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Daily ShareChat: Xero

By Jenny Ruth

Tuesday 7th September 2010 1 Comment

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 Jenny Ruth

Accounting software company Xero's customer growth is accelerating and, assuming it keeps up its current pace, should have about 30,000 customers by March 2011, says Barry Lindsay at First NZ Capital.

Xero's customers have grown from 6,000 in 25 countries at March 31, 2009 and a yaer latter had growth to more than 17,000. By its July 22 annual shareholders' meeting it had more than 22,000 in more than 50 countries.

Lindsay estimates annual costs may be more than $13 million in the current financial year.

Revenue in the March 2010 year was $3.2 million, up from just below $1 million the previous year. Xero had $21.4 million in cash left at March 31, 2010.

The company expects to reach monthly breakeven in the second half of calendar 2011.

Based on figures Xero provided on the range of subscription prices in its four major markets, and assuming most customers chose cheaper options, Lindsay estimates Xero's average annual subscription is about $360, putting annualised revenues at about $8 million currently.

About 60,000 customers (annualised revenue of $21 million) by March 2013 "is not beyond the realms of possibility," he says.

With the shares trading at $1.47, Xero had a $130 million market capitalisation. While that incorporates "a lot of blue sky given the absence of profits," Xero could be profitable in about two years.

Recommendation: around current market pricing, "long-term investors might like to consider 'embarking on the journey,'" Lindsay says.

(Xero says it offers shareholders an "exciting journey.")



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Comments from our readers

On 9 September 2010 at 11:03 pm PK said:
Even with this great growth - annualised revenues are around $8m - costs expected to be $13m = significant loss. How many people need accounting software? Xero's $130m market cap is based on pie-in-the-sky hype.
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