Xro - xero

[zs_cecil]

Of course .....just like the Aussie punters will feel happy when it lists on the Nasdaq .....maybe 10 bucks by then

Let's keep the stories rolling.

Back to the reality, Xero has not made too much progress on customer acquisition in the US market yet. Looking forward to seeing the update of this part in their upcoming interim result.

[CJ]

Back to the reality, Xero has not made too much progress on customer acquisition in the US market yet. Looking forward to seeing the update of this part in their upcoming interim result.

I beleive they have only just ramped up their US marketing after spending a while customising for the US market. They have now linked in with one of the large payroll providers. I am expecting exponential growth from the US (from a very low bases). It that happens the price is justified. At some stage they will need to decide to make the flip from rapid growth to just organic growth as set out in Silverlights post.

[robbo24]

The Xero interim report is out - doesn't appear to be much in the way of new information though? Am I right?

https://www.nzx.com/files/attachments/166665.pdf

[Stranger_Danger]

David - you're not missing anything.

This will either be a sustainable billion dollar company, or an absolute disaster. The directors have been pretty upfront about that.

Some investors feel they are skilled enough to predict that it will be a sustainable billion dollar company, so are starting to move the valuation in that direction.

I have studied many situations like this and find you get the odd billion dollar company, and many disasters.

I am not skilled enough to be able to tell the difference in advance, so I'm out. Some other people think they can, so they're in.

[Stranger_Danger]

P.S David. Apple is not a good example to compare to. It has a P/E in the low teens, a dream competitive position and perhaps 100 billion dollars in cash.

If a company like Xero turns to custard, it will look nothing like Apple going down 20%.

If investors are wrong and it turns out Xero is a dud, it would be ugly. But I presume any investor knows that - the sole basis for investing is a belief in management that it can grab onto a massive opportunity and become a global market leader. If it doesn't, you lose money, in my opinion.

[CJ]

The potential is huge. How many SME's in US and UK? XRO workforce is huge and getting bigger but at some stage it will stop. If they get to 1m customers earning ave $400 pa from each, with costs of say $100m a year and a P/E as low as Apples, then it is valued at $3B.

They are at 100k customers now and double each year without tapping the US or UK market year. So in about 3 years (100k, 200k, 400k, 800k), they could be worth $3B in that push works.

Alternatively they could cut staff in a year and drop down to organic growth. 200k customers at $400pa, costs of $30m and a P/E 10 = $500m.

Not much of a price drop and both of those are on a low P/E.

Very much back of serviette calculations.

[Zaphod]

Does anyone have figures on the staffing levels by business function? E.g. Administrative v sales v development? The issue with any cuts to staffing levels at Xero is that in this game, the quick kill the slow, so if Xero make cuts that cause a reduction in product development or sales, competitors will eat them for breakfast.

[Stranger_Danger]

The problem I have is this idea of voluntarily cutting staff, not because a business is in trouble, but to magically start making money.

Has anyone here ever actually done that successfully, in real life?

Is this the path Microsoft took? Apple? Trademe? MYOB?

Generally, in my experience, a business loses money at the start. A good business usually starts making a little bit of money after a while. If the owners push on, sometimes a good little business can become a good big business, with some reinvestment and perhaps outside investment.

I reckon a profitable big business normally comes from a profitable little business.

The whole "big losses, but trust us, we could make profits if we wanted" model scares the crap out of me. Sometimes it all works out in the end, other times, it turns out either company culture, business model or market dynamics are simply not what you thought they were.

I'm not suggesting that is the case here.

[CJ]

The (tech) world is changing. 5 years ago the 3 biggest cell phone companies were BB, Nokia and Motorola.

Companies like LinkedIn, yammer, sales force, all took the draw fast at expense of profits.

[arcticblue]

Can someone help me understand the following?
The revenue has doubled and the loss has doubled. So for each additional customer it costs them more to gain/keep that customer than they earn from the customer. So if they continue to grow then the loss will increase as well. I guess they can reduce their costs by reducing the number of sales people but that will reduce the number of customers they get. The could reduce the costs by not doing as much development on the software or not customizing it but that can't be a long term solution either.

I just can't see how they are going to turn the loss into a profit. I would have thought existing customers would start to turn a profit if it didn't cost them much to keep the customer but since the revenue and loss have both doubled then either they are still lossing money on existing customers or it's costing even more to get the new customers than it did to get the existing customers.