Xro - xero

[Ryrynz]

Have grabbed a copy of 1) for now, will have a read. Cheers.

[mattyroo]

If it was unwarranted then it wouldn't have been trading there.. I didn't see anyone saying.. don't buy it, it's at least double the value it should be! Short term trades only.

It was totally unwarranted based on fundamentals, for christs sake, it was the 2nd biggest company on the NZX for a period, based on what??? Hype, speculation and a product that is actually not up to scratch.

Why should you be relying on others to say don't buy - if you're not able to make and own your own investment decisions, then might I suggest the stockmarket is not for you. You need your big-boy pants on when playing with these hype driven stocks. Perhaps you should be looking at some more stable stocks, that aren't going to have spectacular increases, but pay a steady dividend.

I just don't know where the value is in this company any more.. Rod I think it was was expecting a around $25 price.. I figured this was safe? Maybe some bouncing around the lower twenties?

Who really does know where the value is, but, for one it never was at $45. Sit down with all of the available data, projected forward earnings, set some KPIs on the company and see if they are achieving against measurements, from there, make an informed decision on what you think the value is, not some wally in the media interviewing their keyboard. Read the Xero community and see the mountains of frustration from users about how long it takes them to implement changes. Understand that they have a very poor back-end that is going to hurt them in the long run.

If I had known there was this much of a drive down.. It's like someone wants it dead.. a quick bit of news and it spikes up then it just gets dragged down further and further like everyone's forgotten it was even trading there or the news ever mentioned.

The charts are your friend. I can't be assed going back and looking, but the charts for this stock have been screaming get-out for a helluva long time. Maybe someone does want it dead - or at a lower point than you so they can pick up stock cheaper than you. The market makers have bigger pockets than you can ever dream of.

Now I'm at the same position I was four months ago.. will it hold any sort of value at it's current rate or will it tank further? My gut tells me it'll tank..
Yet I still hope it won't but if this has taught me anything it's this.. don't ride on hope.. but it's so bloody hard not to..

As I said above, use the charts and get out. Capital preservation is the number one rule in playing the stockmarket.

Then you got the ones cheering on $10. Woot! drag it through the mud! I'll buy at bottom dollar I'll get filthy rich!

The first rule of the internet: "Don't believe everything you read on the internet" Most people saying this are full of themselves and have no intention of buying at low prices, other than to average down their losses. The smart money doesn't go around saying this.

Yeah off other people's backs mate. Not sure what's more sickening TBH. But then this was happening at $30 for $17.. and look how that played out.

Sorry buddy, but you gotta own your decisions. Until you do, you won't learn a thing.

It was a bad move to even consider this long term... hard to believe it rode so high on market sentiment.. you'd think the company or the NZX would reign it in..
Anyway...

Yes, it was a bad move to consider this long term - but, all the information was there saying this wasn't a long term play, well certainly not at the levels it was at. Furthermore, why on earth should the NZX stifle the market. What happens if they stepped in and you missed out on a big gain? Would you be crying out for them to regulate gains? Not another one who thinks the government should be involved in every aspect of our lives, are you?

[kiora]

Well said Mattyroo.
The market is a good teacher if you are prepared to listen

[tga_trader]

Can see both sides of the story that Ryrynz and mattyroo are telling. Definitely have to own your decisions, but it's of course frustrating seeing stocks plummet over what you feel seems like nothing. But it's equally amusing to see them lift off when there has been no news or announcements. I've been trading for about 9 months, with what is essentially loose change so I can learn the ropes, and had some wins and some losses but learnt a lot.
I bought Xero a few weeks back when it plateaued, just before the avalanche. I bought for the long game though so doesn't bother me at all. I believe in the product and that they'll acheive their long term goals so just gotta wait and see.

Maybe someone does want it dead - or at a lower point than you so they can pick up stock cheaper than you. The market makers have bigger pockets than you can ever dream of.

