Wednesday, November 6, 2013

Xero could be a $10b company - broker

Tamsyn Parker of the NZ Herald writes: A New Zealand broking firm has put a target price of $45.70 on Xero and says the company could grow to a $10 billion NASDAQ company within five years.
 
First New Zealand Capital released its first research note on the company this morning valuing it 38 per cent above yesterday's closing share price of $33.15. 

Shares in the accountancy software service firm have soared in the last few days sending its value above that of Telecom's. This morning they touched a new high of $36.05.
First NZ analyst James Schofield said while it was valid to compare Xero to New Zealand's largest listed companies international investors saw Xero in a global context and were comparing it to global technology companies. 

The largest of its rivals is Intuit - a US firm with a valuation of US$20 billion. Others were Salesforce worth US$31.8 billion and Workday worth US$13 billion.
"Those companies are all much further down the track. But that is the framework that international investors look at this company from.
"If you look at the US, where Xero is only just beginning, that market is 64 times the size of New Zealand." 

Schofield said his valuation was based on Xero having the ability to tap into a market worth US$4.2 billion, a proven track record of execution, customer acquisition momentum over the next 18 months and the potential for sustained 70 to 100 per cent revenue growth.
But the company also came with significant risks and should be seen as a speculative stock.
"They do face incumbents in each of their markets." 

Xero also faced a range of potential challenges including internet security, managing growth, key person risk, attracting talent and funding, outlined in his research note.
"Given the recent share price rally there are great expectations and they will need to succeed."
He said the company needed to justify its share price.
"That is why it's a risky investment." 

Potential investors needed to make sure they had a diversified portfolio.
Xero shares were trading at $35.50 at 12.45, valuing the company at $4.5 billion (US$3.76 billion).

1 comment:

  1. Yes, the market is all a matter of how quickly you innovate to keep matching customer needs.

    Professional accountants are the best judge of this for accounting software. Xero gets two thirds of new sales from us, cutting marketing costs. After many years of being amazingly close to two Intuit CEOs and their top assistants, I realized that Intuit kept ignoring and damaging us, while Xero is consistently professional accountant oriented (Professional Accountants, Intuit, Xero).

    Intuit is now rapidly adopting many important changes that top Advisory Council members discussed extensively with top Intuit executives from 1999 - 2005. It sandbagged these until Xero competition forced changes. Quicken and QuickBooks users should now be be down on their knees, thanking companies like Xero and Wave. I now call the new Intuit release the QuickBooks 2014 Xero Edition.

    Professional accountants have a duty to clients, so they have a duty to ensure active competition between accounting software vendors. We neglected this duty and let Intuit have 95% of its market for many years. Except for those who keep their heads in the sand, we should now see that this dereliction badly hurt us and our clients, so we should make sure it does not happen in the web accounting market, as many factors will make desktop programs soon disappear.

    That is why Xero should soon match or beat Intuit, as a $20 billion market cap company.

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