Xero urged to focus on US market / The National Business Review is reporting how a Xero Analyst lowered XERO Stock price targets to $15.22

Simon Hartley for Otago Daily Times writes: Cloud accounting company Xero needs to address sales momentum in the United States, having reported weak subscription growth in the key US market, brokers say.

Its shares yesterday dipped below $20 for the first time in a year, down 8.4% to $19.20, and down more than 55% since they peaked at $45.99 in March.

Brokers at Craigs Investment Partners and Forsyth Barr are critical of the lack of traction from Xero's key target market, and have downgraded target prices.

While Xero has more than $170 million cash in hand to progress its growth, Craigs Investment Partners' research has highlighted its disappointment in US growth.

Craigs broker Chris Timms said while Xero delivered strong overall growth for the first half of 2015, that was driven mainly by Australia and New Zealand, which were two ''relatively small addressable markets''.

''Growth was extremely weak in the US in the first half with just 4000 customers added,'' Mr Timms said.

Xero's US customers increased by 4000 to 22,000 during the half.

The rate of growth was flat on that a year ago, and was tracking below Craig's bottom-of-the-market full-year forecast of 42,000, even allowing for seasonality, Mr Timms said.

Craigs is maintaining a ''sell'' recommendation on the stock and reducing the target price from $18.90 to $18.50.

Forsyth Barr has downgraded its target price by $1.25 to $20.50, while maintaining an ''underperform'' recommendation.

Forsyth Barr broker Haley Van Leeuwen said the slow progress in the US overshadowed the otherwise strong growth in Australia.

''With expectations for Xero heavily influenced by potential US success, there will be disappointment with these numbers,'' Ms Van Leeuwen said.

She said estimated earnings for full-year 2015 had after-tax profit down 5.6% to a loss of $50 million, full-year 2016 down 5% to a $94 million loss and full-year 2017 down 5% to a $125 million loss.

She said the US had 28 million small to medium-sized enterprises with 20 employees or fewer, which was the largest potential market for Xero.

''[However] we believe Xero will not be ready to push aggressively into the US market until full-year 2017, as it completes its product line-up and ramps up its sales channel,'' she said.

''The US market remains key for Xero,'' she said.

Mr Timms said there did not appear to be any ''quick fixes'' for Xero in the US.

It had to develop a full product suite customised for the market, including accounting, payroll, payments and, in Craig's view, tax.

It had to build out a management team and prove that a mainly direct, online sales strategy could work in a market where Xero had limited brand presence, as opposed to the accounting channel sales model Xero had relied on ''with great success'' in New Zealand, Australia and the UK, he said.

Craigs had reduced its overall full-year 2015 year-end customer forecast, down from 496,000 to 487,000, driven entirely by the US where the expectation fell from 42,000 customers to 33,000, which meant a 10% decrease to the estimated full-year after-tax profit down to a $44 million loss.

''We have also pushed out by a year our expectations for Xero's growth ramp in the US, leading to decreases in later years also,'' Mr Timms said.

Ms Van Leeuwen said while Australasian growth was critical for Xero to maintain its momentum in the near term, it would be the UK and US markets which were the focus and ''will determine its fate''.

''Ordinarily, this would be a positive story for a company seeking high growth. However, the underlying mix, with growth primarily from the more established Australasian markets, is negative.

''Reduced US volumes after a lacklustre first half 2015 will flow through future years and impact growth in that market,'' Ms Van Leeuwen said.

The company faced aggressive competition from incumbent Intuit, which runs QuickBooks, BusinessDesk reported. In July, chief executive Rod Drury told shareholders at the annual meeting in Wellington that everything Intuit did was now in response to Xero, and conversion of its 5 million desktop customers to the cloud would not work.

However, some analysts have questioned whether the company has just shown its competitor what it needs to do to keep market share.

''People are suggesting that the rate of growth in the US is at a level which is probably less than they thought it would be and they're certainly aware that Intuit is growing very quickly in that competitive marketplace,'' said Rickey Ward, NZ equity manager for JB Were, which does not hold the stock.

