Xero’s the hero across the ditch
It’s been six months since accounting software group Xero controversially burned its waka in New Zealand in favour of making Australia its sole listing. And so far the Aussies’ torrid love affair with the cloud-based accounting company has continued unabated.
The stock last traded at A$43.23, down from its A$47.44 peak in June, but substantially ahead of the A$31.47 delisting from the NZX. Aussie investors, in no small way, have welcomed Xero with open arms since it chose to make Australia home.
Bronte Capital’s John Hempton was quoted in the Australian Financial Review saying with its current market capitalisation of A$5.4 billion ($5.8b), Xero had a shot at being a A$100b company. “If any Australian company has the potential to be a A$100b tech giant, it’s Xero,” Hempton told the AFR. Xero is now one of the Australia-based fund manager’s largest positions, the paper said.
In a departure from the norm, Xero this week announced it had bought Canadian tech company Hubdoc for $US70 million.
Toronto-based Hubdoc has a software product that is used by accountants and small businesses to capture data from bills and statements from organisations such as banks, utilities and suppliers. For Shareclarity, a financial service provider with a presence in the online investment community, Xero is one of its “most viewed” stocks.
“What makes it different to other SaaS (software as a service) or technology companies is its stickiness — especially for individual small to medium sized enterprises,” Shareclarity’s managing director Daniel Kieser said. “Once you set up an account, code your bookkeeping, link your bank account, authorise your accountant and integrated your third-party receipt handling, payroll, etc it becomes difficult or painful to switch,” he says.
“The more it becomes a one-stopshop for all things finance, the more sticky it will be and besides, there are so few alternatives to whom you can switch anyway.”
As for the Hubdoc acquisition, it represents a departure from its historic focus on internal software development, although Hubdoc was one of its partners before the purchase.
“Acquisitions may fast-track growth, but only if they don’t overpay and integrate them successfully,” Kieser says. expected to be completed until 2021 when the seven-year contract for the current nine default providers is due to lapse.
One benefit of the slow timetable is that the cycle of initial public offers could swing back into action by then, giving new KiwiSaver money somewhere to invest.
Close A$43.23