Xro - xero

[winner69]

Almost right kiwi

I reckon 854k with full year at 999k

How much they lose with a million customers I wonder?

Based on a morbid fascination of 'growth rate decay' in high growth businesses and Xero seemed a good real life dataset to work with. Total built up from different rates for each geography

We both (slightly) underestimated the numbers - but pretty close

[Leftfield]

That 2) is a bit misleading

This is more important - Operating and investing cash outflows declined to $45.8 million from $49.5 million for the same period in the prior year

So Cash burn $45.8m - cash on hand $138m

Not going to argue with this Winner.... the key point is that XRO are now saying "With $137.9 million cash and short-term deposits on hand at 30 September2016, we are well positioned to manage cash usage to break-even" (With the 'Well Positioned" - they sound like Percy!)

[Snoopy]

Quite possibly the most ridiculous thing I've ever read on this forum... So that girl is employing 700+ highly paid (tax-paying) people, and renting a-grade office space (and indeed building new offices in Wgtn), and she has attracted in tens of millions of dollars of overseas investment to our economy, and has led the surge of a new industry segment that is employing people as they get out of school and off planes...? Really? I get that you're perhaps a little greedy and would take a 10c profit on a glass of sugar water now rather than see a world class company built that may well print money in the future (and yes, agreed there are challenges and risks), but come on, if you're going to type rubbish like that at least stick an emoji or a smiley face at the end so we know you're not nuts.

Firstly I need to make a correction to my previous post. I said:

"This summer have some respect for the girl at the end of the driveway selling homemade lemonade. It is likely that she will be contributing as much to GDP for the New Zealand economy as the whole of Xero"

GDP means 'Gross Domestic Product'. I wholly agree that when you look at the money coming over the counter, that from Xero will greatly exceed that of the girl selling homemade lemonade from the end of her driveway. However, what I should have said was not GDP but NDP. NDP is 'Net Domestic Product', the amount of money flowing into the business owners pockets, net of cost. By this measure Rod and Xero are way behind that girl at the end of the driveway. In fact since our girl is successful, diligent and pays here taxes, I would argue that the girl at the end of the driveway is subsidising Xero. Who is paying for the government legal systems that allow Rod's businese to operate in what we in the western world see as 'normal commercial arrangements'. It is the girl at the end of the driveway that is paying for this, not Xero.

OK I get the bit about all those highly paid employees at Xero paying their own taxes, and government coffers swelling as a result. But take a step back and ask: Where did the money to pay these high salaries come from? Answer: from venture capitalists, business people and joe public shareholders.

Venture capitalists, business people and joe public shareholders can choose to invest their capital wherever they like. They could have chosen to invest in a profitable business that uses those profits to pay their employees and ultimately, with what is left over, a dividend to shareholders. They could even have thrown a few dollars towards the girl at the end of the driveway to help spruce up her stand. But Xero is not profitable. So these 'salaries' paid at Xero are - in reality - a drain on a 'fixed capital pool'. If the leak in the 'fixed capital pool' is not stopped, eventually it will drain dry. The 'Xero salaries' are really a transfer of capital from shareholders to employees with the tax man taking his cut on the way. Until Xero actually makes a profit, no net wealth is being created. So I stand by the intent of my original proposition.

Who, currently, is making the greatest net contribution to NZs economy?

A/ The girl at the end of the driveway with her highly successful lemonade stand.
B/ Rod Drury's Xero

The answer is clearly 'A'

SNOOPY

[Stranger_Danger]

Firstly I need to make a correction to my previous post. I said:

"This summer have some respect for the girl at the end of the driveway selling homemade lemonade. It is likely that she will be contributing as much to GDP for the New Zealand economy as the whole of Xero"

GDP means 'Gross Domestic Product'. I wholly agree that when you look at the money coming over the counter, that from Xero will greatly exceed that of the girl selling homemade lemonade from the end of her driveway. However, what I should have said was not GDP but NDP. NDP is 'Net Domestic Product', the amount of money flowing into the business owners pockets, net of cost. By this measure Rod and Xero are way behind that girl at the end of the driveway. In fact since our girl is successful, diligent and pays here taxes, I would argue that the girl at the end of the driveway is subsidising Xero. Who is paying for the government legal systems that allow Rod's businese to operate in what we in the western world see as 'normal commercial arrangements'. It is the girl at the end of the driveway that is paying for this, not Xero.

