Xro - xero

[Dentie]

Dentie, was it also you that posted this exact same comment about XRO on an NBR article re PEB about 5 months ago when the XRO price was about $5??

Hi Turmeric. Not sure but if I did, then I'm happy with my consistency. If you are following my posts, then you will know that I am clearly a learner at this game - and openly state so. I am not trying to be deliberately negative - unlike some. I have been asking you more experienced traders/investors to help me understand how XRO's SP has climbed and climbed and climbed but to date I have seen and heard and read nothing that convinces me the price should be more than a couple of bucks - at most. Huge growth in numbers, but no tangible assets, no earnings & none on the horizon (so no dividends), very small volumes, main players are selling down, plenty of competition looming (with deeper pockets) etc etc. I have even heard others use the word "Ponzi". I am not trying to be negative on XRO, just simply finding it hard to justify the SP. I find it hard to believe that people would scramble for this stock on the sole logic that one day it might start making money or that one of the big boys may acquire it. I can clearly understand why the likes of RYM has the SP it does, but I'm flummoxed by XRO. Help me out here please so I can add your knowledge to my ongoing education.

[CJ]

Dentie - somewhere on this thread I did a back of the envelop calc for their market value if they hit their target of 1m customers. Do the same yourself and you will see why people are buying. Costs won't keep escalating at the same rate they are now and at some point, each extra client will cost them nothing addition to service.

Disc: sold out at 7.75. I expected it to drop more and missed the re-entry. Not buying at these levels

[POSSUM THE CAT]

Dentie I am of the same opinion as you it is just like a Ponzi scheme or as others call it The Bigger Fool Theory. each to their own opinion. And only time will prove who is correct.

[maddog]

CJ - its not just about costs to service though that is obviously very important. I've been waiting for some improvement in that metric but am yet to see any signs of it happening. It's been seven years now and the costs keep going up at the same rate as the income - just at a higher level.

Just as important are the costs of acquiring new customers, the rate at which Xero retains the ones its got, and the average spend per customer. I don't know about Xero's retention rate but from what I have seen its costs of acquiring customers are very high and the average spend per customer is less than Xero wants.

For all its profile Xero has not mastered quick, cheap sign-up - if it did my views will change. I continue to suspect it will be pressured to achieve its grand targets because it will prove uncompetitive on pricing. As mentioned here before I'm a big fan of the Canadian accounting service Wave's free business model (and it has mastered quick, cheap sign-up - its growth rate dwarfs Xero). And there are also many other very good and cheaper products now on the international and local market, with more on the way.

As I wrote a few days ago, I believe the current share price is either a speculative rumour driven bubble, or else some people know something genuinely significant that is not in the public arena. Either way its not good news for Xero in the long-term.

[CJ]

Re costs:
IT costs on R&D are the same whether it has 1 customer or 1m. There is a increased cost for customising for different markets but assume customisation is fixed at current markets (NZ, Aust, US, UK).
IT costs on hosting etc are per customer (bandwith and storage) but are minimal
Sales staff is one area where costs have ballooned. They are doing this for rapid growth (ie. targeting accountants). At some stage these should plateau.

I think it is the latter that I am concerned with. They are ramping up sales staff at a fast rate than the sales they are bringing in. Until you see this increasing but at a slower rate than sales, it is not clear whether their strategy has worked.

As noted, I sold out thinking the price got ahead of itself. Until I see traction in the US (or it gets back down to my buy price - which was in the $6 range last time I reviewed) I am not interested in investing.

Wave looks interesting but it isn't as refined as Xero. I think I would use Xero, despite the cost, unless the business was very small. We are only talking $600 per year - how do you value your time. If it saves you 6 hours a year compared to wave, and you charge out at $100 or more (or get in sales at that rate) then Xero is worth it.

[macduffy]

I don't offer a view on the merits of XRO as an investment but the discussion reminds me of the situation with Sky TV back in the days when they were expanding rapidly but making hefty losses. It was argued that they would never reach break-even, let alone make a decent profit, because of the continuing capital expenditure needed to service new customers. Indeed, some said that more customers only meant bigger losses as technology evolved and required new equipment at each point.

Big differences between these two companies of course, not the least of which being the monopoly position that SKT holds in the NZ payTV market. I don't hold XRO but have done very well, eventually, with my SKT holding.

[Anonymous]

Someone asked yesterday about the merits of Xero as a product and I see now some chat about Xero vs Wave. I've had 3 businesses on Xero for a couple of years now and all transferred from MYOB. Xero is streets ahead of what MYOB was when I left. Having had no previous accounting experience I learnt heaps from the simplicity of Xero. There are certainly things I would like done better (mainly around multi currency reporting) but Xero is the best I have found. It seems expensive, especially if you were buying direct from Xero but I think you should be able to justify a discount from you accountant from using Xero due to the ease of use from their end (I certainly have).

Also, having heard Wave talked up on this site about a year ago I have tried it on another small venture I have which I was previously just using a spreadsheet for and have kept using Wave for almost a year now. Wave does not come close to being competition for Xero and I do not believe you could get by using Wave for a serious business. Wave's market is solely for people wanting a free basic service and don't mind the advertising. I agree Xero is missing out on that lower end market by not offering a cheap service but is that really where the money is made anyway?

In saying all that, I am about to have a fight with Xero as I close down one of the companies and want to maintain access to the data for 7 years which Xero is trying to refuse me. If anyone has any experience in this regard please let me know.

[Zaphod]

In saying all that, I am about to have a fight with Xero as I close down one of the companies and want to maintain access to the data for 7 years which Xero is trying to refuse me. If anyone has any experience in this regard please let me know.

I struck a brick wall with this so I ended up running the reports I would require in the future and downloading a copy of the complete dataset.

[maddog]

Most of the possible market of many millions that people talk about for Xero is made up of very small businesses that are very cost conscious. Something like 70% of all businesses in any country have no employees and most of the rest have 1-2. They mostly want simple, cheap products. A product like Wave suits many of them perfectly. Xero is actually overkill for most.

I am not too worried by how good a product Wave is at the moment - they have only been going two years, but are well funded and will keep on improving. What I think is truly disruptive about Wave is their pricing model. Sometime soon another free accounting service will launch, and then another . . . and then those still charging will be fighting for a smaller and smaller market of those prepared to pay.

For all its technical innovation Xero still has an old style commercial model. Sometime soon somebody new will start calling Xero an "incumbent" and beat it with an equally good product but delivered with more value.

[CJ]

Also, having heard Wave talked up on this site about a year ago I have tried it on another small venture I have which I was previously just using a spreadsheet for and have kept using Wave for almost a year now. Wave does not come close to being competition for Xero and I do not believe you could get by using Wave for a serious business. Wave's market is solely for people wanting a free basic service and don't mind the advertising. I agree Xero is missing out on that lower end market by not offering a cheap service but is that really where the money is made anyway?

In saying all that, I am about to have a fight with Xero as I close down one of the companies and want to maintain access to the data for 7 years which Xero is trying to refuse me. If anyone has any experience in this regard please let me know.

Xero has more basic offerings only avaliable from an accountant - called 'cashbook'.

I think going forward, XRO will have to offer a data retention plan. Say $50 per year paid x7 = $350 in advance and then pay extra if you actually want to look at it again.