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MYOB celebrates accelerating growth but Xero is still ahead

Thursday 15th November 2018

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Accounting software company MYOB is claiming market leadership in the Australian and New Zealand markets after adding 205,000 new subscribers in the 12 months ended September.

That compares with the 192,000 new subscribers Xero added in Australasia in the same period.

“It marks a remarkable transformation for the company which remains on track to pass one million online subscriptions in 2020,” MYOB said after unveiling September quarter figures at its investor day.

MYOB now claims more than 550,000 online subscribers after growth of 60 percent in the September year, much faster than Xero’s 24 percent.

However, Xero had nearly twice the number of subscribers in the region at 981,000 and its global subscribers totalled 1.58 million at Sept. 30.

Founder Rod Drury started Xero in 2007 and stole a march on MYOB - then the Australasian market leader for desktop software. That part of the market is now slowly dying as online products gain ever greater market traction.

Stephen Ridgewell, an analyst at Craigs Investment Partners, isn’t buying MYOB’s spin. He attributes much of that company’s recent growth to desktop-based Banklink customers moving online.

Ridgewell compares the relative high-value subscribers of each company and “essentially, from where we sit, there’s no change in relative momentum. Xero remains the clear leader in the Australasian market when comparing the annualised revenue per unit, or ARPU.

“It’s about 70 percent larger as far as high ARPU subscribers in the Australasian market. If anything, Xero’s slightly accelerated its lead in the last year.”

Xero is certainly improving ARPU in Australasia. While subscriber numbers in the region grew 24 percent in the latest year, Australasian revenue grew at 30 percent to NZ$169.2 million in the six months ended September, suggesting recent price increases have stuck.

That’s not to say MYOB isn’t growing and it is clearly demonstrating it has a secure place in the market.

But MYOB’s results include other businesses which don’t compete with Xero, making a like-for-like revenue comparison difficult. MYOB’s total revenue for the six months ended June rose 7 percent to A$218 million.

Certainly, global corporate raider KKR sees value in MYOB. Having nabbed nearly 20 percent of the company last month, it is currently conducting due diligence with a view to offering A$3.77 per share to take over the business. Its offer values MYOB at more than A$2.2 billion.

Xero doesn’t lack for challenges elsewhere in the world.

It similarly caught the British incumbent desktop accounting software provider, Sage, napping and is now market leader in the online space with 355,000 subscribers, up 40 percent in the latest year.

However, Ridgewell says that subscriber growth was “slightly disappointing,” given that Britain is moving to digitalise tax from April 2019.

“One explanation for softer growth in the UK could be increased competitive intensity from Intuit.”

Intuit is the incumbent player in the United States. Its latest earnings report showed it had 2.6 million online subscribers to its QuickBooks product in the US at July 31 and more than 800,000 in other countries.

By contrast, Xero had just 178,000 subscribers in the US at Sept. 30.

Ridgewell says Intuit told its investor day in September that its QuickBooks subscribers in Britain were up 84 percent year-on-year to 305,000. That is up an estimated 74 percent to 241,000 if you back out its QuickBooks self-employed product, a cheaper and less sophisticated product.

Intuit has taken a more aggressive approach to pricing the core accounting software, preferring to rely on attaching ecosystem products to drive ARPU higher.

“We note that not only is the price of QuickBooks lower than Xero – 15 British pounds to Xero’s 26.40 pounds – but our channel checks suggest that Intuit engages in deep discounting in the partner channel,” or product sold to accountants.


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