I thought I would share my favourit “australian” business (its actually New Zealand, but listed on the Australian Stock Exchange). OK, here goes:
About Xero: Native SAAS cloud accounting platform for small business – “when small business is beautiful business”. Its mission is to disrupt traditional accounting software (i.e. Intuit).
Founder Leadership – Rod Drury was the founder of Xero. He has stepped down as CEO, but remains as a NED and innovation advisor.
2015 - $120.9 M NZD
2016 - $207.1 M NZD = 71% Growth on PCP
2017 - $295.4 M NZD= 43% Growth on PCP
2018 - $406.6 M NZD = 38% Growth on PCP
2019 (forecast) - $545 M NZD – 34% Growth on PCP
Market Cap: $7.2 B NZD
P/S ratio: 13
2018 Operating Cashflow: $41.2 M NZD ($+46 M on 2017)
Gross Margin: 81% (up from 76% in 2016).
Customer Churn: stands at 1.1% monthly recurring revenue.
S & M expenses: 53% of op ex. (56% in 2017)
R & D expenses: 33% of op ex. (31% in 2017)
Market and Competition:
Australia & NZ: Has clear market leadership. +30% pa revenue growth. 884k subscribers at March 2018.
UK: Has market leadership, ahead of intuit and sage. 60% pa revenue growth. 334k subscribers at March 2018.
Uk will be Xero’s growth engine for the next few years, with UK laws forcing small business to cloud accounting platforms in the near term.
North America: Intuit the dominant competition. 28% revenue growth – 132 k subscribers (43% subscriber growth).
Intuit is formidable competition. They have responded well to the threat Xero poses (although Intuit are encumbered with a desktop platform they need to support, and were slow to switch to the cloud). US Small business has been very slow to switch their accounting to the cloud, and also have different relationships to accounting practices in comparison to Commonwealth nations such as the UK, which means Xero has had to adjust their strategy in the US.
Rest of the Works (ROW). Its early days, but Xero appear to have the lead in Asia. 47% pa revenue growth – 58k subscribers.
The Strategy Going Forward:
Xero will continue to grow and expand due to the huge tailwind behind cloud accountingand their market leading product. They have also introduced other services / software, with the goal of becoming a small business platform = adopting the “land & expand” strategy.
It doesn’t have Saul company like revenue growth rates, but I believe 25%+ growth rates can be sustained for years to come.