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The National Business Review is reporting how a Xero Analyst lowered XERO Stock price targets to  $15.22 

Bitcoin and Taxes, Now Unavoidable

John-David Perry for Fox Business writes: If you don’t know anything about the Bitcoin market, know this: you can use the digital currency as a form of payment on sites like Overstock.com, Amazon, and even Victoria’s Secret.

Bitcoin demand is very real. In fact, the digital currency is so popular that the Internal Revenue Service decided to get involved.

In March, the IRS made its first major ruling on digital currencies, including Bitcoin. The agency ruled that digital currencies are not actual currency but rather a form of property and, as such, are susceptible to capital gains tax. Naturally, this decision was met with feelings of anger and curiosity. But for the average Bitcoin enthusiast one important and very practical question surfaced: How on earth am I going to pay my taxes?

I had a chance to speak with Jake Benson the founder and CEO of LibraTax – an online accounting software company that helps individuals prepare their Bitcoin taxes.

Who is using Bitcoin?

Benson: More and more people believe in digital currencies as a technology and Bitcoins as a representation of that technology.  Very large and reputable companies such as PayPal are now enabling Bitcoin as a payment rail for digital goods. Granted, some users are still crypto-anarchists, libertarians, and criminals, but overall, the digital currency market is evolving quickly and becoming much more mainstream.

Last year the IRS ruled that Bitcoins are considered property and not currency. How will this impact the Bitcoin market and taxpayers in general?

Benson: The immediate knee-jerk reaction was a disaster. How on earth are people going to keep track of all their “trading” activity? Bitcoins are now considered a form of property so you need to apply capital gains tax to every single transaction you make, no matter the size. Whether you are using Bitcoins to buy a cup of coffee or buy a house, you still need to log that transaction.  It’s seemingly impossible to keep these records manually, and there can be a lot of math involved in calculating the right tax.

LibraTax automates this process and makes accounting easy for the Bitcoin user.  

What is LibraTax all about?

Benson: There are currently no accounting software packages that account for Bitcoin transactions. LibraTax is an affordable and easy way to track your Bitcoin transactions while staying compliant with the new IRS guidelines.

Who is going to use your service and do you see this demographic changing over time? 

Benson: Everybody that touches a digital currency will need a service like LibraTax if they want to remain compliant. Our initial product is going to be used by individual tax preparers and by tax professionals.  A lot of CPAs have already expressed interested in our service.

I think the market will continue to grow over time as the use of digital currencies continues to rise. A lot of people who are on the fence right now are afraid of the history and volatility of the Bitcoin market. However, I think the IRS ruling established a sense of legitimacy that will hopefully push the digital currency market in the right direction.

What types of enforcement policies are in place to ensure that people pay their Bitcoin taxes?

Benson: The IRS has been losing resources in general so they are limited in what they can and cannot do. Honestly, right now, I don’t think there is a huge risk of audit.

However, I consider taxes to be faith-based reporting.  It’s your obligation to accurately report your gains and losses. The people who currently pay their taxes are probably going to want to properly pay their Bitcoin taxes.

Over time I think there will be an increased probability of auditing. Every Bitcoin transaction is already stored in the universal public ledger called the block chain so in theory there could be ways of creating enforcement strategies.

What do you think the future of the Bitcoin market will look like – will it disappear, will it be replaced by another digital currency, or will it continue to grow?

Benson: Digital currency is a practical form of innovation. The appetite for this technology is a force of nature that will continue to grow.

I think the Bitcoin market is very uncertain. If the market does not organize well, and if its user base gets divided between the crypto-anarchist type users and the more legitimate user, then it will erode. 

Investing for Tax-Efficient Portfolio Income

Tara Thompson Popernik and Robert Dietz for  AllianceBernstein writes: With tax-exempt income from US municipal bond portfolios still near historic lows, investors spending from their portfolios can no longer get the income they need by simply increasing their allocation to high-quality, intermediate-duration bonds. As a result, many investors today are chasing yield into dangerous territory.

