Xro - xero

[Xirr]

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

Yeah I have to say I think this analysis is pretty misleading.

Xero chucks all the general and administration and development expenses into corporate - nothing is allocated.

Xero could not operate in NZ if it did not have people on the ground supporting accounting firms and in relationship type roles. What % of the $30m was this in 2014 - who knows? Quite a lot I would have thought.

Also, thinking you can just turn off R&D is not realistic - software needs to be constantly updated.

So in short, I dont think Xero is making a profit anywhere... ASk Xero to allocate out the NZ R&D costs and General & admin costs to NZ, Aust to AUst etc at the next AGM because what they are presenting at the moment is completely misleading.

If anything, the thing that could be shut off is the sales and marketing - yet that is allocated out.

[Harvey Specter]

Xero chucks all the general and administration and development expenses into corporate - nothing is allocated.

G&A is $12m and R&D is 18m.

For R&D, you could prorata against users or you could argue you should apply it to the first user (ie. NZ) as you need to do the same regardless of numbers. I would however assume that a large part of that relates to country customisation (ie. taxes) so even if NZ only, it would not be that much per year. Allocate say 20% is $4m

If it was a NZ only company, G&A would be alot lower. My guess would be max $2m. By comparison, RBD G&A was $7m for the half year on Revenue of $180m. Xero would be run very differently (ie. Lean) if it wasn't aiming for world domination.

[Xirr]

G&A is $12m and R&D is 18m.

For R&D, you could prorata against users or you could argue you should apply it to the first user (ie. NZ) as you need to do the same regardless of numbers. I would however assume that a large part of that relates to country customisation (ie. taxes) so even if NZ only, it would not be that much per year. Allocate say 20% is $4m

If it was a NZ only company, G&A would be alot lower. My guess would be max $2m. By comparison, RBD G&A was $7m for the half year on Revenue of $180m. Xero would be run very differently (ie. Lean) if it wasn't aiming for world domination.

Have a look at MYOB and how many people they have to dedicate to talking to accounting firms, creating templates and customisations for the mid tier and larger accounting firms, dealing with queries - your $2m is insultingly low. I set up businesses and SPVs all the time - your numbers are ridiculous.

[mikeybycrikey]

Yeah I have to say I think this analysis is pretty misleading.

Xero chucks all the general and administration and development expenses into corporate - nothing is allocated.

Xero could not operate in NZ if it did not have people on the ground supporting accounting firms and in relationship type roles. What % of the $30m was this in 2014 - who knows? Quite a lot I would have thought.

Also, thinking you can just turn off R&D is not realistic - software needs to be constantly updated.

So in short, I dont think Xero is making a profit anywhere... ASk Xero to allocate out the NZ R&D costs and General & admin costs to NZ, Aust to AUst etc at the next AGM because what they are presenting at the moment is completely misleading.

If anything, the thing that could be shut off is the sales and marketing - yet that is allocated out.

I've just had a look through the 2014 annual report (pages 7-9) where the expenses are broken down. I think you're a little off-base in that the reason the R&D and admin costs aren't split across countries is because they can't be directly attributed to earning revenue in those countries. It's just not possible.

As a quick breakdown, the expenses were:
Cost of revenue (35% of operating revenue)
Sales and marketing (79%)
Product design and development (49% total/26% expensed)
General admin (18%)
Total (181% of revenue)

The first two of those expense categories are split at the country level to provide a breakdown for each market. This seems reasonable to me because as sales in a country increases, those particular expenses will also increase, or in the case of marketing as that increases hopefully sales will.

This isn't the case for product design or general admin. Much of the costs for product design will be spread across all customers although a portion of it will be for customising for particular markets. I would like to understand what the breakdown of these vague categories actually means though. The annual report is a little lacking in specific detail here.

I think that the figures given by Fisherboy do give an accurate picture of the state of Xero although it really is worth have a look at the relevant part of the annual report to get the full picture.

[mikeybycrikey]

Have a look at MYOB and how many people they have to dedicate to talking to accounting firms, creating templates and customisations for the mid tier and larger accounting firms, dealing with queries - your $2m is insultingly low. I set up businesses and SPVs all the time - your numbers are ridiculous.

I think that the $2m that Harvey is talking about is General Admin. I guess that this includes things like HR and building management etc.

If you are talking about "talking to accounting firms, creating templates and customisations for the mid tier and larger accounting firms, dealing with queries", this would all come under the other three categories (COGS, sales & marketing, R&D).

[Toasty]

Have a look at MYOB and how many people they have to dedicate to talking to accounting firms, creating templates and customisations for the mid tier and larger accounting firms, dealing with queries - your $2m is insultingly low. I set up businesses and SPVs all the time - your numbers are ridiculous.

Robust debate is good but your tone leaves something to be desired. I can't see where Harvey had a go at you but maybe you should read your posts before you put them up....unless you are cultivating a confrontational shoot from the hip sort of persona?

[Xirr]

I've just had a look through the 2014 annual report (pages 7-9) where the expenses are broken down. I think you're a little off-base in that the reason the R&D and admin costs aren't split across countries is because they can't be directly attributed to earning revenue in those countries. It's just not possible.

As a quick breakdown, the expenses were:
Cost of revenue (35% of operating revenue)
Sales and marketing (79%)
Product design and development (49% total/26% expensed)
General admin (18%)
Total (181% of revenue)

The first two of those expense categories are split at the country level to provide a breakdown for each market. This seems reasonable to me because as sales in a country increases, those particular expenses will also increase, or in the case of marketing as that increases hopefully sales will.

This isn't the case for product design or general admin. Much of the costs for product design will be spread across all customers although a portion of it will be for customising for particular markets. I would like to understand what the breakdown of these vague categories actually means though. The annual report is a little lacking in specific detail here.

I think that the figures given by Fisherboy do give an accurate picture of the state of Xero although it really is worth have a look at the relevant part of the annual report to get the full picture.

Its called allocation - manufacturers do it all the time with overheads.

I call bull**** on that.

[Xirr]

Robust debate is good but your tone leaves something to be desired. I can't see where Harvey had a go at you but maybe you should read your posts before you put them up....unless you are cultivating a confrontational shoot from the hip sort of persona?

Dont know what youre getting at - I attacked the ball not the man.

[mikeybycrikey]

Its called allocation - manufacturers do it all the time with overheads.

I call bull**** on that.

Well, if you can't believe the Annual report, maybe you should get in touch with the auditors, or the SFO.

[Santiago]

may I suggest the book one up on wall st by Peter Lynch.
If you PM me your postal address I will post a copy to you.
Snapster reckons XRO is trading like it is over sold and will be trading $20 plus early next year(3 months away)
Trading to it.

Rubbish.

If I sell any shares, the price will go to 20+. If I hold, it'll continue to fall.

You wouldn't believe the power I have.