Xero Limited (XRO) has emerged as the online accounting leader in New Zealand, Australia and the United Kingdom and the number one challenger in the United States. This gives the company confidence to invest substantially in the US market and new product development. Xero continues to deliver features and innovation at a pace faster than the incumbents, setting in place a solid platform for sustained long term growth.
Xero’s $180m capital raise in October 2013 from sophisticated technology investors has removed substantial risk from the business. It is a clear signal that the company is operating on a world-class basis and provides the necessary funding to continue its growth agenda. For the first half year operating revenue grew 84% over the same period last year, to $30.3 million*.
Performance highlights
6 months ended 6 months ended
30 September 2013 30 September 2012 Increase
Total Operating Revenue $30.3m* $16.5m* +84%
Net loss after tax ($17.1m) ($7.0m) +144%
Cash at bank $55.3m $30.6m +81%
Paying business customers 211,300 111,800 +89%
Annualised Monthly $70.6m $39.7m +78%
Committed Revenue
*These figures exclude revenue from Xero Personal, for which an announcement to withdraw from market was made in August 2013, and which is deemed to be a discontinued operation.
Regional Operating Revenue
6 months ended 6 months ended
30 September 2013 30 September 2012 Increase
New Zealand $10.8m $7.3m +48%
Australia $12.3m $5.5m +124%
United Kingdom $4.4m $2.4m +83%
US/Rest of World/Other $2.8m $1.3m +115%
Total Operating Revenue $30.3m $16.5m +84%
(These figures exclude revenue from Xero Personal, for which an announcement to withdraw from market was made in August 2013, and which is deemed to be a discontinued operation)
Commentary
It has been an exciting six months at Xero with many highlights. There has been a major focus on growth and investment to take advantage of the massive opportunity of small businesses moving to the Cloud. The adoption is beginning to accelerate and the investment in Xero’s global accounting platform is apparent in the quality and speed to market advantage that Xero has over incumbent providers.
In the past year incumbent competitors have delivered competing online accounting products or major new versions. Xero believes these offerings demonstrate how difficult it is to move from a desktop-centric approach to world-class online software. Xero is benefiting from seven years and $200m of investment in developing a modern, global accounting platform that is free of legacy. No other new entrant has had comparable resources to create the breadth of platform that Xero has already delivered.
With an excellent product and proven ability to innovate and operate, the company has been building up its marketing and sales teams to take the product to market at scale. Total staff numbers have been expanded from 382 to 584 during the period. New offices have been opened in Los Angeles, San Francisco, London, Melbourne, Perth, Auckland and Wellington.
The investment in sales teams have seen the partner channel grow to 8,800 as at 30 September 2013, up 91% from 4,600 a year ago with strong progress with US accountants. There are around 100 staff in the US including 25 working on the US payroll product, which is currently in beta testing for launch in December.
The company expects to exceed 80% growth in operating revenue for the full year to 31 March 2014 and to continue to incur increased operating losses for the second 6 month period as it continues to invest. With cash reserves at 31 October 2013 of $230 million the Board is continuing to follow a growth agenda focused on creating longer-term shareholder value rather than short-term profitability. Xero is investing in the platform to support millions of customers and create a significant cloud-based financial platform for its customers and partners.
Xero Chief Executive Rod Drury says the company is focusing on building a long-term highly profitable business and this will involve incurring further losses. “Our track record and cash reserves put us in a very strong position to take on incumbent providers of desktop accounting software. The move to the cloud is well underway and we will invest heavily to grow the business in the best interests of our shareholders.”
Additional commentary is included in the Xero 2013 Interim Report, which has also been released today.
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