Typically, today’s yield-hungry investors are shifting to longer-duration or lower-credit-quality (high-yield) bonds, or both. Such investments may merit an allocation, but many investors do not adequately weigh the likely consequences.

We think that investors seeking tax-efficient income should weigh three considerations: after-tax income, tax-efficient growth and risk. Below, we evaluate the trade-offs for several potential solutions.

Popular Solutions

The income that can be gained from shifting the fixed-income portion of a portfolio to high-yield or long-duration bonds is indeed substantial. The left side of the Display below shows that investors can increase the after-tax annual income on a $1 million portfolio with a 60/40 stock/bond mix by about $9,000 if they shift the bond allocation to long-term, high-quality bonds. They can gain more than $21,000 of additional income if they shift it all to high-yield bonds, and about $15,000 more if they shift it to an equal mix of the two.

But the magnitude of the risk that these three popular income strategies add is not well understood. We estimate that an investor in a 60/40 portfolio now faces a 29% chance of incurring a large loss (defined as a 20% loss from peak to trough) in some period within the next 20 years. Shifting the bond allocation to long bonds would increase the risk of a large loss to 39%, because long bonds lose more value than intermediate-term bonds when interest rates rise. The risk of a large loss rises to 55% for the 60/40 portfolio with high-yield bonds and to 47% for the 60/40 portfolio with an equal mix of high-yield and long-term bonds.

These three popular income strategies are also likely to lead to less wealth over time than a core bond strategy would. For example, we project that the 60/40 portfolio with high-yield bonds, which generates the most income, would lead to a give-up in future wealth similar to a 20/80 portfolio, in the median case, as the display also shows.

In our experience, the risks that each of these three popular strategies pose are too high for most income-oriented investors.

Lower-Risk Solutions

Fortunately, it’s possible to garner more income without adding as much risk. The key is to source the higher-income (but higher-risk) investments from the stock allocation of the portfolio, rather than from thebond allocation. You can see this in the three potential lower-risk variations on a 60/40 portfolio in the display.

The first lower-risk variation replaces the broad US large-cap stock portion of the 60/40 portfolio with similar stocks with higher dividend yields. This increases the after-tax income of the portfolio by less than $1,300. That’s even less than shifting to a 20/80 stock/bond mix, but the decrease in the projected future value of the portfolio isn’t as bad as it  is for a 20/80 portfolio.

The tilt to higher dividends reduces the risk of a large loss from 29% to 25%, because higher-dividend-yielding stocks are typically less volatile. However, they offer moderately lower growth potential than the broad market.

The second lower-risk variation adds a 10% allocation to high-yield municipal bonds; importantly, it reallocates the capital for this high-yield investment from stocks, rather than bonds. This variation increases the portfolio’s after-tax income to $24,100, nearly $6,000 more than the original 60/40 allocation, and also reduces the probability of a large loss substantially—from 29% to 19%. While high-yield bonds are more volatile than investment-grade bonds, they are less volatile than stocks.

The downside is that this lower-risk portfolio is likely to be worth less after 20 years, in the median case, because high-yield bonds tend to generate much less growth than stocks do.

The third lower-risk variation combines the first two. This variation increases the portfolio’s after-tax income the most, to $25,200, nearly $7,000 above the original 60/40 allocation. The investor gets the additional income with a lot less risk: the probability of a 20% peak-to-trough loss falls to just 16%, close to the 15% probability of a large loss that a 60/40 portfolio offers under normal market conditions. The downside is that it also reduces the projected value of the portfolio after 20 years the most, to $849,000.

In our experience, the three lower-risk solutions are likely to fit the risk tolerance of most income-oriented investors better than the three popular solutions.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.