I see your point. However, in the real world, that girl will struggle to capitalise her business at a couple billion. It is possible that Rod's Ferrari dealer will refuse to sell him one because it isn't "real" money and he hasn't made a profit or paid taxes. But it is far more likely that Rod will peel off a tiny slither of the equity he has already sold and be sold a Ferrari. Your girl may need to keep riding her bike for a bit longer, on the other hand.

Whilst your girl is on the right track, I suspect she'd receive a different outcome at the car yard to Rod, but the fact she'd almost certainty be using Xero to pay her taxes and definitely not a legacy competitor (ask an 8 year old about boxed software) suggests a real and valuable business has been created, even if I'm not smart enough to value it.

[Snoopy]

I see your point. However, in the real world, that girl will struggle to capitalise her business at a couple billion. It is possible that Rod's Ferrari dealer will refuse to sell him one because it isn't "real" money and he hasn't made a profit or paid taxes. But it is far more likely that Rod will peel off a tiny slither of the equity he has already sold and be sold a Ferrari. Your girl may need to keep riding her bike for a bit longer, on the other hand.

If Rod wants to swap some of his 'salary' for a Ferrari that is his choice. But really he is swapping 'Xero seed capital' for his Ferrari. When Rod gets his Ferrari, ultimately those seed capital investors have lost the equivalent of a Ferrari. The only people who actually gain from this transaction are Ferrari - who made and sold the car. Rod's Ferrari 'purchase' as of now is only doing an 'asset swap'. Of course if/when Xero does become profitable, then it all this logic changes.

Until then, of the two, it is only the girl at the end of the driveway with her lemonade stand that is actually earning and contributing anything to NZ's coffers.

SNOOPY

[Snow Leopard]

If Rod wants to swap some of his 'salary' for a Ferrari that is his choice. But really he is swapping 'Xero seed capital' for his Ferrari. When Rod gets his Ferrari, ultimately those seed capital investors have lost the equivalent of a Ferrari. The only people who actually gain from this transaction are Ferrari - who made and sold the car. Rod's Ferrari 'purchase' as of now is only doing an 'asset swap'. Of course if/when Xero does become profitable, then it all this logic changes.

Until then, of the two, it is only the girl at the end of the driveway with her lemonade stand that is actually earning and contributing anything to NZ's coffers.

SNOOPY

So if Rod pulls up (in his Ferrari) at the end of the driveway and buys some lemonade is this good for NZ or not?

Best Wishes
Paper Tiger

[Stranger_Danger]

If Rod wants to swap some of his 'salary' for a Ferrari that is his choice. But really he is swapping 'Xero seed capital' for his Ferrari. When Rod gets his Ferrari, ultimately those seed capital investors have lost the equivalent of a Ferrari. The only people who actually gain from this transaction are Ferrari - who made and sold the car. Rod's Ferrari 'purchase' as of now is only doing an 'asset swap'. Of course if/when Xero does become profitable, then it all this logic changes.

Until then, of the two, it is only the girl at the end of the driveway with her lemonade stand that is actually earning and contributing anything to NZ's coffers.

SNOOPY

I'd accept your argument, to a point, about the first dollar paid in as seed capital at the IPO.

But if the seed capital was provided at $1 per share, Rod sold shares at $20, then the other $19 is economic value added, of some description.

That $19, is it

- as "real" as profit.
- as permanent as profit
- as taxable as profit
- a permanent proof of value

Nope, it is a fuzzy number, whatever it happens to be at that moment in time. Very real to the car dealer though, who hands over a real Ferrari in return.

Don't get me wrong, I respect tax paid profits and dividends far, far more than moonshot equity in a profitless firm. I understand your argument and partially accept it, to a point.

But I can't go that next step and argue no value has been created here.

Put it this way.

If New Zealand could create 1000 Xero's, identical in market cap and employment prospects, what do you think this would do to our stock exchange, employment market, attraction to migrants and GDP?

If New Zealand could create 1000 lemonade stands run by young girls on their street of residence, what do you think this would do to our stock exchange, employment market, attraction to migrants and GDP?

