Thursday, November 11, 2010

Xero Ltd: 2011 HY Loss looking promising

Xero Ltd [XRO.NZX] managed to surprise the market in general today in its 2011 HY profit release, with good numbers, in terms of revenue and customer numbers. The company had 27,000 paying business customers with revenue of $3.7m and a loss of $4.7m - an increase of 24% on the comparable 2009 period.

Xero management say that they expect this loss to be a peak and that they are on track to achieve a net profit for the same period in 2012.

They indicate that business costs have started to decrease as customer numbers increase - indicating economies of scale - and that their cost structure is competitive with their competition and their product offering outstrips that of the incumbents in the sector that Xero operates in.

In short Rod Drury and his board appear very bullish about company prospects now and for the rest of 2011 and of course that profit indication for the first half of 2012 must have current investors rubbing their hands with glee.

The share price has put on over 30% since October 21, pre today's announcement and today is up by 5.5% to trade at $1.92 slightly before close of play on the NZX.

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  1. Darren,

    3.7M from 27000 customers sounds like a very small number per customer. or perhaps a lot of " customers" are not really customers but are trying the product for free to see if they like it.

    Could you find out if the 27000 includes free trial customers who are not paying anything?

  2. Ramjett - per the release, it's 27000 PAYING customers...

  3. I assume that current figures disclose, while clearly indicating increasing customers and revenue must be put in the context of a rapidly growing business from a smallish base.

    Once we see the increased economies of scale as the business grows and additional services added to Xero's core offering, then I am guessing that revenue/profit per customer has the potential to grow.

    I could be completely wide of the mark of course but think the above would be the rationale.


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