Is Xero still a hero?
AFTER REPORTING further losses in its latest annual result, Xero’s stock is now worth less than half what it was a year ago. The question facing investors is whether the company’s heavy investment in offshore expansion will pay off.
Xero’s full-year loss has nearly doubled to $68 million. That is worse than analysts feared – and as a result, the stock has fallen more than 10 per cent.
Xero boss Rod Drury is talking up impressive customer and revenue growth.
The cloud-based accounting software provider is making more money than it was last year, but has ploughed this into its ambitious global growth strategy.
Over the past year Xero has hired an additional 400 staff and rolled out more than 500 software updates.
The company has never turned a profit or provided any guidance on when it expects to.
Xero reported that operating revenue climbed to $123 million for the year ended March 31, up from $70m the previous year.
Paying customers grew by 67 per cent to hit 475,000 over the reporting period. Subscription revenue grew 81 per cent to $120.9m.
Most analysts still think the stock has further to fall in the year ahead, having already run hard ahead of expectations for longterm future earnings.
‘‘Xero has delivered another period of exceptional sales growth, again driven by its home markets of New Zealand and Australia.
‘‘These are, however, finite markets and for investors to earn acceptable returns from here, Xero will need to replicate its success in the UK and the US,’’ Deutsche Bank analyst Stephen Ridgewell wrote in a note to clients.
He has a ‘‘sell’’ recommendation on the stock.
First NZ Capital analyst James Schofield, who is Credit Suisse’s research partner covering Xero, noted he was keeping an eye on the lower margins and ramp-up in costs, but is encouraged by improvements in the US.