Xero doubles revenues, reduces losses

Break-even goal abandoned for growth

Xero’s financial performance for the first six months of its year, to September 30, shows 100 percent growth in regular monthly revenue from committed users of its online accounting software, and 112 percent increase in revenues overall; but as signalled at the last annual general meeting, the company is still not profitable.

At the July AGM, Xero formally announced that it had abandoned its goal of breaking even in the 2011-12 financial year, preferring to concentrate on long-term growth.

It reiterates that stance in its most recent announcement. “The Board is pursuing a growth agenda that provides the flexibility to pursue opportunities that create shareholder value, rather than short-term profitability,” Xero says.

“The company is comfortable with its ability to fund continued growth and execute with excellence. To support this growth, Xero is now ramping up investment in its internal infrastructure, systems and global sales teams to support a million customers as it gains traction in large overseas markets.”

Asked whether continued lack of profit might in the long-run affect market confidence, CEO Rod Drury points to the company’s encouraging share price. Clearly, he says, companies and investors are comfortable with a model that aims at growth first. “We understand the desire by some to see us make a profit and we eventually will. Our costs are going up more slowly than our revenue and some day those lines will cross over; but we’re not in a hurry.”

The convergence of cost and revenue lines means the half-year loss has, narrowed, at $3,714,000 before tax, compared with $4,712,000 for the equivalent period last year.

Business customer count as at September 30 has more than doubled on the year before, at 51,300.

Operating revenue and other income for the six months to September 30 total $7,913,000, more than doubling the equivalent figure last year. Aside from providing extra income, this result “validated Xero’s ability to deliver a scalable SaaS (software as a service) business,” the company says.

More than 40 percent of Xero’s revenue now comes from overseas – Australia, the UK and the US – “and the company expects this growth to continue as the brand becomes established in large overseas markets,” says the statement.

Drury describes the growth of the company’s markets as “like a snowball”; the New Zealand and Australian markets have been rolling for some time and have more size and momentum. The UK is less advanced but expanding. In the US, Xero has 2,000 customers, but he acknowledges the suite is missing some of the features US customers look for such as more complex bill-payment routines – owing to a more fragmented banking system – and the facility to print cheques. This is still needed in the US, while here most payments can be done electronically, he says.

A perversely beneficial effect on Xero’s growth comes from the company’s chief rivals starting to drop the ball, Drury maintains. Intuit has had long periods of interruption to its online service. MYOB has recently been sold to a US private equity form and, absorbed with financial matters, has let innovation slip down the priority list, he suggests.

“In this business,” Drury says, “it’s not the big that eat the small; it’s the fast that eat the slow.”

New exposure for Xero through the Google Apps Marketplace and Chrome Web Store is adding to the global profile of the company’s products, the company’s announcement says. There is also a thriving market in add-ons to the basic accounting services.

The figures released today are unaudited.

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