Xro - xero

[Nasi Goreng]

I have purposefully not really kept in touch with the Xero story for at least a year but today I did have a look at their investor briefing and I just read comments by Mikeybycrikey which I tend to agree with.

To me (and by my statement above, I am no expert here), it still looks like a very huge uphill battle to crack the US. Growth is very slow there which was always the market that they had to crack to achieve their objectives and lofty shareholder expectations.

I think your call for 1.5 to 2 million customers in 3 years would be a fair expectation but to achieve that, it looks like at least 50% of those customers would need to come from the US which would mean exponential growth which we have not yet seen.

I'm not sure how they do this... Maybe Rod Drury needs to get on CNBC's mad money show lol.

[gbogo]

love the company and the model. agree that SaaS opportunity requires aggressive growth plans even when it might feel uncomfortable. heard from a couple of users that they increased prices again recently. would they consider moving away? no - the nominal amount is still small and the cost to move is high. that's all great. what i don't like is the price action. it broke down out of a channel, ran up to kiss the underside of the channel yesterday and dropped like a stone. re-test the of the post-$40 lows coming up and possibly under $10. i know most of you don't believe in technical analysis but those of you that do, i'll try to post a pic later. for me that means, i sold out at a small loss, again and will hope to buy back lower when some kind of a sold base has been made and sentiment is more pessimistic.

[Harvey Specter]

76% gross margin shows the unit economics are there. at about 7x AMCR which is abit high compared to market (about 4-5x I think after recent SaaS drop) but there growth is current better than average so no to far out.

Again they say they have plenty of cash on had but they have raised cash after saying that in the past. The difference is the reference to breakeven, though they have said that in the past as well. Will they raise more cash and use the putting the foot on the accelerator line again?

[artemis]

This small audio from today has Mr Drury indicating that Xero is managing / reducing cash burn because the markets are not so keen on a pure growth story at the moment but looking for a profit in the not too distant future. That makes sense and is smart as they recognise that year after year of losses, despite growth in revenue etc, drags down the perception of the company. Once Xero breaks even it should be able to show a profit while still pumping $$ into growth.

http://www.radionz.co.nz/national/pr...obal-expansion

[ShareFodder]

Initially I was a bit disappointed with the raw subscriber numbers but the more I think about it, I think the results aren't too bad at all. Most metrics are heading in the right direction.

Xero finished the day flat in AUS which I think is a good sign considering the miss on subscriber numbers. I tend to think the stock will drift upwards from here with a few bumps on the way towards break even.

[Baa_Baa]

76% gross margin shows the unit economics are there. at about 7x AMCR which is abit high compared to market (about 4-5x I think after recent SaaS drop) but there growth is current better than average so no to far out.

Again they say they have plenty of cash on had but they have raised cash after saying that in the past. The difference is the reference to breakeven, though they have said that in the past as well. Will they raise more cash and use the putting the foot on the accelerator line again?

After doubling down on 9 years of solid growth (forgoing the opportunity to provide a sustainable return to shareholders), in order to secure the US market which appears to be many years away if at all, do you think that the growth in subscribers in that all important US market (less churn) is sufficient to justify the 7xACMR market cap and corresponding SP?

It's not really about surviving the next 2-3 years on cash and revenue, but more about whether XRO nails the US market which they seems hell bent on doing but at 60k or so subscribers for all the investment it seems a long way off.

Anyway, I still can't see any rationale for the current share price that makes any sense.

[mondograss]

The thing with the US market is that at a banking technology level it's fragmented as hell, particularly for the SME's. NZ and Aus are way ahead of the US in this regard and have been for a long time. As someone above pointed out, in the US they still use cheques, and a lot of cash. That makes it really tough for a company like Xero to make inroads because they are very dependent on the electronic transaction mindset and their integration with the banks. Once they get the big banks integrated they'll start to see some real movement but it's going to be hard graft. Ultimately though, once the US wakes up to the notion of a cashless society they'll see exponential take up, but they've got to be well positioned for it to happen or they'll get crushed.

[Baa_Baa]

The thing with the US market is that at a banking technology level it's fragmented as hell, particularly for the SME's. NZ and Aus are way ahead of the US in this regard and have been for a long time. As someone above pointed out, in the US they still use cheques, and a lot of cash. That makes it really tough for a company like Xero to make inroads because they are very dependent on the electronic transaction mindset and their integration with the banks. Once they get the big banks integrated they'll start to see some real movement but it's going to be hard graft. Ultimately though, once the US wakes up to the notion of a cashless society they'll see exponential take up, but they've got to be well positioned for it to happen or they'll get crushed.

Exactly, building API's for the few NZ and Aus banks will seem simple compared to the USA .. from Wiki there are 6,799 FDIC-insured commercial banks in the United States as of February 11, 2014

Maybe they'll find a SaaS provider who has already built API's to the USA banking sector, and partner with them, like they did for Tax which is also massively fragmented. Would be interesting to know how Zero are tackling this banking integration challenge.

[OldGuy]

I'm willing to wager almost anything that Xero won't crack the US in any meaningful way for the reasons outlined above. I guess all holders see it differently?

[mondograss]

Exactly, building API's for the few NZ and Aus banks will seem simple compared to the USA .. from Wiki there are 6,799 FDIC-insured commercial banks in the United States as of February 11, 2014

Maybe they'll find a SaaS provider who has already built API's to the USA banking sector, and partner with them, like they did for Tax which is also massively fragmented. Would be interesting to know how Zero are tackling this banking integration challenge.

From the report it sounds like they're engaging directly with the banks to do the integration, or at least with the big players. But yes it would definitely make sense to find a partner who's already done the heavy lifting. Maybe someone like CSC who do a lot of banking\payments work, or their offshoot CeleritiFinTech.
http://www.csc.com/newsroom/press_re...the_enterprise