Mike Block for Quickbooks Xero Blog writes:The best way to compare Intuit (QuickBooks) vs Xero is to compare stock prices.
This also is the most dramatic and objective way to show what smart investors believe about the relative future of Intuit vs Xero and their products. This single measurement combines all the factors and opinions of everyone, in a single unquestionable summary. You can argue with the result below, but you are not arguing with me. You are arguing against everyone's combined judgment, which everyone backs with his money.
Big differences in stock price changes, as there are in this five-year chart, tend to create a self-fulfilling prophecy. Winners are far more likely to get the extra capital needed to expand quickly and survive problems. This is especially important once you learn that stock prices are a leading indicator. That is, they tend to predict the future effectively. In the case of Intuit vs Xero, the future in this chart very clearly show Xero wins big, VERY BIG!
Intuit (INTU - brown line) stock did not do badly. It looks like their stock price rose around 150% over the five years. However, Intuit did not come remotely close to the almost 2400% price increase that Xero (blue line) stock had over the same period. XERO WAS 16 TIMES BETTER THAN INTUIT over the last five years.
Investors might decide that Xero was even more than 16 times better than Intuit if they realized that Intuit often increases stock prices (or bails out insiders) with company stock buyback programs. Such buybacks relate to when a company feels its stock should sell for more or when it has no good use for money. However, buybacks leave a company with less money to grow its business. In the case of Intuit, buybacks were an incredible $4.911 BILLION through July 31, 2012 (see page 59, Treasury stock). That looks like $274 million more than Intuit earned throughout its history!
What is even more interesting is that Intuit recently sold or will sell website, real estate, financial service and medical service businesses. It lost about $320 million ($1.35 billion cost, $1.03 billion sale) on a July 2013 Digital Insight sale alone. Most important, Intuit, "would use the proceeds from the IFS deal to boost its share repurchase program... As of April 30, Intuit had $1.4 billion remaining for stock repurchases under the program..."
WOW! These stock buybacks will not happen all at once, bt this means Intuit now has $2.43 billion for buybacks. It had $2.744 billion of book value at July 31, 2012, after $792 million of income, less $178 million of dividends (net $614 million). Adjust the book for the $320 million loss and net book is $2.424 billion. Therefore, new stock buybacks will soon (not immediately) exceed book value. Alternatively, they will exceed four years of after-sale income. Getting rid of these businesses, without spending this money on current businesses, seems to mean that Intuit is anticipating smaller future operations. Therefore, it is EFFECTIVELY ALREADY LIQUIDATING! No wonder Intuit insiders sold more than $1 billion in stock in four years. Intuit CEO Brad Smith, in particular, seems only to have stock option shares and sells most of them fast.
So where does Intuit stock go from here?Intuit has a stock market capitalization of about $20 billion. A trailing price earnings ratio of 32 ($20 billion / $614 million) seems very excessive for an effectively liquidating company, with little book value, especially this makes it look like Intuit has already given up. That is why this post is Intuit deathwatch 4.
So where does Xero stock go from here?It looks like Xero stock will keep increasing rapidly. It currently has a market cap of about $2 billion, but recent U.S. and international conferences spotlighted already very successful U.S. efforts with leading QuickBooks supporters. Xero CEO Rod Drury recently said that the massive U.S. accounting market was now the fastest-growing area for Xero. Intuit was always a primarily U.S. play. However, the beautiful Xero software has long been multi-currency and multi-lingual, with happy customers in more than 100 countries (as of more than two years ago).
Xero also focuses on professional accountants, many of whom deeply resent Intuit for repeatedly discrediting (do your taxes [or accounting] without an accountant), ignoring and damaging them and their clients (despite recent Intuit claims, made intermittently before). Accountants also particularly appreciate the multiple redundant Xero computers, at multiple highly secure locations, with continuous backup, vs the Intuit hosting they saw repeatedly fail, for as long as five days at a time. We also increasingly know that QuickBooks is the worst place for data. This should result in fast switches of U.S. users, with rather low Xero marketing costs.
Xero also will scale up far better than Intuit's already dying QuickBooks desktop, which recently lost 17% of users, or the slow growing and limited QuickBooks Online (I would rather go to a dentist than use it). This partly relates to a free, industry-standard, RESTful Xero add-ons interface. Compare this to very expensive, often-changed, overlapping and proprietary QuickBooks equivalents.
Intuit surveys showed that add-on users are far more loyal and upgrade far more often than non-add-on users, but Intuit made a top developer write Demise of the Third Party QuickBooks Developer. It also exactly repeated the add-ons mistakes that Peachtree (Sage) made in its war with QuickBooks ($1,000/month per add-on developer). That is why anIntuit Deathwatch post shows QuickBooks lost 70% of web add-on links in 21 months and Xero will have many more tested add-ons than QuickBooks in a few months.
There is one more big reason that Xero will scale up far better than QuickBooks. If you think that Xero is only a small business play, think again. Xero now uses NetSuite (the #1 cloud ERP suite) internally. I know NetSuite (see story) from a short stint as a part time NetSuite spokesperson. A friend and I were the first NetSuite consultants, but this died when NetSuite went from $5 to $10 to $100/month, in around 15 months. A later shock involved getting a new client off a $2,800/month NetSuite contract, with no cancelation provision.
On the other hand, NetSuite is perfect for a genius like Rod. He has long been using Rackspace and other highly respected secure web hosts. Unlike a rather new static Intuit web host facility, Rackspace users can scale up or down very quickly. I have no doubt this already lets Rod increase and decrease computer power, every day and night, on a rotating schedule around the world. It also will let Xero very rapidly scale up when Rod decides that he knows enough, about NetSuite and Xero, to give us Xero for large companies.
That is why Xero stock should go much higher. With a market cap of about $2 billion, Xero is well on its way towards exceeding Intuit's $20 billion market cap. If anything, Xero professional accountant focus, better global reach and scalability should take it far higher.
0 comments:
Post a Comment