The Bernstein Wealth Forecasting System uses a Monte Carlo model that simulates 10,000 plausible paths of return for each asset class and inflation and produces a probability distribution of outcomes. The model does not draw randomly from a set of historical returns to produce estimates for the future. Instead, the forecasts (1) are based on the building blocks of asset returns, such as inflation, yields, yield spreads, stock earnings and price multiples; (2) incorporate the linkages that exist among the returns of various asset classes; (3) take into account current market conditions at the beginning of the analysis; and (4) factor in a reasonable degree of randomness and unpredictability.

This article was adapted from a longer piece by the same authors published in the September 2014 issue ofThe CPA Journal.

Tara Thompson Popernik, CFA, CFP®, is Director of Research of the Wealth Planning and Analysis Group at Bernstein Global Wealth Management, a unit of AllianceBernstein (NYSE: AB). Robert Dietz, CFA, is a Senior Investment Planning Analyst in the group.

5 Time-Saving Accounting Solutions For Your Small Business

 PRATIK DHOLAKIYA for Steamfeed.com writes: If you are a small business owner or a freelancer you will very well know how valuable your time is. You don several hats and are constantly engaged in a juggling act trying to do justice to your various roles –that of an accountant, a marketer, a PR professional, an invoicing and collection expert, and a seasoned strategist. Don’t you often wonder how you are going to fit in that 25th hour into your working day?

Quality online accounting and billing software will provide you with several tangible benefits, including:

• Simplified critical business processes
• Streamlined billing
• Faster invoicing and tracking
• Real-time analysis of your financials

This will help you keep a tab on the overall health, viability and prospects of your business.

Most of the good Web-based applications generate comprehensive reports which reflect your business performance. With their help you can identify problem areas and take remedial action.

Here are a few invoicing and accounting solutions which help you control, analyze and improve your business.

1) CloudBooks

CloudBooks is a feature-packed cloud-based accounting application that caters to all the requirements of small to mid-sized businesses.

Estimates can be viewed and commented on by clients. Approved estimates can be converted into invoices in a single click. You can also personalize the invoices and estimates. CloudBooks makes it possible for you to track open, approved and declined estimates.

Recurring invoices can be automated. CloudBooks help you track pending payments and invoices.

There are tools to facilitate efficient time and expense tracking. Unique and miscellaneous expenses can also be tracked. Recurring expenses can be automated and added to billable costs.

CloudBooks can be scaled up to meet requirements of large teams as well. The in-built live timer helps you track time against projects. Approved users can view project details and track time. Comprehensive invoices can be generated from completed projects, with all the costs and expenses accounted for.

Integration with PayPal and Authorize.net help your clients make payments online, quickly and safely.

CloudBooks offers a free plan which enables you to send out 5 invoices and support one client, with no additional access to staff or team mates.

The 3-tier subscription plans are for $2 per month, $10 per month and $20 per month.

2) Debitoor

Debitoor is a cloud-based application compatible with any OS. The responsive design makes it easy to use on the tablet, the desktop or the phone.

Estimates can be easily created. There is a provision to apply discount to the billed amount and add VAT rates. You can create lists of new customers and products, but there is no provision to duplicate the estimates. If you are using the paid version of Debitoor you can convert estimates into invoices once the client approves them.

There is only a single template for invoices and estimates but it looks nice and professional. It has space at the bottom for you to add notes.

Paid subscriptions allow you to duplicate invoices. You can also send late payment reminders but they cannot be automated. Debitoor has good expense tracking and reporting tools.

Debitoor offers free plans which allow you to send unlimited invoices and estimates, and track or record unlimited expenses. With these plans you can view sales and tax collection for the month or the quarter. But the Debitoor branding will appear on all communication, quotes and estimates.

Debitoor has a free trial period of 30 days for the full service. There are two monthly subscription plans for €5 and €10 respectively. The US version is up for launch soon.

3) KashFlow

KashFlow is a cloud-based accounting software that has won many accolades in the past few years. It is extremely user-friendly and makes accounting accessible to those who have no formal training.

