The Real Size of the U.S. Market Potentially for Xero? 9-12 Million, not the 28-35 Million Xero Claims...

Excerpted from Xero Struggles for Traction in the U.S.:   We wrote a response to a DigitalFirst interview with Xero CEO Rod Drury wherein we illustrated how Xero uses "smoke & mirrors" to construct a narrative of their position in the U.S.  that is essentially an "illusion".   We noted a key Xero tactic and practice  is how CEO Rod Drury and other top executives  verbally float a number between 28 Million and 35 Million, describing it as a "market" in the U.S. for Xero when in fact it's nothing more than Xero's conjectured pool, pure speculation, and not a 'market' at all (the difference and distinction being tremendous).  We said no such market exist in the U.S. and Xero uses the tactic of repeating a non-fact enough times to where the perception of what is fabricated transforms into uncontested fact.  We have no idea where Xero gets their numbers or why sometimes it's 28 Million, and other times it's 35 Million, the number fluctuates and drifts depending on who's speaking and when.  All we're confident of is it's preposterous.

Here is a recent quote from Xero Chairman Chris Liddell in context to the U.S. on this topic and an example of how it generally goes from Xero, 

"There's 35 million who do something else (other than use Quickbooks), whether it's Excel spreadsheets or pieces or paper or localised software, so it's not only competing with Intuit, you're competing for people who've never had software before."

This is pure smoke and mirrors, "illusion making", we believe motivated to pump up Xero stock and grease the wheels of Xero U.S. IPO aspirations.   But just how big of a "whopper" is this "35 million" number?     We finally can place some perspective on that and have come across a credible source of an accurate picture/profile of the size of the U.S. market for Xero, New Zealand Financial Analyst firm "Woodward Partners".    Woodward Partners are quite  knowledged on the Xero tactic of floating huge numbers with the innuendo being a tremendous "pot of gold" to be had for even a small percentage of the market.  On this point and Xero tactic, Woodward Partners has recently said this (click the link to listen to the Radio New Zealand interview)

 "It's convenient to say that we have a small percentage of 29 Million and our competitor has a small percentage of 29 Million but we would argue that 29 Million is overstating the actual opportunity, the opportunity we believe to be 9 - 12 Million".  - -----Nick Lewis, New Zealand based Analyst 

Woodward Partners  (@ 0:38 into the interview)

To be clear, Woodward Partners is not talking about this "mythical white space" number in the U.S., their view is the U.S. market for Xero in total on a low is 9 Million, on a high 12 Million.    Woodward Partners goes further to say,    "There is not enough evidence to support the premise that Xero should be in the U.S." - Nick Lewis, New Zealand Analyst with Woodward Partners  (@ 1:27 into the interview)
 

Listen to Nick Lewis ( 4 min 10 sec - click to listen )

Xero struggles for traction in US / "There is not enough evidence to support the premise that Xero should be in the U.S."

Jenny Ruth for Radio New Zealand writes: It has been a rollercoaster year for Xero which gained market darling status in March when its shares hit $45.99, valuing the company at nearly $6 billion.

The shares had risen from $8 a year earlier and from their 2007 $1 float price.
This was a company whose revenue in the year ended March was just $70 million.
But then investors began to realise this was pricing for perfection and a far from certain future.
Gradually, the accounting software company revealed a lot that wasn't perfect and the shares had sunk as low as $15 in October.

The key disappointment was Xero's lack of progress in the key US market - if it doesn't succeed there, even its current share price may be too high.

Listen to Xero CEO Rod Drury's response to criticism of the company's progress in the US

View a timeline of Xero's customer numbers and share prices since 2007

Xero added just 4000 customers in the US between March and September, taking the total to 22,000 and, even worse, its churn rate in the US rose to 4.2 percent a month - that means Xero is losing almost half its customer base a year.
By contrast, its churn rates in its other key markets are improving and is less than 1 percent in New Zealand.

In the US, Xero has been spending more than 36 months' worth of revenue to acquire each customer, more than five-and-a-half times what it's costing to acquire a customer in New Zealand and well over four times the cost of acquiring customers in Australia.
The lack of progress in the US saw analysts drastically dialling back their growth forecasts: at the beginning of 2014, the consensus was that revenue would reach $550 million in the year ending March 2017. That's now back at $340 million.

A difficult market

The reasons the company has been finding it so tough in the US are many: US accountants are more conservative and risk-averse - they're afraid of being sued - than their counterparts in the three Commonwealth countries in which Xero has gained significant traction.
Yet accountants have been a key marketing avenue for Xero in New Zealand, Australia and Britain.

Then, Xero's key competitor in the US, Intuit, seems to be far more proactive in migrating its customers from desktop software to the online, cloud-based systems Xero has pioneered than its key Australasian competitor, MYOB, or its key British competitor, Sage.
Intuit's online sales of its QuickBooks accounting product grew 43 percent in the three months ended October while its desktop sales of the product fell 23 percent.
Another reason for Xero's slow progress in the US is that it has yet to develop a full range of products.

