Saturday, October 11, 2014

Xero slump but gets pat on back / wealthy American investors are in danger of being out of pocket after its share price slid under $20.

Tom Pullar Strecker and Ellen Read for write: The investors who poured $180 million into Xero last year and helped turn it into a 1000-person company are in danger of being out of pocket after its share price slid under $20.
The NZX-listed technology sector star sold 9.9 million shares at $18.15 a share, mostly to wealthy American investors, last October, to fuel its bid to become a major global player in the online accounting industry.
US investors, including Matrix Capital Management, an early investor in Apple, and PayPal co-founder Peter Thiel, bought $147m of the new shares on offer last year, under a condition that prevented them selling any of the shares until Thursday next week.
Xero's shares subsequently jumped to a dazzling high of $45.99 but slumped to $19.15 yesterday, as doubts grew over its ability to make a big mark in the prize United States market.
Its shares fell 8.6 per cent yesterday in the wake of a trading update on Thursday, which had some analysts questioning its growth trajectories in the United States and Britain.
Xero is now valued at under $2.5 billion on the NZX, down from its peak valuation of $5.8b.
However, the firm has received another accolade in Australia, where Business Review Weekly named the Wellington-based online accounting software firm Australia's "most innovative company".
Chief executive Rod Drury said Xero was proud of the recognition. "We're focused on export markets and the strategy has been to win [market share and customers] in Australia and Britain.
"The most expensive thing we do is build our brand so this recognition really helps," he said.
It also helped the 1000-person company attract quality staff.
"It's fun, it's awesome," he said, asked if he enjoyed what he did.
Addressing the negative analyst comment on Thursday's company update, Drury said Xero was "one of the best software firms in the world" and repeated his pleasure at passing the milestone of US$100 million of annualised monthly revenues at an 85 per cent growth rate.
Xero was redefining the global market in terms of having enterprise software but with a customer sales model. "We've cracked it [so far] but it's early in the journey."
Xero said in its trading update that it expected a $25m interim loss on sales revenue for the half year of $52m.
Forsyth Barr analyst Blair Galpin said yesterday's share-price fall had been on small volumes in a weak market.
The fall was probably a delayed reaction to Xero's trading update, which was originally released on Wednesday evening, he said. Drury briefed analysts from New Zealand, the United States and Australia by phone on Thursday morning, Galpin said.
"Rod focused on the markets that were doing well; obviously Australia is doing very well, New Zealand did surprisingly well and Britain seems to be ‘okay', and he downplayed what is happening in the United States."
The update showed Xero won only 4000 customers in the US in the six months to September, versus 8000 in the prior half-year, taking its customer base in that market to 22,000.
At Xero's annual meeting in July, Drury dismissed as "ridiculous" a report questioning its momentum in the US but he did acknowledge it would take time to crack that market.
"Now people have had a chance to get their head around the numbers in the presentation, maybe they have focused on the cash burn and are a bit more concerned about it," Galpin said.