Xro - xero

[Baa_Baa]

NBR (paid content) ... the Mobile access to paywall content is still free if you go to www.nbr.co.nz

Xero accused of breaking ASX disclosure rules

[JamesST]

Percentages will always taper off at some point its simple math.

They may go up again as well.

[Beagle]

Craigs are rating it a SELL and have a price target south of $17.00 in 12 months time.
According to 4traders.com other analyst coverage shows 3 brokers rating it underperform and only one hold. Hardly a ringing endorsement is it !!
http://www.4-traders.com/XERO-LIMITE...803/consensus/

[JamesST]

Soooo... If it's not certain if and when the company will make a profit,this makes the company more of a risk than it has been in the past

I personally rate it much less risky than it has been in the past. At IPO an investor took the risk that Xero would execute better than the incumbents and any number of startups. They have since shown that they can execute significantly better. They are smashing them convincingly.
The losses are minor in the scheme of things in my opinion. Their total accumulated losses of all time are only $155 million. That's less than the ACMR. It's less than half of the Lifetime Value of the customers that signed up in the last 12 months alone.
That is an extremely efficient use of $155 million dollars. The fact that outsiders are valuing the company at billions (which they can't control) is a testament to how fantastically they have executed.
I personally have seen Xero change from one of my riskiest investments to one that I'm very comfortable with.

[Xirr]

I personally rate it much less risky than it has been in the past. At IPO an investor took the risk that Xero would execute better than the incumbents and any number of startups. They have since shown that they can execute significantly better. They are smashing them convincingly.
The losses are minor in the scheme of things in my opinion. Their total accumulated losses of all time are only $155 million. That's less than the ACMR. It's less than half of the Lifetime Value of the customers that signed up in the last 12 months alone.
That is an extremely efficient use of $155 million dollars. The fact that outsiders are valuing the company at billions (which they can't control) is a testament to how fantastically they have executed.
I personally have seen Xero change from one of my riskiest investments to one that I'm very comfortable with.

A few things bug me about xero:
1. Churn concerns me - 17.6% pa across all countries is very high - 5-7% pa is the gold standard
2. Opex as % of revenue is very high
3. Revenue / employee is very low - I havent checked comparators but I would guess it is lower than most saas companies
4. It has probably the highest revenue to market cap of all saas companies I have ever seen - is xero the best saas company of all time - better than salesforce which had more than double the revenue per employee and could operate at a profit at the equivalent time?

As to external investors - really who knows why they have made the investments they have made. Its a bit of a cop out to invest on that basis. Sometimes investors don't really need a reason to invest and don't always ask the hard questions or do the research. But yes, some big scary people have put a lot of $$$ into Xero - I cannot deny that - they may well be right in the long run.

For me, I can't see value there and I am really worried about xero's ability to deliver profits sustainably.

I do think Rod has done a fantastic job creating a $2.8 billion company from nothing and I think the product is great. Good luck with your investment.

[lastmoa]

Craigs are rating it a SELL and have a price target south of $17.00 in 12 months time.
According to 4traders.com other analyst coverage shows 3 brokers rating it underperform and only one hold. Hardly a ringing endorsement is it !!
http://www.4-traders.com/XERO-LIMITE...803/consensus/

I find many (not all) brokers don't have a grasp on SAAS, or IT in any form, and thus, if they can't apply strict formula to the company they bleat 'Sell' Better to do that and stay with blue chips than risk putting your head on the ole chopping block. That's why I DMOR and back myself and top-up on these blessed dips.
Overall, hats off to Rod for creating what he has. Regardless of where this goes, he has helped lifted the profile of NZ IT, of which this is not the only NZ IT company that has world-beating potential. I shake my head at all the NZ'ers here who come out of the woodwork to have a quick dig at the slightest stumble. Better to get into the ring like Mr Drury has done thus far.

[Baa_Baa]

Craigs are rating it a SELL and have a price target south of $17.00 in 12 months time.
According to 4traders.com other analyst coverage shows 3 brokers rating it underperform and only one hold. Hardly a ringing endorsement is it !!
http://www.4-traders.com/XERO-LIMITE...803/consensus/

Thanks for the link Roger, those charts are telling, if you look at the result in isolation, while disappointing for some and Ok for others, it's a lot less informative than the looking at the trends. On balance it looks like the sp is pretty close to the consensus $19.

Roger, to give some due, try this link for a bunch of articles on why profit doesn't matter, or at least why it doesn't for Amazon. It's a strange business model but their share price is evidence that growth alone can sustain investor confidence for a lot longer than seems rational.
https://www.google.co.nz/?gws_rd=ssl...een+profitable

[Baa_Baa]

But ultimately such a strategy IS irrational with no clear sign of profit in sight, yes?