Although it began to address this problem in November by buying the Monchilla payroll business, it still doesn't offer a cheque processing facility - about 70 percent of payments in the US are still made by cheque.

Xero: Customer numbers vs share price July 2007 - December 2014

Photo: RNZ

Bringing on banks

And then there's the situation with the banks - in New Zealand and Australia, Xero has direct feeds into its software from all four of the major banks.
But the US market is much more fragmented with about 6000 banks - and the top five claim only about 38 percent of the market.
While Xero is working to sign up banks, it's mainly relying on a third-party aggregator, Yodlee, for bank feeds in the US.
Xero has been successful in gaining 61,000 customers in Britain by the end of September, but that's well behind the 158,000 customers it had signed up in Australia, despite entering these two markets at the same time.
A key reason for that slower growth in Britain is that only one bank, HSBC, provides Xero with a direct feed there - that agreement was signed as long ago as 2009.
So until it can persuade the other British banks to provide it with feeds, Xero has to rely on Yodlee in Britain too.

Mixed predictions

Analysts have mixed views on Xero's prospects. Nick Lewis at Woodward Partners has questioned whether the company has any chance of succeeding in the US.

   "There is not enough evidence to support the premise that Xero should be in the U.S." - Nick Lewis, New Zealand Analyst with Woodward Partners  (@ 1:27 into the interview)
 

Listen to Nick Lewis ( 4 min 10 sec - click to listen )

2015 ExactCPA Tax Filing Prices for Tax Year 2014

Fees are based on the complexity of your tax return. In general, we:

• charge a fixed price for each tax form and worksheet used in the preparation of your tax return
• will apply a per-item charge for certain items like stock sales and depreciation
• do not charge for line-items such as interest income, unemployment and dependents

Examples of our fees for commony types of returns are shown below. We can provide a more precise estimate if we know more about your tax situation.   Call us, we'll ask a few questions and provide you a formal in writing quotation.

To receive quote call us 
@ t. 212.234.8333 or email us!
Where to start?  Use our 2015 Tax Organizer,  download, fill out and email back to us!

Individual Tax Packages:

• $80  -- Individual Federal and State Tax Return (Basic E-Filing or Paper Filing)
• Includes E-Filing. ONLY one state, NO itemization, no interest income, no stocks, or any other relevant schedules. Just a basic federal 1040, and one state return.
• $100 -- Individual Federal & State Tax Return (E-Filing of Paper Filing) with Schedules A&B.
• Includes E-Filing. Allows for itemization (Schedule A) of mortgage interest, property taxes, medical expenses, charity; also allows for Interest Income and Dividend reporting (Schedule B). If you have one or both schedules, the price is still a basic $100.
• $125 -- 1040NR for those who are nonresident aliens (usually, international students and those workers not wishing to declare their home country income). Does not include any schedules.

Added Schedules:

The above are the basic three individual tax filing packages. The most common schedules are below and are added extra fees to either of the two packages above. This list is not comprehensive.

• $35 -- State filing - efiling or paper. (one state is already included in any of the 3 Federal packages).
• $50 -- Local City and Tax Filings (for e.g., Cleveland, Philadelphia, etc.).
• $50 -- W7 (ITIN) Application for EACH dependent who does not have a social.
• $50 (simple) / $125 (complex) -- Schedule "C" -- this is for those who receive 1099-M income and are usually labeled as sole proprietors. (Also for single member LLC owners who have not elected "S-Corp" Status).
• $60 -- Schedule E, Page 1 -- For those who own rental income properties and have to report income and expenses.  Includes one rental income property. (Also for single member LLC owners who own property in this LLC.).
• $30 for each extra rental income property beyond the one  already included.
• $15 (simple) / $25 (complex) -- Schedule E, Page 2 -- For those with K1 income from corporations and/or partnership income.
• $50 -- Form 2106 Job Expense Schedule for any W2 taxpayer or spouse wishing to claim unreimbursed expenses as a result of being employed with their firm.
• $10 -- Schedule D Stock and Mutual Fund gains/Losses (Unlimited transactions "ok"). Plus $1 for each transaction over 10 (max $50).
• $50 -- Schedule H -- Nanny tax form.
• $55 -- Form 8829 Home Expense Schedule Form.
• $50 -- Form 4952 Margin Interest Form
• $40 -- Form 8814 Parent's Election to Report Child's Interest and Dividends
• $45 -- Form 8615 Tax for Certain Children with more than $1,500 in Investment Income
• $65 -- Married-Filing-Separate Analysis, if needed.
• If two separate returns are done for husband and wife, separate filing fees would be incurred for each return, in addition to the married-filing-separate analysis fee.
• $30 -- Form 8606, for reporting nondeductible IRA contributions; only if you are a new client or if you have not reported it to us before. Otherwise, if you filed with us last year, no charge during filing time.
• $60 -- Form 6781, for reporting gains and losses from straddles (usually foreign currency transactions).
• $45 -- Form 8891 for reporting Canadian Retirement Plan accounts (gets efiled with return).
• $95 -- Form 1116 for reporting Foreign Tax Credits and Carryovers.
• $155 -- TDF 90-22.1 ("FBAR") Form for reporting of foreign account balances, be they savings, checking, fixed deposits, time deposits, life insurance cash value, foreign retirement accounts, stocks, bonds, mutual fund accounts, etc. (If your balances ever touched $10,000 or more in the year).
• $195 -- Form 2555 for Foreign Earned Income (if you are living abroad for 11 months in any year, usually).
• $155 -- Form 8938 -- New Form for 2011. (If your balances ever touched $50,000 or more in the year).
• $195 -- Form 8316 for Requesting Social Security Tax Refund.
• $195 -- Form 843 for Requesting Medicare and Social Security Tax Refund, or Penalty Abatement Request.
• Full Fica Package for requesting social security and medicare tax refunds is $495, includes Form 8316, Form 843, 1040NR, and assembling package for IRS Fica Refund Dept.
• $125 -- Form 8833 Treaty Based Position Form.
• $595 -- 8621 Form Foreign Stock and Mutual Fund transactions on a foreign exchange in a foreign country.
• $175 -- Form 720 for insurance premiums paid to foreign insurance companies. (India, Israel are exempt; UK is usually exempt in most situations).
• $100 -- 1040X (Amendments for any reason). No charge if it is our request to do the amendment. Any new schedules added to the amendment incur the appropriate fees as mentioned above.