Quotes or estimates can be easily created, sent across to clients, marked as approved and converted into invoices. You can automate recurring invoices and payment reminders. There are two default templates for invoices with limited customization options. Full customization is possible if you are familiar with HTML and CSS.

KashFlow has a very good reporting tool and can create 49 reports and charts. Basic inventory and stock management options are available. Project tracking tools allow you to keep tabs on expenses and income generated by individual projects. KashFlow also has good bill entry and bank reconciliation features. It also allows you to set multiple tax rates as applicable in the US. You can manually set the rates for state and county tax.

KashFlow offers multi-currency support and allows you to raise invoices in any currency which is extremely useful if you have foreign clients.

KashFlow has a free trial period of 14 days with no credit card required. There is a single pricing plan where you need to pay £18 per month for full access to the service.

4) GoDaddy Online Bookkeeping

GoDaddy Online Bookkeeping is a simple and basic cloud-based accounting software.

The dashboard displays the cash flow and accounts, and intimates of new sales and miscellaneous expenses for the week. There are also tools to track unbilled hours, tax estimates and pending invoices.

Invoicing caters to most of the basic needs of small businesses. There are 12 templates for invoices for you to choose from, but no tools for customization. You can automate payment reminders and also be notified when invoices are overdue or when payments are made. GoDaddy does not allow you to automate recurring invoices.

PayPal and Stripe are the online payment gateways available to your clients. Payment when received can be easily linked to bank statement entry from the invoice page.

Reporting is not an advanced feature of GoDaddy and it can create only 6 reports. GoDaddy neatly calculates your taxes and also gives you an estimate of the due taxes for each quarter. Sales tax collected and owed is also computed.

GoDaddy Online Bookkeeping offers a free version of the software which has very basic functions. The paid version has a subscription fee of $9.95 per month.

5) InvoiceMore

InvoiceMore is an online billing and invoicing service that provides you the basic functions with no bells and whistles.

You can create invoices easily and quickly, and the system is easy to navigate and comprehend. Invoices can be downloaded in the PDF format. They can be sent to the client via email or snail mail. Customization options are limited; you can add your logo to the invoices but there are no choices for templates.

Online billing is one of the strong features of InvoiceMore. It allows partial payments and recurring billing. You can also view billing summaries and pending payments. Recurring bills or invoices can be automated and can be generated from recurring products or services.

InvoiceMore is client-centric and you can view everything from the client’s view- invoices, products or items, payment, contact information and all other activity.

This helps you gain a comprehensive view of client transactions and history. You can also keep private internal client notes which makes it easy for you to recollect issues and minor, but important, details.

InvoiceMore has a free starter plan that can support three clients. You can send unlimited invoices but there are no online payment options, or secure SSL encryption of data. The paid plan charges a flat fee of $15 per month for full access to services.

Conclusion

Your business requires your attention 24*7. So what is holding you back from investing in accounting and invoicing software, which will help you devote your time to other pressing needs like building brand awareness and acquiring new customers? Would you not like to keep a tab on your finances via something as convenient as a free accounting app on your mobile devices? Give it a go and you will thank us you did so.

DigitalFirst : Who’s The King of Cloud? Xero and MYOB Wrestle for Title / “MYOB’s numbers are inaccurate,” says Chris Ridd, Xero’s managing director for Australia.

Sholto MacPherson for Digital First writes: Yesterday Xero announced its latest customer numbers: 371,000 globally, up 76 percent in the past year. The biggest growth, however, is in the hotly contested Australian market where Xero is up against incumbent MYOB.

Xero hit 158,000 businesses, up 100 percent, “cementing its place as the leading online accounting software for small businesses in Australia”, the company crowed in a press release.

Not so fast, says MYOB, which for a long time has proudly worn the accounting software crown at no.1.

“It’s important to differentiate between Xero’s clients that are on simple ledgers through accountants (practice ledgers) and those that are similar offerings to our do-it-yourself cloud solutions (business ledgers),” says MYOB CEO Tim Reed.