If you're still uncertain as to the merits of Xero related to the coffers of NZ Inc, go and ask John Key which of the above two scenarios he would most like to see happen. He'd go for the 1000 Xero's so quickly he'd still have some left over time with which to pull the girl's ponytail.

[Hectorplains]

So if Rod pulls up (in his Ferrari) at the end of the driveway and buys some lemonade is this good for NZ or not?

Best Wishes
Paper Tiger

Is the lemonade sugar free? Diabetes is a major drain on tax payer health services... Ultimately, this is a silly substantive... You could drive a 16 wheeler through the rational holes, let alone a Ferrari.

[Santiago]

Firstly I need to make a correction to my previous post. I said:


Who, currently, is making the greatest net contribution to NZs economy?

A/ The girl at the end of the driveway with her highly successful lemonade stand.
B/ Rod Drury's Xero

The answer is clearly 'A'

SNOOPY

Still a ridiculous argument. You're choosing a different way of adding up to prove your point, being that Xero doesn't make a profit. Why not just say that Xero doesn't make a profit and be done with it. Investors don't care as they believe in bigger profits delayed for a few years. But to try to make your point this way is ludicrous and irrational. Xero is still a bigger net contributor. All of those millions that Thiel and co have invested... money from outside paying salaries and services like staff salaries inside? Take some basic economics courses... or just make your point. I admire that girl selling lemonade. We need young entrepreneurs. Maybe one day she'll start a business and attract capital from overseas to grow it into a bigger business. Or maybe she'll just sell lemonade. However, her contribution to GDP, NDP, GNI, IRD, ACC... whatever, is less.

[Bilbo]

Firstly I need to make a correction to my previous post. I said:

"This summer have some respect for the girl at the end of the driveway selling homemade lemonade. It is likely that she will be contributing as much to GDP for the New Zealand economy as the whole of Xero"

GDP means 'Gross Domestic Product'. I wholly agree that when you look at the money coming over the counter, that from Xero will greatly exceed that of the girl selling homemade lemonade from the end of her driveway. However, what I should have said was not GDP but NDP. NDP is 'Net Domestic Product', the amount of money flowing into the business owners pockets, net of cost. By this measure Rod and Xero are way behind that girl at the end of the driveway. In fact since our girl is successful, diligent and pays here taxes, I would argue that the girl at the end of the driveway is subsidising Xero. Who is paying for the government legal systems that allow Rod's businese to operate in what we in the western world see as 'normal commercial arrangements'. It is the girl at the end of the driveway that is paying for this, not Xero.

OK I get the bit about all those highly paid employees at Xero paying their own taxes, and government coffers swelling as a result. But take a step back and ask: Where did the money to pay these high salaries come from? Answer: from venture capitalists, business people and joe public shareholders.

Venture capitalists, business people and joe public shareholders can choose to invest their capital wherever they like. They could have chosen to invest in a profitable business that uses those profits to pay their employees and ultimately, with what is left over, a dividend to shareholders. They could even have thrown a few dollars towards the girl at the end of the driveway to help spruce up her stand. But Xero is not profitable. So these 'salaries' paid at Xero are - in reality - a drain on a 'fixed capital pool'. If the leak in the 'fixed capital pool' is not stopped, eventually it will drain dry. The 'Xero salaries' are really a transfer of capital from shareholders to employees with the tax man taking his cut on the way. Until Xero actually makes a profit, no net wealth is being created. So I stand by the intent of my original proposition.

Who, currently, is making the greatest net contribution to NZs economy?

A/ The girl at the end of the driveway with her highly successful lemonade stand.
B/ Rod Drury's Xero

The answer is clearly 'A'

SNOOPY

The problem with saas companies is that the revenue is spread over many years yet the costs of getting that revenue are expensed in the first year. Xero have generated something like $1.8b in future lifetime value from the customers it has today. In the old model, most of the $1.8b would have been received up front to purchase the software with a small annual maintenance fee for upgrades.

If we changed the accounting model and brought revenue recognition forward to match the expense of gaining that revenue a different picture would emerge.

Luckily people like Rod can see this and are prepared to wait patiently building a revenue generating engine. There are too many knockers of this company who just don't understand the beauty of the sass model and recurring revenue when done properly.