Xero blows out FY 2014 with 83% growth
- Summary:
- Xero seems to be firing on all cylinders but losses widen and cash is being burned at a fast clip. That's not bothering the markets.
Xero has announced its unaudited results for the year ended 31st March 2014. The numbers are staggering and certainly justify the confidence the market has had in its leadership. From the press release (all amounts stated in NZ$, equivalent to 0.515605 GBP, 0.855294 USD:
It is good to see that as the numbers grow, Xero is not sacrificing revenue growth via deals in the channel. Based in these numbers, the current subscription revenue per paying customer is around NZ$281 pa. That compares with an annualized value based upon the most popular version in the price list of $840 pa per user. The next tier down would yield $360 pa per user
Without further detail, it is difficult to be certain how the numbers pan out but one has to assume that there is a modest level of discounting via the 5,000 strong professional partner channel.
Xero claims pole position as the leader in its three early markets:
The UK figure is particularly interesting, equating to £7.2 million. Xero counts 47,000 UK paying customers which equates to a run rate of $298 (£153) pa per user, slightly ahead of the overall average.Xero is now the leading accounting software provider in New Zealand and the leading online accounting software in Australia and the United Kingdom, with annualised subscriptions of $29m, $41m and $14m respectively.
Sage reported 22,000 paying customers for SageOne at 30th September 2013 and does not split out that revenue line item.
More revealing is that based upon these numbers, Xero is only earning some $9 million in current annualized subscription revenue from the US market at current run rate where it is investing the most in terms of people, R&D and offices.
While those top line numbers look exceptionally good, Xero lost about $35 million in the year compared to $14.4 million loss in the previous year. More important, it appears the company burned about $58 million cash in the year.
Last time I met Rod Drury, CEO Xero, he was not concerned about the burn rate saying that the green field nature of the market in the US, combined with having a substantial cash war chest - currently standing at $210 million, means he has plenty of runway with which to build out the US market, while consolidating the company's leading position in New Zealand and growing both Australia and the UK. I remain a tad skeptical because the Us market has proven notoriously difficult to crack.
Having said that, the strategic alliance announced between Xero and KPMG should help the company further ramp its position in the UK while acting as a beacon for other partnerships within the KPMG fold to consider adding their weight behind the solution.
Whatever those who worry about cash and losses might think, the market seems to like what's happening. The shares were up more than two percent on the news in early trading.