In line with its responsibilities as a publicly listed company, Xero is required to release regular market updates about it’s position. It’s most recent update was released today. The most relevant comments are pasted below (with my commentary afterwards);
Xero has doubled the number of customers from 240 to more than 500 in New Zealand during the four month period, 1 October 2007 – 31 January 2008;
The offer document promised 1300 paying customers at an average price of $75/customer/month this equates to $97500/month.
Since listing, pricing has fallen to $50/customer/month This means Xero needs to achieve a customer level of 1950 to achieve the same revenue (not taking into account that subsequent businesses for the same user are charged only half of the $50/month). Given that 260 customers were added in the four month period to date, I wonder how realistic it is to add almost 1500 customers in the next 3 odd months?
In the short time since listing on the NZX in June 2007 the breadth of Xero’s product functionality is already approaching that of the incumbent installed software providers, evidenced by a growing number of migrations from competitive products.
I concur that Xero’s functionality has grown markedly in that time, however there’s still a long way to go before Xero matches the (admittedly most user-unfriendly) MYOB for functionality. I’m looking forward to when Xero does indeed provide all the features that the incumbents do.
In 2007, Xero focused its primary marketing activities on building capability inside the New Zealand accounting community, resulting in an extensive national partner network. Xero expects to see the benefit of that channel with accountants recommending Xero to their customers for the 2008/09 financial year. With this network now in place, marketing activities to small businesses will accelerate this month.
Coolness – the Xero investors will be stoked to see the investment in the accountants network start to yield dividends.
Xero is on track to achieving 1300 customers;
Receipts from customers for the year to 10 May 2008 are likely to be $250,000 – $350,000;
Hang on – the prospectus promised year end 10 May 2008 revenue of $550000 with 1300 customers. The fact that the price per customer has dropped should result in higher customer numbers for the same revenue shouldn’t it?
Xero is pleased to announce that market entry activities in the United Kingdom have progressed more rapidly than expected. The Company is accelerating its UK hosting arrangements and expects to report UK revenue ahead of schedule, this financial year.
This is great news – after all the international market was always where the real revenue was to be earned. It’ll also help to offset some of the lower than anticipated revenue from the domestic market.
All in all it’s an interesting report, perhaps a little disappointing on the revenue and domestic figures but with some promising signs internationally.
So how do the Xero investors out there feel at this point (bearing in mind that Xero was always a long term investment and return aren’t expected for another couple of years) – what do they get as a mid term report card score?