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Xero shares rise to new record as first-half sales almost triple

Thursday 11th November 2010

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Shares in Xero rose to a record after the online accounting services company posted first-half results that showed revenue almost tripled.

The stock rose 6% to $1.93 on the NZX after the results, which showed revenue climbed to $3.78 million in the six months ended September 30, up from $1.35 million a year earlier. First-half sales exceeded total sales for the year ended March 31 of about $3.4 million.

The stock’s surge means PayPal co-founder Peter Thiel is sitting on a 29% paper profit after buying $4million of stock last month. He joined big-name investors in the IT sector, including Trade Me founder Sam Morgan and MYOB founder Craig Winkler.

Operating expenses rose to $7.97 million from $5 million, as the company took on more workers, contributing to a net loss of $4.7 million. Xero expects to break even before the end of 2011.

Xero “has caught the attention of the market because of the ambitious business plan they set down a few years ago, and the investors they have been able to attract to their story,” said Rob Mercer, head of research at Forsyth Barr. “At the moment their annual revenue target is pushing towards $10 million, and there is a huge amount to do to deliver on these earnings, but their market size is substantial.”

“I don’t know how to value it right now, but that is not as important in the short term as putting your belief in the people running the company,” said Mercer.

The company's chief executive and biggest shareholder, Rod Drury, says there's a niche worldwide for a low-cost service that can link a company's bank transactions to its accounting platform and handle invoices, and is betting on demand for its cloud-based accounting package aimed at small and medium businesses to win sales in New Zealand, Australia, the UK and the US.

Xero’s cash reserve, which is funding the company until it becomes cash-flow positive, fell to $16.6 million in the period from $25.9 million, excluding the $4 million raised when the company tapped PayPal co-founder Peter Thiel.

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