Saturday, October 11, 2014

Anyone else still think that XERO shares are overvalued?? (A Reddit Discussion)

Over at Reddit we came across the following discussion:

all 21 comments
[–]devonhex 7 points  
The thing is, software as a service (SAAS) is a great business model.
It's not like making or selling grommets where, if there's suddenly a huge jump in popularity/sales of your particular company's grommets, you have to ramp up investment in grommet making machines, factory space, grommet assembly workers, infrastructure, grommet distribution networks etc.
With SAAS it's much easier to meet the market demand - handling growth is a lot easier in a lot of ways than with tangible goods.
Wynyard is another SAAS company that had a bit of a jump in recent times in their share price on the NZX - and it wasn't just based on them announcing new contracts (although that helped) but it was also a vote of faith from the market in the management and directorship of the company.
The same faith is being applied to Xero - and if you look at Rod Drury's history you can see that this guy ain't a numpty and he's shown faith in the idea of Xero by putting a lot of his own money into it.
The market can see this going big - as in Apple or IBM big - as in $20 a share now being $5,000 a share in 10 years time.
[–]BitKrow13[S] 1 point  
You make a good point with regards to SAAS. But i still thing a lot of tech stock including Apple and IBM are due for a correction as i see them being overvalued. The reason why they continue to see gains, is because Apple has bought back shares a number of times, with the easy money they get to borrow. At some point in time, they won't be able to do this anymore. I still hold a small portion of XERO stock as part of my portfolio, if it ever does reach $5000 a share, i'll be extremely happy.
[–]devonhex 1 point  
Yeah having said all that about SAAS it's still true that the stock market is full of emotional little bitches and share prices can move up or down based on either their fears or happy-joy moments.
[–]finackles 1 point  
Upvote for use of numpty.
As an aside, being old school I can't help but be nervous about someone keeping my data in the cloud. If the company goes tits up, do I lose my data? If I can even have a local backup of it is it in a form I can either access for reports or better actually use to generate more invoices etc? This makes me very uncomfortable. I have always had systems where I could run single user on a PC if the server went down, better still if the pc is notebook in case of power cut.
[–]whodoyoucall 2 points  
Your data is yours, Xero don't own it or have access to it, the systems holding your data are spread all over the world in disaster reinforced buildings that have their own independent power supply and literally thousands of backups, your data is a million times safer than on your 3 year old likely to break at any moment laptop
[–]murl 2 points  
Until you lose internet connectivity.
[–]TruFalcon 1 point  
what if your PC goes up in a fire?
[–]vtgts300kw 1 point  
Wynyard is more diversified than Xero.
I've been wondering for years who these people are that are pumping up the Xero shares. The market in the USA is a bloody, bloody hard nut to crack. If they don't make any serious gains there over the coming 12 months, its unlikely to happen, and I'd suggest they'd look to sell.
[–]Kiwibaconator 4 points  
I do.
Long term shares are only worth the dividends. Right now there is only speculation.
[–]BitKrow13[S] 2 points  
I agree, i think it rose far to quickly and i doubt well see it reach those prices again for some time. If you had to pick the bottom, what price would it be??
[–]shutup-you-are-wrong 4 points  
Xero is an excellent product. I've been using it for over five years.
Having said that, the shares are completely overvalued relative to their ability to generate a profit.
People talk about Xero as a potential acquisition, but the only companies who might acquire it are all developing their own competing platforms. So that seems an unlikely endgame.
[–]murl 3 points  
The other side of it is that they have to get a shitload of American accountancy practices to adopt the Xero model and...that is the big question I guess.
Free cloud practice software is a pretty decent carrot...
I'd imagine there is no free ride from Intuit.
[–]shutup-you-are-wrong 2 points  
If they can get large numbers of American clients on board then everything changes. But they haven't been able to make much headway in that market so far.
[–]murl 5 points  
Have you used Xero?
(meaning, if you are familiar with their product, the experience will inform you far more than any Goldman Sachs analyst)
[–]BitKrow13[S] 1 point  
I haven't used their product. Some part of me says that they are purposely trying to push the share price down, so they can buy back at a lower price. I do think though that a lot of tech stock is in bubble territory and isn't sustainable.
[–]murl 2 points  
Yeah, nah, maybe.
I think they do have and end game in mind, to be purchased by someone - say Microsoft as a "dynamics jr." or similar.
The question then is how much, so calculate value from there? Assuming that they make it to the end.
Doesn't matter if it is sustainable or not, if a big fish swallows Xero for the desired price.
[–]oxychromaticdynamite 1 point  
Put your money where your mouth is and short their stock.
[–]blackholenexus 1 point  
lots of web based accounting providers out there...
Unless Xero wraps up accountant and accounting depts., they're not going to make progress in the North American market.
[–]nomlah 1 point  
Less overvalued than Facebook.
[–]SCombinator 1 point  
So buy shares in that myob/quicken stuff.
[–]Aucklandsup 1 point  
Just got my dart board ready - it says around 10 dollars.
Where shall I send the bill?