Thursday, October 9, 2014

Xero posts steady revenue growth / Analyst Forsyth Barr upped its forecast of Xero stock rating to "underperform".

Tom Pullar Strecker for Stuff.NZ.Co writes: Analysts remain troubled by Xero's sales trajectories outside its engine rooms in Australia and New Zealand, despite the company reporting steady overall growth in its half-yearly update.
The Wellington online accounting firm reported that its global work force had topped 1000 and said expatriate Kiwi Andy Lark would join the company next month as its chief marketing officer.
Xero said its subscription revenue grew 85 per cent to reach $52 million during the six months to the end of September, and it confirmed its July guidance that it expected about an 80 per cent annual increase in sales in the year to March, before taking into account any movements in the dollar.
It has yet to release its audited interim results but said it expected its loss to be about $25m.
Xero shares were down 0.8 per cent at $21 in mid-afternoon trading.
Woodward Partners analyst Nick Lewis said a "fantastic" 115 per cent jump in Xero's Australian revenue to $23.9m for the half-year was stronger than he had expected.
He said that was offset by a lower than expected doubling of its sales in the "conservative" British market, which contributed $8m to its interim revenue.
Xero's sales in New Zealand, where its business is more mature, rose 42 per cent to $15.1m.
Xero's interim revenue in North America grew 131 per cent to $3m, year on year, but its 22,000 customers there still accounted for less than 6 per cent of its total sales.
Forsyth Barr was concerned the update showed Xero had added only 4000 customers in North America during the six-month period.
Analyst Blair Galpin said that was "slow progress", which overshadowed its strong growth in Australia.
Forsyth Barr upped its forecast of Xero's annual loss to $50m, cut its target share price by $1.25 to $20.50 and reduced its stock rating to "underperform".
Galpin noted that investors who participated in a $180m capital raising last year would be free to trade the 9.9 million shares they acquired in a week's time.
Many of the shares held in escrow were owned by United States investors, and Xero would need to show them how it would gain traction in that market, he said.
Lewis said Xero was not gathering steam in the US. "This is a disappointment for everybody, I'm sure."
He said Xero had consumed $40m of cash during the six-month period and that as the company was still hiring, a day of reckoning was approaching.
"Our prediction is they will want to raise more capital in about a year's time," he said.
"But absent of a 'US growth story' it will be really hard to pull off a Nasdaq listing. So they have got 12 months to sort the US out."
Xero said Lark, as its global chief marketing officer, would help its drive into the US.
It is still recruiting to replace former PayPal vice-president Peter Karpas, who left Xero last month after seven months in charge of its US operations.
Lark is a former vice-president of marketing at computer-maker Dell and more recently chief marketing officer of the Commonwealth Bank in Australia, which he left last November after two-years.
One of the most active members of the Kiwi expat tech community, Lark describes himself on his website, The Daily Lark, as a "prolific writer, blogger and speaker on marketing, technology and Web 2.0".
He is on the board of Christchurch software maker SLI Systems, Mighty River Power and Wellington information technology services firm Fronde, which has a possible NZX listing on the backburner.
Xero spokeswoman Janna Wilkinson said Lark would continue to reside in Sydney but would travel to all Xero's major markets.