other universities are following suit, but it will be good for Xero having graduates going into the labour market with experience in Xero.

[CJ]

It looks like Canterbury University is teaching Xero in one of its compulsary NZICA courses. Xero assignment is apparently worth 10% of the paper.MYOB is in there as well.

MYOB's online program is coming along as well. It is being released to people in beta - only a 30 day free trial though which I dont think is right for a beta product.

[Peitro]

Of course MYOB is in there as well...

[whatsup]

Any AGM report, I see the sp is down P M today must have been something from the meeting?

[Nigel]

Closed up 1c yesterday (?). I see Sam Morgan has bought some shares of Drury and Edwards to take his stake to 5%.

[Stranger_Danger]

Positive spin : Trade Me founder Sam Morgan purchased more shares.

Negative spin : The co-founders have started selling shares.

The reality is, both statements are true.

[bryndlefly]

shareprice has shot up 19c this morning. was up 24c at one stage

[Silverlight]

Bid is only up 3% though, XRO's liquidity is the cause.

[Stranger_Danger]

Founder sells a million shares. Shares go up 19 cents in celebration.

I clearly need to drink more of the kool aid.

[buns]

This is weird.. Did Dury have to sell so there was enough for Morgan to buy?

Be nice to see Dury notify us of his reasons here.

[Stranger_Danger]

If Morgan (and others) wanted to buy, then there are other ways - rights issue, placement etc - with the money going to the company itself.

If Drury were to sell on market, with an illiquid stock, the price would quickly fall and it would also look bad.

My guess is Drury wanted some cash and Morgan was happy to buy more, and was having the same issue with liquidity as a potential seller has.

Nice solution. Smart. But good news? Hardly.

[Peitro]

Would have loved to see the 1,000,000+ shares placed on the market, would have loaded up on any price drop...

"Rod and Hamish do not intend to sell down any further shares prior to the Company achieving break-even." So there could possibly be some more liquidity in 12 or so months?

[warthog]

My guess is Drury wanted some cash and Morgan was happy to buy more, and was having the same issue with liquidity as a potential seller has.

Nice solution. Smart. But good news? Hardly.

Agreed. Looks like Drury needed some liquidity and they figured out a way to give it the best spin possible. The headlines were basically "a vote of confidence in Xero by Morgan" but the reality, if anything, is that Morgan sees more upside than Drury. Either that or Drury just needed the cash, plain and simple, and such a thinly-traded stock would have been hit hard (including Morgan's stake, of course!).

[CJ]

if anything, is that Morgan sees more upside than Drury.My opinion is Drury should have come out and said he needed the money for something else (say the new fibre cable project).

He is CEO so has better knowledge than Morgan of potential upside. Also $2m to Drury is alot bigger deal than it is to Morgan. To Morgan it is small enough to be part of his extreme risk portofolio but to Drury he is not backing it as a stable investment.

[Stranger_Danger]

Nah, Drury doesn't have to do that. His money, his choice. Half of the time with these guys, its probably just the wife demanding a flasher house!

My beef isn't with the sale or how it was handled - it was superbly well managed.

My beef is with any moron who thinks it is good news!

[CJ]

Agree he doens't have to - I worded my post badly. But for it to be seen as anything other than bad news, I think he would need to have given a reason. Not exactly a vote of confidence from the CEO is it!

[Stranger_Danger]

No, especially as his business history consists of building things and selling them.

The more concerning thing was the commitment not to sell any more shares until breakeven, which they seemed to indicate was a year or so away?

The devils advocate way of viewing that statement is that they can still keep that commitment by selling shares in a year or so which isn't far away.

My understanding of business ownership is that you plant your crops, nurture your crops, then you harvest your crops.

If there is true value, it was made possible in the planting stage, most of it is created in the nurturing stage, and is physically delivered in the harvesting stage.

The idea of selling out just before or just as harvesting is starting is a curious one.

It only makes sense if the wrong crops were planted. In that case, flick just before harvesting. *

I hope that doesn't prove to be the deal here.


* Buffett's "birdless bushes" explanation is still the best I have seen on this point.

[Misc]

***its probably just the wife demanding a flasher house!***

Hit the nail on the head I reckon! If you get close enough to Rodders he may show you the plans on his i-phone!