Reed points to a research paper by Macquarie Group published in July that estimated 60 percent of Xero’s reported ledgers were business ledgers. In a like-for-like comparison, Xero had 88,000 online paying businesses at its last count of 147,000 in August, Reed claims. (Or 94,800 based on yesterday’s updated figure of 158,000 Australian users.)

“The (Macquarie Group) analyst confirmed the 60/40 split,” Reed says.

MYOB says it doesn’t bother counting practice ledgers among its official figures because their value is so low. Xero sells it for $1-$5 depending on volume, while MYOB gives them away as part of its practice management software suite.

“We don’t count those numbers (practice ledgers) but Xero does. They don’t add a lot of revenue; you can’t charge much for them because they’re only used once throughout the year,” Reed told Digital First. “There is a downside of us in publishing customer numbers because the side by side comparison is a bit skewed.”

Reed says MYOB doesn’t reveal the total number of ledgers including the practice ledger and MYOB’s recently released cashbook product.

“On 21 August we had over 88,000 online paying users in Australia. We are confident that we are leading in this space,” Reed says. [snip].  The article continues @ Digital First, click here to continue reading....

Digital First was formerly named BoxFreeIT.com.au from its launch in June 2011 until 28 July, 2014.  Sholto Macpherson - Editor and Publisher

Shares of Xero drop below $20 mark as investors doubt US growth / XERO: The stock is rated an average 'sell' based on the consensus of five analysts surveyed by Reuters, with a median price target of $20.50.

Suze Metherell for Yahoo News writes: Shares of Xero traded below $20 for the first time in a year, as investors grew cautious over the pace of the cloud-based accounting software firm's expansion in the US market.

The Wellington-based company's shares fell 8.4 percent to $19.20 in afternoon trading, and have declined 57 percent from their March peak of $45.99 in part due to a global selloff as investors questioned high valuations relative to earnings of tech companies. The stock is rated an average 'sell' based on the consensus of five analysts surveyed by Reuters, with a median price target of $20.50.

Xero wants a million customers, and is targeting growth in the US market where it sees the potential to take market share of an estimate 29 million small to medium sized business owners. On Wednesday, Xero said that just 22,000 of its total 371,000 customers are based in the US. It said the transition to cloud-based services "will play out over several years", with most American accounting firms focusing on compliance and are "only at the beginning of the transition to the cloud and proactive advisory services."

The company faces aggressive competition from incumbent Intuit, which runs QuickBooks. In July, chief executive Rod Drury told shareholders at the annual general meeting in Wellington that everything Intuit did was now in response to Xero, and conversion of its 5 million desktop customers to the cloud wouldn't work. However some analysts have questioned whether the company has just shown its competitor what it needs to do to keep market share.

"People are suggesting that the rate of growth in the US is at a level which is probably less than they thought it would be and they're certainly aware that Intuit is growing very quickly in that competitive marketplace," said Rickey Ward, NZ equity manager for JB Were, which doesn't hold the stock. "They're not saying that Xero doesn't have a viable product that works. At $40 you were suggesting the company would be able to gain 25 percent to 30 percent market share in the US. There is nothing to say that they won't do that, but you've just got to be conscious based on the current information you are paying for that success today."

The company's US ambitions came under further scrutiny last month, when former PayPal executive Peter Karpas, Xero's North America chief executive, left the company just six months after joining. At the time Xero's chief executive Rod Drury told BusinessDesk the company and Karpas agreed the business was at a different stage compared to his skills. The company hasn't replaced him, but announced Andy Lark, former Commonwealth Bank of Australia executive, to be its new chief marketing officer as it moves to strengthen its push into the vital US market.

Also weighing on the stock may be that staff were emerging out of a blackout period, Ward said, meaning they were able to trade shares which would boost liquidity. The market was also aware that the company's escrow period after it raised $180 million in capital last October was coming to a close.