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Xero's million customer milestone

Thursday 30 March 2017 01:36 PM

Xero's million customer milestone confirms getting to breakeven is within sight

By Jonathan Underhill

March 30 (BusinessDesk) - Xero, the cloud-based accounting software firm, says it reached a milestone of signing up 1 million customers just ahead of its March 31 year-end, keeping intact market expectations it will achieve its first-ever profit in 2019.

Chief executive Rod Drury declined to give an update on the outlook ahead of the release of the full-year results in May. Subscriber growth had continued "in all markets" in the second half, with "just amazing numbers" in its largest regional market of Australia and New Zealand, where Xero is winning "more than 70 percent of all new revenue" in accounting software.

Xero shares rose 1.5 percent to $19 and have gained 26 percent in the past 12 months, outpacing the NZX 50 Index's 6.2 percent gain. The stock reached a six-month high of $19.98 at the start of last week. It is rated a 'hold' based on the consensus of six analysts polled by Reuters.

Subscribers have grown by more than 16 percent, or 138,000 since the end of the first half, when they stood at 862,000.

The Wellington-based company may narrow its loss, on an operating earnings before interest, tax, depreciation and amortisation basis, to $38 million in the year ending March 31, according to a report by First NZ Capital analyst Tristan Joll published after the first half results that affirmed his 'outperform' rating. That would be an improvement on last year's $59.9 million operating ebitda loss.

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Joll projects it will turn to an ebitda profit of $6.3 million in 2018 and $63.6 million the following year. On a net profit basis he forecasts a $75 million loss this year, a $43 million loss in 2018 before turning profitable in 2019 with a $4.9 million surplus.

Xero had $137.9 million of cash and short-term deposits on hand at the end of the first half and said at the time it posted the interim results in November that it had enough cash to reach breakeven without seeking more capital.

Australia and New Zealand accounted for 69 percent of subscribers in the first half, at 592,000, up 39 percent from a year earlier. In the UK, its third-biggest market, subscriptions rose 61 percent to 164,000 and Drury says Xero is now the biggest player in that market.

It added 30,000 subscriptions in North America, with the total rising 64 percent to 77,000 in the first half, continuing a run rate that First NZ's Joll called "pedestrian" in a market where rival Intuit's small business group had 1.5 million online subscribers for its QuickBooks product. Still, he said that in that market "the window for execution will remain open for some time".

Apart from reaching breakeven, Xero has an aspirational target of reaching $1 billion in operating revenue, which Joll has estimated it may achieve in 2022. Operating revenue was $207 million last year and Joll forecast a 43 percent gain to $297 million for the 2017 year.

At the time of its first-half results the company said it faced costs to transition from Rackspace to Amazon Web Services.

(BusinessDesk)


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