Well NG it does seem so, but who can argue with amazing capital gain, even if it's not easily explained, though that assumes the gain is realised (sell), then you're not exposed to the gain. There's a conundrum. In a sustained bull market it seems to work just fine. When it doesn't it's ugly because there's no sustained return on investment, capital is decimated, and it's hard to get out unless your as sharp as. Take a look at AAPL by comparison, their SP is based on amazing growth AND sustained profits and returns to shareholders. Which would you rather have your $ invested in?

Bringing it home, take for example the XRO SP pop from $15 to $25 recently, on what. Nothing much really? A roadshow and announcing payroll functionality? The price just fed on itself and suddenly it's up $10 and no one really know why, except that it is.

Then equally so, XRO posts an aggregate 80%+ growth, which is what they forecast, and the SP declines $5. It's that uncertainty and unpredictability that makes it irrational. You wouldn't have any idea if you bought today whether you're going to lose or gain. In the long run I think XRO will be famous, but it has to be for the right reasons, or it's infamy.

That's why some of us bleat on about getting to profit, be like AAPL, grow like a madman but get to profit and share the rewards with your investors, even if it was for example by saying .. hey NZ and Aus are in profit, let's rewards our loyal shareholders, even a small titbit, while we plow the rest into UK and USA.

Not everyone has the coin to throw at a $20 stock on the promise that in X years (unknown cos there's no plan), there'll be an income for investors. That doesn't make us unpatriotic either. But then again, I don't think they need us small investors anymore, they have a stash from the big guys and while it might be frustrating for them having the minions nagging them, its the little guys that are 'valuing the company' in the market.

I'm sure they're happy with the market value, it's still two click above his latest capital raise. Rod even uses it as an example of why we should stop moaning about going to profits.

BAA

[Harvey Specter]

I'm suspicious of that slide in their Wellington building every time I see it. Built for someone to make a quick exit one day.

No requirement for analysis. Peter Lynch says use what you know and see. And he was one of the best.

the slide is trademe's isn't it. Or are there 2

[Baa_Baa]

I personally rate it much less risky than it has been in the past. At IPO an investor took the risk that Xero would execute better than the incumbents and any number of startups. They have since shown that they can execute significantly better. They are smashing them convincingly.
... snip

JameSt, what makes your's a startling viewpoint, that you think it is "much less risky", is that XRO have basically quadrupled down on their successes, without realising any of the previous three wins for shareholders, expect in capital gains, which they have no control over, and aren't worth tuppence if the shares aren't sold. But they are smashing their competitors, pretty cool really but can they keep doing it?

We can't blame them for trying though, it's worked out pretty well so far, but it's not less risky, it's right back at the start, and way way more risky, and it's game-on in a scale of magnitude so much larger than any previous success.

Let me show you what I mean:

Boot 1 - Startup NZ - no real competitors, launch a cool product into the personal finance space, leverage that into the SME space, shaft the personal market (12,000 customers get fecked), SME's are all over it and subscribe = growth, making money but investing it in product improvement. Spot the opportunity elsewhere, defocus, let the market grow organically.

Boot 2 - Focus to Aus - no personal finance baggage, upshift functionality in the SME business space, go hard after MYOB, catch them unawares in the SaaS space, nice surprise, all good, except the ASX listing which hasn't made a wit of difference. Pump revenues and investment back into functionality and growing the market. Pile in resources to sustain growth.

Boot 3 - Focus to UK - ditto above but take on SAGE, everything scales up a notch or two. All good. Same model but hey, it's all still good, what luck SAGE didn't see us coming, SME's love us, the investors love it too, the IPO share price has been to $45 and has settled back to a modest $15. Keep pumping revenue and investment into product and market. The Shareholders won't mind, we're in it for the long game.

Boot 4 (reboot)(reboot) - Focus USA - it can't be much different can it? Hire a big wig, get on board some names with deep pockets, extend the functionality, go after Intuit. Oops, fire the big wig, bad choice. Re-boot. Another big name comes in with big bucks & connections & experience in SaaS growth companies yadda yadda. Oops our sales model can't be replicated. Re-boot. Let's keep sticking it to Intuit. Oops. We forgot that it's 8 years ago since we started loudly trumpeting SaaS accounting, maybe Intuit were listening and it's not going to be so easy to knobble the giant. FY15 Oops. 100% growth on f'all is still f'all. Crap. Don't worry though, despite our having no plan for profit, you should be ecstatic about our share price!

Summary. It's all bets on if you're a believer and a patriot. The USA is the prize. Xero is foregoing all successes of the past and piling all capital and revenues into the fourth dimension of their dream for global SME accounting domination, and THEN expansion into SME business big data, and and and.

It's an incredible story. But less risk, no I don't think so. This is the single most risky point in the history of XRO. You have to admire their confidence in their invincibility, but it's a lot less infectious than the past seven years. And the share price, and everything to-date, is based on a perception of potential for success in a market that XRO has barely made a scratch on that is dominated by a mean ugly giant that has seen them coming.

Go figure.
BAA