Xero shares hit four-month low on global sentiment

The Australian Financial Review writes: Xero shares have slumped to a four-month low, as New Zealand investors join a global sell-off on concern high-growth companies may struggle to turn sales growth into profits.

Xero fell as low as $NZ29.50, the lowest since December 5, and just after midday (1000 AEST) were down 13.2 per cent at $NZ30.90 while the benchmark NZX 50 Index was down just over one per cent.

The stock has soared since the Wellington-based company raised $NZ180 million ($168.70 million) in October, selling 9.92 million shares at $NZ18.15 apiece.

The cloud-based accounting software company has identified North America as a key focus for growth pitting it against dominant incumbent Intuit, which has a market capitalisation of $US21.2 billion ($22.94 billion) to Xero's $NZ3.95 billion.

Xero's North American customer numbers tripled to 18,000 in the year ended March 31, still only 6.3 per cent of its total customer base.

"The market is beginning to realise Intuit is going to be a very, very difficult competitor to roll," said Matt Goodson, executive director at Salt Funds Management, which doesn't hold Xero shares.

"The question then becomes how much cash has burned in trying to assert a strong position in the US and is there much of a wait until they cross over to positive cash flow - a couple of years, or many years?"

Xero more than doubled its annual loss to $NZ35 million in the 12 months ended March 31, while boosting revenue 84 per cent to $NZ70.1 million.

The company's paying customer numbers rose 84 per cent to 284,000 in the year, making it more than a quarter of the way to its one million customer target.

Australia is its biggest market, with 109,000 customers as at March 31, compared to 59,000 a year earlier, ahead of New Zealand with 102,000. British clients more than doubled to 47,000.

Xero wasn't the only growth stock to be sold off on Tuesday, with bladder cancer test developer Pacific Edge declining 3.9 per cent to $NZ1.24, governance app maker Diligent Board Member Services down 3.5 per cent to $NZ4.15 and A2 Milk Co falling 2.4 per cent to 83 NZ cents.