(from New Zealand, Chris Keall for National Business Review writes - with the always fun comments at the bottom) Just eight months after NBR asked, "is Xero worth a cool half billion?", Rod Dury's online accounting software company has hit a $1 billion market cap. (New Zealand). In late trading, Xero shares were up 5.04% to $8.55 - lifting the company's value to $1,001,958, or a $70 million increase on the day. In a February 7 update, Xero said it had more than 23,000 customers to its client list since September and says it is on track to double last year's $19.3 million in annual revenue.
The Wellington-based company has more than 135,000 customers and monthly recurring revenue of almost $4 million, it says in a statement. That implies annual sales of some $48 million.
Xero 12-month NZX performance (S&P Capital IQ. Click to zoom).
Xero CEO Rod Drury has long maintained it is better to push for growth than profit at this phase of Xero's existence.
Over the same period, cash has increased from $38 million to $85 million - primarily thanks to December capital raising round that sawy Peter Thiel-backed Valar Ventures of San Francisco invested $24 million and Massachusetts-based Matrix Capital Management invest $58 million. They also bought collectively $22 million of existing shares from Xero's three largest shareholders: Mr Drury, co-founder Hamish Edwards and director Craig Winkler.
Xero NZX performance since 2008 IPO (S&P Capital IQ. Click to zoom).
Despite Mr Drury offloading some of his holding during the December round (it now stands at 18.3%), he and his fellow managers and employees still have a lot of skin in the game.
(out of New ZeaChris Keal for National Business Review writes: Xero has about 3000 shareholders and 48% of its shares are held by directors and staff, according to the January 31 filing.
Following Xero's half-year result, Forsyth Barr reiterated its hold rating, and put a 12-month price target of $6.32.
"On normal valuation metrics Xero appears fully priced," the company said in an update.
"However, at this stage the share price is still not so high as to be pricing in unreachable targets. Our analysis suggests it is pricing in Xero reaching around 1.1 million customers in approximately five
years."
years."
By any conventional metric, Xero's valuation is off the charts. But major December cash injection shows the stock's appeal to sophisticated tech investors, ForBarr says.
Some are no doubt hoping for a trade sale, as with Mr Drury's previous two start-ups.
The Xero boss says he's in it for the long haul, but is also not above pointing out tasty trade sales, as in this tweet:
7:09 PM - 19 Nov 12
Mr Drury kept things low key when approached by NBR OLINE for comment this afternoon.
"It's a cool milestone but still lots of work to do," he said.
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Comments and questions
16
#1 by Hot air 8 hours ago
Doesn't the rate at which a bubble inflates accelerate dramatically just before it bursts?
#2 by Anonymous 8 hours ago
Congrats
#3 by Michael Shrubsall 7 hours ago
Interesting to compare with another company with $1 billion market cap being Chorus. Chorus has annualised npat of $168 million, annualised operating cashflow of $368 million, dividend payout 60% of npat which equals 12.5% dividend yield. Has a bit of a monopoly as well.
by Chris Keall (verified) 7 hours ago in reply to Michael Shrubsall
But not that informative for those who want to take a punt on Xero.
It's the classic value vs growth scenario.
Chorus has stable earnings and strong dividends, but (shenanigans over wholesale copper pricing aside) its next few years of revenue and growth prospects are quite tightly proscribed by its major contracts (the UFB and RBI) and its work with telcos and ISPs.
Xero is shooting for major growth in new markets like the US, UK and Australia. But whether it achieves profitability and world domination and/or gets sold for a truckload is still an open question - and much harder to put a price on.
by Hot air 5 hours ago in reply to Chris Keall
It will need to be sold for several truckloads.
by Lance Wiggs (verified) 7 hours ago in reply to Michael Shrubsall
and little growth prospects aside from putting their prices up. And folks are already baulking at connection/ongoing costs for UFB.
Xero on the other hand has millions of potential customers, and a steadily widening path to get to them.
#4 by asocialservice 7 hours ago
Ok, I give up... this defies so much logic and normal metrics or analysis that it is beyond me... Well done Rod and team (I think...).
#5 by Harvey Specter 7 hours ago
Well done Rod.
#6 by The Doctor 7 hours ago
Rod will be able to take more money out now
#7 by @lancewiggs 7 hours ago
told you so….
by Anonymous 7 hours ago in reply to @lancewiggs
Famous last words. if the bubble bursts watch all the people saying to YOU the same thing...!! I will be one of them.
#8 by Lance Wiggs (verified) 7 hours ago
<-- that was a reply to Chris Keall on Twitter, which references a comment I made to him at the $500m stage that Xero was clearly on a path to go through a billion.
For the record I would still advocate holding Xero shares for a very long time. There are still ridiculous levels of scope for customer growth, and Xero are consistently managing their growth very well.
Well done Rod and the whole team (currently and formerly) at Xero
by Anon 6 hours ago in reply to Lance Wiggs
Ahh, the classic. I told you, so cop out - telling people to hold for a long time so that if/when the bubble bursts you can't be wrong then, either.
You don't fool me.
by Hot air 5 hours ago in reply to Lance Wiggs
Come on Lance! Even before this latest surge the price assumed revenues will rise by squillions of percent and profits will be colossal.
#9 by Anon 6 hours ago
Seen it all before. Wonder who's going to get burnt?
#10 by Looks like bursting soon 4 hours ago
We are getting all this "its a new pardigm" guff here....