Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Xero shares plunge as investors question US growth plans

Xero shares plunge to 10-month low as investors question US growth plans

By Suze Metherell

Aug. 15 (BusinessDesk) - Shares of Xero dropped to their lowest level since October last year as investors weigh the high valuation of the cloud-based accounting software firm's share price against its US growth aspirations.

The stock fell 6.2 percent to $20.17, less than half its intraday record of $45.99 on March 6, and have shed about 44 percent over the past nine months after its soared more than 300 percent last year. Globally tech stocks have pared gains made early in the year, with the NZX Sci-tech index, which includes Xero and bio-tech company Pacific Edge, and the likes of minnow stocks including BLIS Technologies and Windflow Technology, sinking some 28 percent since January as investors mulled the high valuations relative to earnings.

"In general I think several analysts have captured the essence of what's been going on over a period of time here with technology stocks broadly and globally having peaked in March this year," Andrew Bascand, managing director for Harbour Asset Management told BusinessDesk. "Then investors just started asking questions regarding the business models of a number of tech stocks and how much cash they've got on their balance sheets and what their timeline is to becoming profitable and therefore the valuation of these stocks."

The Wellington-based company 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. According to chief executive Rod Drury's annual general meeting presentation in July, the company has 334,000 customers worldwide, two-thirds of which were in Australia and New Zealand, and 18,000 in North America.

"Lets be truthful, how many clients do they have in the US right now?" said Bascand. "This was never going to be an easy path for Xero but their company is growing as well, it's just a question of what valuation it should be on."

Meanwhile, rival Intuit has "come out swinging" in the UK and US, Bascand said.

Drury told shareholder's at the company's annual general meeting in July he believed Intuit was on the wrong track trying to replicate Xero's open software eco-system approach, which sees partnerships that build new applications onto the Xero platform, by buying out eco-system partners.

"Intuit is spooked," he told the meeting. "Most of the things they do now are responses to us." It was trying to convert five million customers using a desktop software product onto a repurposed cloud offering, "which is not really a great product."

Still, investors think Intuit might pose a bigger threat to Xero. Paul Harrison, head of equities at Salt Funds Management said Xero has shown Intuit what it needs to do to grab market share.

"The Xero stuff just gets more bearish, all it looks like they've done is gone in and poke the giant that's Intuit and it's turned out they haven't managed to grab a first mover advantage in the market because their product wasn't ready for market in terms of the Xero product," Harrison said. "They've woken up Intuit and it's responded with a product that is."

The market was also aware that the escrow period after its $180 million October capital raise was coming to a close, Harrison said.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

China Shopping: NZ-China FTA Upgrade Agreed Among Slew Of New Deals

New Zealand Prime Minister Bill English and China Premier Li Keqiang signed off a series of cooperation deals spanning trade, customs, travel and climate change and confirmed commencement of official talks on an upgrade to the nine-year old free-trade agreement between the two countries. More>>

ALSO:


Media: TVNZ Flags Job Cuts To Arrest Profit Decline

Chief executive Kevin Kenrick said the changes were aimed at creating "a sustainable future video content business for TVNZ in an ever-changing media market." More>>

ALSO:

Reserve Bank: Wheeler Keeps OCR At 1.75%

Reserve Bank governor Graeme Wheeler kept the official cash rate unchanged at 1.75 percent, as expected, and reiterated his view that the benchmark rate doesn't need shifting for the foreseeable future. More>>

ALSO:

Trade Plans: Prime Minister's Speech To International Business Forum

"The work to improve public services, build infrastructure, and solve social problems is possible only because we have enjoyed sustained, solid economic growth. A big reason for that is the Government’s consistent agenda of economic reform, and our determination to open up more opportunities for trade with the world." More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news