Wednesday, November 14, 2012

Do you still Love Xero?

From the moment this company listed in 2007 it promised big things. Xero Ltd [XRO.NZ]has thus far failed to turn a profit. It is growing pretty fast but from a smallish base.

Its recent listing in Australia last week has seen its shares hit the stratosphere. Nearly $6.50!

The shares started the year at $2.25 and since then (see chart above) they have continued to rise like a rocket ship. It seems $10.00 would not be out of question given now that the Aussies are having a go at it.

It is clear that there are two different things at play here.

One the success of the company and its growth - which appears to be growing fast - and the price and fluctuation of shares.

One way or the other you are going to have some burnt fingers, when the truth comes out about how profitable they are going to be.

Watch for the share price take a slow trip the other way when this happens, and believe me it will .

Rods interview with me in 2010 , made it clear where the company was heading and more interesting one with a user gave an interesting take on the Xero phenomenon .

You have been warned.

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c Share Investor 2012


  1. "and believe me it will". well Darren, anyone would have to be silly to believe you as you have avoided the stock the whole time since it was $0.75 , and claimed not to understand the company or believe in it. So NO, there no one who is going to believe you this time, and they should not have last time.

    XRO will be bought out for a price much higher than it is today, and you will end up with egg on your face AGAIN. You have been warned !!!

  2. I dont have the slightest interest in an argument with you. It is not worth it. Good on you for getting in early. I just dont believe it is worth $600 million and im saying so.

  3. Darren makes a fair point. On what valuation model does the price of $6.25 a share stack up?

    Obviously not any of the Buffett/Graham models, which rely on earnings and earnings growth, which Xero doesn't have.

    You might use Price/Sales. But still, Xero looks expensive. Behold ye compared to Diligent, a contemporary SaaS company in NZ.

    XRO P/S = 12.67 and DIL P/S = 10.41

    XRO EV/EBITDA = -75.5 and DIL EV/EBITDA = 47

    Note that Diligent has actual earnings. Makes XRO look very pricy. Must be a lot of mums and dads out there caught up in the euphoria.

  4. I might say neither is it worth $200 million. It was supposed to break even in 2011 and be profitable by now. It simply has broken its own first rule, not becoming profitable.

    SI - When do you expect Xero to turn a profit, based on figures in your 31 March 2010 update to the market?

    Rod Duke - At our AGM last year we predicted monthly break even in Calender 2011. That is still our plan.

  5. Rod Duke?

    Thank fuck that Rod Drury isn't running Briscoes.

  6. Well of course you are not going to argument with me about it, as you would lose. I can understand that. My point, which you proved again, was that you have no business having an opinion on a stock which you called wrong when it was 500-700% lower, and certainly no valid business in warning anyone about the valuations. Your warnings mean nothing. NOTHING.

    Yes, the stock will probably tank in the short term like Apple [AAPL], but your valuation metrics have been wrong, and you therefore should not be warning anyone about it.

    The fact is that, it would be extremely easy for one of the big companies to buy the company for the technology and thier direct customers. They have hundreds of other companies using tiher API's to provide additional services to ther platform. The larger company could then apply thier marketing and existing customer base to rapidly take over the online accounting segment of the industry. Microsoft could easily get back in to the retail accounting market with a purchase like that, and host it on its own insfrastructure.

    In taking your valuation metrics, versus a guesstimate that it will be bought out for $1 billion , I will take the buyout option. As your valuation metrics on thier mean NOTHING.

  7. The man himself said no... Ive got to go with him, SI - Was the intention of yourself and the Xero board to build the company up as a brand with the express purpose of selling, along the lines of say 42 Below?

    RD - No. Having sold businesses before, this time we want to grow a long term business. The market is really just starting and with accelerators like iPads, Google's up coming Chrome operating system we think that things are only just getting exciting.

    It is WAY overpriced.

  8. OK, XRO shares have a 100% chance of a severe pullback now. Anyone who bought at $7.70 is going to regret it for the next 6 months. But longer term, things are just getting started.

  9. UMM I don't thinks so, seems they all have their head in the cloud - see computer.

  10. What do you think now that it is close to $11.


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