Thursday, April 1, 2010

Xero Set for surprise to the Market?

A little birdy told me at 11.21am yesterday:

"If you were going to invest in Xero, today is the day. Xero are going to announce their customer numbers soon and it is going to be quite a shock to the market."

Apparently, according to another close Xero watcher, Xero Ltd [XRO.NZ] is going to release their customer numbers to the NZX tomorrow morning at 9.00am and his own analysis (and a bit of educated guesswork I'm thinking) tells him the figure will be around 20000 customers signed up, give or take a few thousand.

Now of course if the anonymous tipster is aware of inside information he/she shouldn't be telling me or anyone else because this sort of stuff is share price sensitive. I am only telling you now as the market is going to know anyway before it opens trading at 10.00am.

The stock was up by 6c or 3.77% yesterday to NZ$1.65 on 7000 shares and 5 trades. Hardly the stuff of billionaire making but nonetheless the principle should be constant - the market as a whole should know such information at the same time.

Xero shares have traded in a steady fashion for the last 4 days (see 5 day chart below) and the spike yesterday was the biggest one since a 4c drop last Thursday. Please keep in mind that this stock can swing wildly for no particular reason because of its thin trading volumes. Its big rise yesterday before the apparent big news out this morning could be a coincidence or...make up your own mind.

Xero was a Stock of the Week back in July, and I picked it again for the 2010 Share Investor Stock Picks back in December as one of the riskier outside picks on the grounds of overwhelming support from users of Xero's products and the inside buzz surrounding those invested in the company.

I continue to remain interested in the market hype surrounding Xero but don't understand the business so will not be investing.

It is either going to be one of New Zealand's overwhelming success stories or vanish into the ether as quickly as it arrived.

I wish current and prospective investors in Xero all the best of luck for that announcement latter this morning and hope the "insider" was on the money.

Related Share Investor Reading

Love Xero?

Share Investor's 2010 Stock Picks
Stock of the Week: Xero Ltd

Discuss Xero @ Share Investor Forum

Related Links

Xero - Corporate Website

c Share Investor 2010


  1. Missed the tip. A good chance passed me by:)

  2. Anonymous I dont think that you have missed out all... 17,000 users and $3,000,000 in revenues, so how much is that per user? Say $15 per month. Roughly a million bucks a month in costs, so to get to break even they need 65,000 users. Last six months user numbers went from 12,000 to 17,000 a gain of 5,000 or lets say 1,000 per month. From 17,000 to 65,000 is 48,000 subscribers away or roughly 48 months away. Cash in bank will probably be around $20 million which is two and bit years of cash left. The last capital raising was at the 90 cent mark, current price $1.65. If you are a believer, then you may get a chance to buy in at price less than the $1.65 that is currently being paid. Plus there was no spike on the release of the actual numbers at 17k and not the 20k tipped. Personally I cant see any reason why the price will go any higher than what it is now, which values the business north of $140 million. But then my profile says that I am conservative!

  3. Yeah I agree, looks like a disappointment and also looks like the tipster didn't know what he was talking about.

    The share price did actually spike by 2c on the news but is now even on bigger than usual volume.

    The figures appear to be poor, especially when you factor in that the tripling of revenue correlates to the number of customers gained and little, if any, extra business gained per customer.

    You reckon Anon 2 that 60000 is break even, while another commenter thinks 30000 is the approx figure.

    Either way that cash is going to be used and given the current figures the stock appears way overvalued.

  4. I agree Darren that the stock is over valued at a current market cap of around $145 million. To justify that number you have to assume some massive uptake at reasonable ARPU.

    My calculation was very simple - 17,000 customers = $3 million in revenue. Costs based on last published accounts plus additional costs of staff etc indicates annual costs of around $12 million. Based on that 30k users are not going to give break even. The alarming trend has been that the average revenue per site has progressively gone south from the $75 per site per month at IPO to the sub $20 mark it is now. The personal version at $5 per month wont help matters. On the other hand costs have only gone north.

    I remember a story from my childhood about an Emperor and his new clothes.

    Anon 2


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