M

[gregrday]

Hi guys
just a quick note I'm doing a valuation of Xero at my blog, gregnz.wordpress.com. Part 1 and 2 are up, and I'd be interested to hear thoughts, corrections, and any suggestions. I'm planning on doing this for a number of companies on the NZX, so any thoughts about improve gratefully received. Basic methodology is based on Damodarans NYU course.

cheers
Greg

[h2so4]

Hi guys
just a quick note I'm doing a valuation of Xero at my blog, gregnz.wordpress.com. Part 1 and 2 are up, and I'd be interested to hear thoughts, corrections, and any suggestions. I'm planning on doing this for a number of companies on the NZX, so any thoughts about improve gratefully received. Basic methodology is based on Damodarans NYU course.

cheers
Greg
Your numbers are so far based on customers paying $40 per month. I think you said this number was a little high, maybe you could produce some numbers that were in a range ie $29 and $40 It might produce a more conservative valuation. More creditable do you think?

[gregrday]

Yes, a range will be interesting. I was giving them the benefit of the doubt, so I think at the end will revisit some of the numbers, the $40 range and the number of years of income. Their income per subscriber is not super-clear, so a range would be a good idea.

cheers
Greg

[Stranger_Danger]

You can't run numbers on the above - that is the point.

All of the above could happen, but investing in XRO is a faith game, not a numbers game.

Like all potential investments, I'm happy to wait until it is a numbers game, knowing full well it means I may never get to invest. Not a problem, don't need to be on every horse.

[CJ]

- it also about getting more from the existing customer base. I thought they were sticking to just the core business and using Partners to provide add on services like payroll, timesheets etc (I am not sure if there is some sort of referral fee for this). Therefore they cant get any more from their existing customer based (unless they need to upgrade from one of the existing 3 plans).

[h2so4]

You can't run numbers on the above - that is the point.

All of the above could happen, but investing in XRO is a faith game, not a numbers game.

Like all potential investments, I'm happy to wait until it is a numbers game, knowing full well it means I may never get to invest. Not a problem, don't need to be on every horse.

Yeah your right. You can't run numbers. Just the weirdest thing happens when you try and open their annual report on their website. I have never struck this before. My search engine closes down and restarts again. Hmmmm losing faith?

[gregrday]

Hi guys

I've just written a new blog post (gregnz.wordpress.com) with well... some numbers for Xero. Apologies to all who don't like numbers here! They're pretty optimistic, ball-park figures, but would love to hear thoughts, and any changes that would be good going forward.

cheers
Greg

[CJ]

Gregrday - white on black is very hard to read. Good for a photography blog but bad for a primarily text - just a thought.

Growth seems optimistic - depends how well they do outside NZ/Aus. I would also think gross margin would increase with size as they get economies of scale.

[gregrday]

Hi CJ

Thanks for that. I had to change my blog theme to fit the table on, will have a play with the colours and see if I can make things better. Margins? I just stuck the operating margin to max out at what seemed to be the average of those sorts of companies, estimated via wikinvest.com. Not too sure how economies of scale work with internet companies, you seem to always be upgrading servers/hosting/developers.

But will revisit in the epilogue :-)

[CJ]

Not too sure how economies of scale work with internet companies, you seem to always be upgrading servers/hosting/developers.Agree with servers and hosting but developers should reduce. They have to make the same adjustments for any NZ changes (ie. GST) whether they have 1 NZ customer or 10,000. That is why big markets (US and UK) are important.

[gregrday]

Hi guys

the final page on my Xero valuation is up. Took a few shortcuts explaining what I did, since Im assuming not too many people are that interested! Let me know if you want more detail, it was getting kind of long. But its all on the spreadsheet.
http://gregnz.wordpress.com

Let me know comments, and whether this sort of thing is valuable, since I'll be looking to do a few more when I get time. Its a fair chunk of work. Open to suggestions for other companies to look at too.
It also has the 'final' answer to what you should pay for a Xero share today, so will be looking forward to some ... discussion :-)

cheers
Greg

[CJ]

It also has the 'final' answer to what you should pay for a Xero share today, so will be looking forward to some ... discussion :-)I assume you haven't bought any then.