The Salesforce graph has a slope of EV / revenue of around 7.5x - 8x. The Xero Graph has a slope of EV / revenue of ~40x.
Its garbage in and garbage out.
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I think the point about valuation is that you have to form a view as to what constitutes intrinsic value.
Clare Capital's report ignores the concept of intrinsic value - and concludes that the market is right and will continue to be always right.
Xero for instance - will always be valued at 40x revenue because one other company they could find has been consistently valued at 8x revenue.
Mark Clare is not a dumb guy - but he knows that some people just like to believe a story... Its probably a marketing angle for his business - Woodward Partners seem to have gone the other way.
I note that Clare Capital includes four recent roles acting for the seller in Mark's bio. When you're selling a business, you don't want the lowball guy or the fencesitter acting for you.
You want the guy that can craft a reasonably believable story as to why you're worth more than all the tulips in Holland.
But it is an impressive looking chart though, and a $28 billion EV looks good and gives those punters who bought in at $40 some hope they might still get a 5 bagger
Note: The paper is bit old now. With revenues FY15 running at about $100m and EV value less than $2 billion the slope on his first regression chart would have to be a lot less anyway
Another interesting week for the XRO share price, but firstly a quick look at what else happened that might have had some influence, or not:
1. The Nas100 - at times XRO has seemed to key off the Naz - which bottomed and this week confirmed a reversal to a new up trend, as it powered through the MA's and resistance trendline.
2. The NZX50 - some stocks soared, particularly the good earners. The reversal to a new up trend also confirmed as the MA's and trendlines were all taken out convincingly.
So what did XRO do?
3. The week opened for XRO on the daily chart by falling through support, followed Tuesday by a nervous plunge to an intraday low at $15 where it bounced. Significantly this is the horizontal support from the lows of June, July and August 2013 - so that's encouraging, XRO may have found a floor of buying support. Conversely, Wed-Fri the price repeatedly backtested resistance at $17 and found strong selling pressure, finishing weakly at $16.29. XRO did not put in any resistance crossovers that might suggest a reversal to an uptrend - except perhaps for very bold traders who bought the bounce. Moreover, indicators are sickly as well - especially money flow is still net out. Less bold traders will be more encouraged to buy when/if XRO breaks up through overhead resistance - at all the points that were recent support - but especially the 61.8% fib and the steep downwards trendline overhead. The MA's are still well above that.
4 .Ditto the XRO weekly chart, which has a sickly pallor about it, encouraged only by finding support at $15, closing the week down on a very long term upwards trendline. Still there is no evidence at all on the weekly chart of a price trend reversal.
I agree. It looks like Intuit is set to take the lion share of the US cloud market while their core businesses particularly desktop products continues to go strong. It seems prudent to bet on them and additionally benefit from a strengthening greenback. If you must have the leverage, it may be safer to try Intuit derivatives or margin trading.
I think it is possible for Xero to sustain its growth for quite a while and justify its current extremely high valuation. Xero has now going for itself what has long worked against it. Accounting firms that decided to go with Xero and certify their staff accordingly will continue to produce customers probably for years to come. Perhaps Xero can use this lag to come up with disruptive moves for the US.
I actually think that because the US is so litigious accountants are much more cautious about recommending software specially new products. Could account for the partner number/customer number at 12 compare to the UK's 25. It may be that using the partner channel marketing method which worked well in the uk,nz and aus may not be so effective in the US.