Xro - xero

[winner69]

Okay I'll have a stab:

Addressable market

Clare's position:
Xero’s internal take (and checked by us) on their
addressable market (New Zealand, Australia,
United Kingdom and United States only) is
approximately 33 million customers. That means
two things:


Casino's take:

US
The house agrees with Woodward. The addressable market is wildly overestimated and pushing reality. The often quoted 29 million SMBs in the US include around 20 million contractors, freelancers, sole traders, etc. The addressable market is probably ~10-12 million. 4-5 million are Quickbooks customers (not counting the ones using a pirated copy of Quickbooks...). 700000 are on QBO. 300 000 on Wave. Zoho books, Kashoo and Freshbooks are also in the game. Coming tax season Intuit will start adding 100 000 new QBO customers per quarter. The question is not how big is the cake but who will get the crumbs. Unlike Woodward I believe it's silly to pack up in the US without giving this and next US tax season a fair go. They have the money to do so and are competitively placed in the race for the 1-2 million SMBs that will not go with QBO.

UK
It's a bigger market than Australia and Xero is doing really well. But Sage is a much stronger competitor and it's later in the game. The UK could certainly compensate for slowing growth in Australia. Hard to put a number on it because the adoption rate seems low. I see potential for 3 million cloud customers of which 1 million will default to Sage. The three companies (Sage, Xero, Intuit) will be fighting over the remaining 2 million.

Oz
Very interesting to watch. Smaller market than UK but high adoption rates (probably due to Xero's great work) and the incumbents MYOB/Reckon looking shaky. Bain will have to invest if they want to compete and I'm not sure if they are willing to do that. I think we will see 1-2 million SMBs in the cloud and they are genuinely up for grabs.

NZ
300k.

The way I see it, the addressable market is only 4-6 million.

Competitors

Clare's position:
While SaaS may be the future of their businesses,
the Clayton Christensen disruptive innovation framework suggests it will be hard to reconfigure their
businesses even if they recognise it. If Xero’s competitors recognise the future is SaaS – their best response is
probably to acquire Xero; while leaving the business independent and allow it to potentially cannibalise their
historic businesses.

Casino's take:
Intuit has SaaS in their DNA. They invented cloud accounting in 2001 long before Xero. They are disrupting themselves. Their accounting and practice management software is brand new and best in class. Intuit has shown a huge hunger for acquisition but all were directed at destroying Xero. MYOB has too much debt and Bain is looking for an exit. Sage offered 1.2B for MYOB probably not realising in how much trouble they are. Such sums are below today's mcap.

Salesforce

Clare:
Salesforce.com, the most “established” listed SaaS company, is still chasing market share. Impatient for
growth – patient for profit. If players like Salesforce.com are still prioritising growth – that may mean that
Xero is going to be doing something similar for quite some time still.

Casino
Xero is not the most established listed SaaS company. It will do well but there are limits to how big it can grow. Sorry.

Bottom line

Clare:
If Xero is not able to continue to grow at the rates it has achieved historically, and that we are forecasting, then we would expect there will be a material downward revaluation of the company. New Zealand investors
in that situation would likely start to see the company make profits – but then be complaining about the share
price drop. We are not expecting the growth to stop – but it is the biggest risk facing the company.

Casino:
Growth continues to be strong and today's share price is exactly where it was when Clare published their report. Due to strong competition, it will become more difficult and costly to maintain current growth rates. All up, a 15x forward revenue multiple is generous but justifiable. Great product, great company, great success story, more great things to come but that's already priced in.

Thanks for taking up the challenge. Good stuff here mate

So if already at 15 times sales .....this time next year the shareprice will be 80% higher if 80% growth achieved and that multiple stays in place.

[Harvey Specter]

Which proves why revenue multiples are crude and inappropriate measures of value.

QED.

well if revenue was only up 40%, the shareprice definitely won't be up 40%.

From today's price with 80% growth it might work.

[Casino]

Which proves why revenue multiples are crude and inappropriate measures of value.

QED.

Not so fast please! No method works if you bundle it with faulty logic. Crude is simple. Simple means fewer unknowns and false assumption. DCFs are pseudo-accurate for tech companies with high valuations like XRO, PEB, etc (Not to say that MAC should be playing Sudoku instead ). Revenue multiples can be extremely powerful if used correctly. You just have to gauge future market sentiment (makes me bearish), sustainable competitive advantage (affects long-term outlook and margins, mostly bearish but could go bullish with backing of tech giant or large capital injection) and liquidity (mostly bearish but could go bullish with backing of tech giant or large capital injection).

[Casino]

I'm a lot more relaxed seeing back to earth prices with earth still being an expensive place...

[Schrodinger]

Dont forget there is Canada, all UK, Mexico, possibly the EU etc after they get traction in the USA. Also remember that once the platform is in place the average sales price per customer increases as more apps are sold > accounting>inventory>POS>scheduling etc.

Long way to go on this baby.

[The BOWMAN]

Dont forget there is Canada, all UK, Mexico, possibly the EU etc after they get traction in the USA. Also remember that once the platform is in place the average sales price per customer increases as more apps are sold > accounting>inventory>POS>scheduling etc.

Long way to go on this baby.

Did anyone actually checked out their business case? Surely with ANZ markets being mature they can provide some analysis of their business model using these two markets. Anyone can start a business and take it to the whole world, doesn't mean it is going to make money. People seem to think Xero is a built once and use forever product. It is not! It is built once and maintained and updated forever. The profit margin might not be as big as many people are led to believe.

[Casino]

Dont forget there is Canada, all UK, Mexico, possibly the EU etc after they get traction in the USA. Also remember that once the platform is in place the average sales price per customer increases as more apps are sold > accounting>inventory>POS>scheduling etc.

Long way to go on this baby.

Not a 'pro' like you but also wanted to point out the British overseas territories south georgia and south sandwich islands as obvious markets for additional growth impulses.

[Schrodinger]

Not a 'pro' like you but also wanted to point out the British overseas territories south georgia and south sandwich islands as obvious markets for additional growth impulses.

Considering Canada has at least 1m users alone for Xero it is a valid market. You are obviously the "pro" for betting against XRO.

[Casino]

Considering Canada has at least 1m users alone for Xero it is a valid market. You are obviously the "pro" for betting against XRO.

I was somewhat sceptical when people were paying almost as much for Xero as Intuit. I guess us 'non-pros' just didn't get it. Not sure if me being cautiously neutral qualifies as betting against Xero but anything that is not rampantly bullish must look like that to a 'pro'.

[Beagle]

http://www.sharechat.co.nz/article/2...nd-quarterhtml

Burning through the cash.