Xro - xero

[Toasty]

Nothing wrong with investing in high return shares, as long as you appreciate they are high risk as well.

I don't think that have a strong enough stomach for risky stocks. I talk big but inside I am a mess.

It would not bother me if a larger player acquired Xero and took them out of play. At least then there would be a resolution and not this endless debate about whether they will succeed or fall by the wayside. I have said it before but $40 would do nicely, although when I started I swore that $10 would make me happy beyond my wildest dreams. Funny how quickly you grow used to the current situation and then decide that its too low and you want more.

[Toasty]

If we list one day toasty ill create a special class of share just for you!!!

your the man!!!

xero better not falter .. its helping caring the NZX ... all NZX companies have our hope and dreams with them..

I would appreciate that Steve. I would like something in a huge potential with no downside. Cheers.

[Silverlight]

How does the value investor value Xero at the current price? What E number is needed to justify the current price in the future? How long would you wait for this number?

Intuit is Xero's incumbent in the US market; it trades on a P/E of around 25. Xero is $3.6b odd, so the market forecasts future earnings of $144m. Intuits margins have been quite consistent for the past 5 years, around 20%. Xero $144m earnings on a 20% margin base is $720m in sales.

Average annualised ARPU is $334, so 2.1m customers at $720m in sales. What growth rate over what period is needed to get 2.1m customers? March 2012 NZ growth rate was 20% per quarter, but has now fallen to 8% Xero's 86k representing a 30% market share of the estimated SME market of 250k, in March 2012 this was 12.5%.

US quarter growth in past year has fluctuated between 20%-30%. Potential US SME market of 10m, so Xero grows at current rate (25% quarter, 140% p.a.), for 5 years, would be 2m US customers from today’s 16k, this gets it to 20% market share.
At $40 a share, there has to be higher margins, higher penetration, or higher growth rates.

Paying a lot already for revenues to increase 1000%, and then for these revenues to deliver an operating margin of 20%, but hey, it’s different this time… 

Fair point, and one I've seen a few times - they could make a profit if they chose.

This leads to a question for you. If they did just focus on NZ and Australia, what do you believe the current net profit would be, and what would you capitalise such a company at?

Stranger on my analysis of potential future earnings, at $29 a share, I would break it down to the NZ business $0.53, Australian $2.11, UK $5.27 & US $21.09.

[Stranger_Danger]

Stranger on my analysis of potential future earnings, at $29 a share, I would break it down to the NZ business $0.53, Australian $2.11, UK $5.27 & US $21.09.

From memory, my question was about what the NZ/AU earnings would be, and what multiple/valuation would the other poster place on these.

I believe you've done something different and stated how much of the present market cap you'd apply to each future opportunity, presumably by looking at the rough size of the market, your guesstimate of penetration etc, which is why the US is the dominant figure.

My question was in answer to someone who claimed their NZ/AU business could be profitable now, ie, they're talking about something in the present, rather than a dream in the distant future. I note nobody has actually answered this question.

Your answer is interesting - you've prescribed the majority of the market cap to the business that least exists at present.

My question was aimed at breaking through the "blue sky" and finding out what posters thought the current, real, could-be-profitable-if-we-chose business was worth.

Instead nobody apart from you has answered, and your answer gives the vast majority of the value to a section of the business which barely exists today.

Which...essentially proves my point. The whole thing is a blue sky bet on global domination.

Which is fair enough.

[Silverlight]

From memory, my question was about what the NZ/AU earnings would be, and what multiple/valuation would the other poster place on these.

I believe you've done something different and stated how much of the present market cap you'd apply to each future opportunity, presumably by looking at the rough size of the market, your guesstimate of penetration etc, which is why the US is the dominant figure.

My question was in answer to someone who claimed their NZ/AU business could be profitable now, ie, they're talking about something in the present, rather than a dream in the distant future. I note nobody has actually answered this question.

Your answer is interesting - you've prescribed the majority of the market cap to the business that least exists at present.

My question was aimed at breaking through the "blue sky" and finding out what posters thought the current, real, could-be-profitable-if-we-chose business was worth.

Instead nobody apart from you has answered, and your answer gives the vast majority of the value to a section of the business which barely exists today.

Which...essentially proves my point. The whole thing is a blue sky bet on global domination.

Which is fair enough.

Your quite right, I did calculate future value.

On current value NZ 85k customers ARPU of $280, revenue $24m. AU 79k customers, ARPU $381, total revenue $30m.

Now assumptions on a margins, say 50% in NZ and 35% in AU, total profit $16m. Ascribe a P/E of 25 similar to Intuit, for low growth rates, market cap of $560m, for the NZ and AU business, or $4.41 on the 127m shares on issue.

This is higher than my original pro-rata valuation model, as I allocated a 20% margin across the board, where NZ is likely to be higher given their will less competition in NZ. Trade-Me profit margins sit around 60%, so 50% is been conservative.

[BIRMANBOY]

Seductive isn't it? Sure thing no doubt.....well at least appears that way...until of course something happens and then this will plummet. Or maybe not. Are you an investor or a gambler.

The amount of $ you could make on this stock by buying in the morning and selling in the arvo is pretty impressive.

[apac]

The magic $30 has just been taken out!! Solid Volume today $13.5m so far!

This is absolutely nuts. Each time I think I've had enough and take back my capital, it goes up again, and can't resist putting money back in.

[apac]

Seductive isn't it? Sure thing no doubt.....well at least appears that way...until of course something happens and then this will plummet. Or maybe not. Are you an investor or a gambler.

I would say any holder of XRO would be a gambler.

[apac]

So where to next? $35 next week then $40 in 2 weeks?

The way it's going, it does look and feel like a bubble, but do bubbles always burst? Could it just be a really strong bubble that can become huge and stay huge?

At what price would make Rod a billionaire? How much are his shares worth now?

[apac]

So where to next? $35 next week then $40 in 2 weeks?

The way it's going, it does look and feel like a bubble, but do bubbles always burst? Could it just be a really strong bubble that can become huge and stay huge?

At what price would make Rod a billionaire? How much are his shares worth now?

Not sure if I'm right, but according to the last SSH, Rod holds 21,719,779 shares, so at $46.05, his shares will be worth over $1b.

Maybe he would agree to a takeover at around $50?