Business Tax Return Pricing               

• $400 -- One S, C, or LLC Tax Return (one shareholder/member, including one other person). Includes one state filing whether that is an efiling or a manual paper filing.                   
• $150 -- Each added state beyond the one already included. (Usually filed when you have income from clients/sources in those states).
• Discount!  Individual returns for each member of the company will receive a $50 discount toward filing of their individual return.

*Extra Shareholders/Members beyond the two included can vary the pricing of the corporate tax return.  We will inform you of this during the filing of your corporate tax return.

To receive a formal quote, Call us @ t. 212.234.8333 or email us!

With Health Insurance Reform Phasing In, Is 2015 The Prime Tax Season To Invest In H&R Block?

Kyle Fishman @ SeekingAlpha writes:

Summary

• Health insurance reform already began to be phased into action in 2012.
• Since January 2012, H&R Block (HRB) has gained approximately 100%, while the S&P 500 gained 60%.
• The 2015 tax season will reflect income made during 2014. 2014 is the first year that people will be taxed or penalized for not having health insurance.
• Tax service providers are in a seasonal business, generally reporting profits during the 2nd and 3rd quarters of the year.

Since the start of 2014, all Americans are now required to have health insurance, or else pay an additional tax. The tax/penalty for not having health insurance will be phased in over three years. It is $95 for 2014, $325 for 2015, and $695 for 2016.

However, it may even be more than the numbers listed if your income is high enough. It could be 1% of your income for 2014, 2% of your income of 2015, or 2.5% for 2016. If these percentages are higher than the numbers initially listed above, then you will have to pay that percentage instead.

Since taxes filed in the year 2015 are based on income made during 2014, this represents the first tax season to deal with the complications of the individual insurance mandate.
As the transition of health reform makes tax matters more complicated, this may drive more business to tax services providers such as H&R Block (NYSE:HRB), Intuit (NASDAQ:INTU), and Liberty Tax Inc. (NASDAQ:TAX).

Of these three competitors, I would strongly recommend to go with H&R Block for multiple reasons;

H&R Block is the dominant leader in the field, preparing about one in every seven tax returns in the United States, with an established, well-recognized brand serving customers in over 12,000 retail locations.

H&R Block has a better track record of returning capital through share buybacks and currently yields 2.5%, and also has past history of raising its dividend. By contrast, Intuit only yields about 1% and Liberty Tax Inc. does not pay any dividend at all.

Insider trading activity appears to look a lot more favorable for H & R Block with 22 buys and 18 sells during the last 12 months. By contrast, Intuit has had 60 sells and ZERO buys. Liberty Tax Inc. has had 31 sells and 4 buys.

H&R Block's valuation is quite reasonable with a P/E ratio of approximately 18. Intuit appears to be a lot more expensive with a P/E ratio over 30. Liberty Tax Inc. has a P/E ratio of 35.
H&R Block is much cheaper than Intuit not only from the perspective of the P/E ratio, but also on pure price; $33 is a lot cheaper than $91. I realize many investors believe that the pure price is irrelevant, but it still may have a psychological impact on traders by giving the appearance of being lower and modestly priced.

Risks or Concerns:

-H&R Block has been restructuring its offices, and it is uncertain if that may end up hurting their business, but on surface appears to be saving money by downsizing.

-There is a growing demand for online filing and digital products that are offered for free. Intuit offers online products that may have more appeal to tech-savvy younger generations. H & R Block does offer free online products as well, but it cannot make money by giving their services away for free. However, the complications of the health insurance reform may persuade people to pay a trustworthy professional to take care of the work for them as an assurance that they will get someone who knows how to handle the ongoing changes in the law.

Conclusion: 2015 looks like it may be shaping up to be a strong year for tax service providers, and H&R Block is clearly the best of breed.