Exactly. We're essentially just along for the ride. Hop on when you're ready and hop off when it gets too much for you

[RGR367]

Well said Mattyroo.
The market is a good teacher if you are prepared to listen

And being such a good teacher, be well be prepared to pay your tuition

[Snoopy]

Getting back to Xero:
Does anyone have any research/sources that contain generally accepted valuation methods for SAAS companies? I have been modelling Xero and I can make assumptions for customer and ARPU growth but one thing I am struggling with is what is a reasonable multiplier for the resulting revenue.

Currently by my calculations xero is sitting on 15.5x ACMR

Ultimately the valuation formula is always the same. You work out the present value of the discounted stream of future cashflows. SaaS companies are different from others in a couple of respects:

1/ They can have low incremental operating costs while gaining new incremental business.
2/ They are often in the early stages of growth.

That means that, in theory the tipping point between being a loss making start up and a profit making new era company can happen quite quickly. Thus if you use 'conventional' valuation methods you can find that what does not look promising using snapshot statistics can develop into a company of real value. This is where valuing a company on 'revenue growth' comes in. A fixed cost structure and growing revenue should ultimately lead to a profitable business.

It is the end point that will determine the ultimate valuation of any SaaS company. Growing revenue, when there is no real chance of a profitable outcome does not mean an SaaS company is worth anything. Revenue growth must be a conduit towards profitability for any company to have value.

It follows then that the "multiplier for revenue" investors are seeking must be tied to how much incremental work is required to gain new customers as the SaaS business expands. It will not be the same for every SaaS company. And if the cost of acquiring and maintaining new customers becomes too much, then the multiplier is "0".

I am not suggesting that Xero has no value. But I would like to know if Xero is currently profitable in New Zealand, or could be profitable if R&D was wound back. Given NZ is the most mature market, that might at least give a starting point as to how revenue growth in other markets will eventually lead to profits being made. Inventing new ways to value companies ("It is different this time") unrelated to profitability is always a recipe for ultimate investor capital disaster in my experience.

SNOOPY

[Harvey Specter]

Snoop Dog - Xero has a 65% Gross profit margin so I am sure it would be profitable in NZ if operations were wound back to support only NZ.

The issue with discounted cashflows is that so much of the value is held in the terminal valuation. Theil is on record as saying transformative companies (I assume that's why he invested in Xero) have over 80% of their value generated beyond 10 years. He has seen this with Paypal and many others. Makes DCF models very hard. Look at the posts by Lance Wiggs on the Xero (he did a refresh of his quick valuation yesterday).

[Casino]

Snoop Dog - Xero has a 65% Gross profit margin so I am sure it would be profitable in NZ if operations were wound back to support only NZ.

The issue with discounted cashflows is that so much of the value is held in the terminal valuation. Theil is on record as saying transformative companies (I assume that's why he invested in Xero) have over 80% of their value generated beyond 10 years. He has seen this with Paypal and many others. Makes DCF models very hard. Look at the posts by Lance Wiggs on the Xero (he did a refresh of his quick valuation yesterday).

That was an amazing piece of 'Yes, I'm sloppy. Yes, they didn't deliver. But I'm still right because I say so.'. I liked the end of his post though.

[arc]

The expansion_into_America problem is nothing new...
Xero needs to set up an American_only office with American_staff and migrate the code to American_operations, before the narrow minded mistrust of anything not made_in_america will even give it a chance.
And for goodness sake DONT let a NZer accent blab all over american tv advertising the product.

[Fisherboy3]

I am not suggesting that Xero has no value. But I would like to know if Xero is currently profitable in New Zealand, or could be profitable if R&D was wound back. Given NZ is the most mature market, that might at least give a starting point as to how revenue growth in other markets will eventually lead to profits being made. Inventing new ways to value companies ("It is different this time") unrelated to profitability is always a recipe for ultimate investor capital disaster in my experience.

SNOOPY

New Zealand segment is making a profit its in the annual report net profit 40% - sales of 25mil - profit 10mil for 2014 and net profit 25% - sales 16 mil - profit 4 mil for 2013