Wellington Scoop

Xero, with 540,000 worldwide clients, expects $200m revenue next year

BusinessDesk report by Pattrick Smellie
Wellington accounting software pioneer Xero expects to double global revenue to more than $200 million in the year to March 2016, based on current exchange rates, having taken eight years since listing on the NZX in June 2007 to reach its first $100 million.

However, it is no rush to fulfil its intention to list on the US stock exchange before the release of the results for the next year, chief executive Rod Drury told the annual meeting in Wellington. The company remained well-funded, with $269 million on hand from earlier capital-raisings, a key factor in Xero’s capacity pursue rapid growth at the expense of less cashed-up competitors in the key Australian, US, and UK markets, he said..

Total billings in the last financial year were $121 million, up from $67 million in the year to March 2014.

Effervescent as ever, Drury had to ask the classically reserved audience of around 200 New Zealand shareholders to applaud for the company’s achievements after a year in which the challenges of executing its growth strategy in the US market saw Xero stumble a couple of times, including two misfires on senior executive appointments.

Over the last year, the company’s share price has fallen 26 percent, although it closed today up 2.3 percent at $17.95. The company is not projecting early profitability, seeking global scale in the belief that profits will be greater in the long run.

The new US chief executive Ross Fujioka, a US tech industry veteran of 30 years with a big background at Dell and Adobe, told a story of rapidly spiralling customer uptake, growing at 94 percent year on year growth rates, with 35,000 customers now in the US, half of whom have arrived in the last eight months, with nearly half signing up online.

Re-elected US-based company director Craig Elliott told the meeting that in his three years on the board, he had gone from having to explain what Xero is to having people ask him about Xero.

“Enthusiasm about the business in the US is growing by the day,” he said.

New Zealand managing director Victoria Crone announced the company had just passed the 150,000 subscriber mark in New Zealand, with a 35 percent customer growth rate.

Over the course of 2015, the company calculated it had added some $450 million of future value to the business to close to $800 million, based on customer growth during the year and an extension in the calculated average life of a customer from 63 months to 83 months, and an average lifetime value per customer of $1,622. That was based on a total of 504,000 customers worldwide, 50,000 of them gained in less than 10 weeks, compared with the four years taken to gain the first 50,000.

In Australia, customers stand at 203,000 and are growing at an annual rate of 86 percent.

Drury said only 7 percent of all software as a service businesses ever achieved more than 10,000 users and Xero’s scale and willingness to partner with providers of new solutions was creating a breeding ground for smaller software companies in New Zealand and internationally.

The business was now generating substantial “network effects”, the new source of growth for online businesses after the social networks growth that drove the last 10 years, said Xero’s chief marketing officer, Andy Lark. He pointed to organic growth already occurring in untargeted markets including South Africa, Indonesia and Brazil.

Drury told BusinessDesk that the drop in the New Zealand dollar was not a major factor in the $200 million turnover forecast because the company earned revenue in a variety of currencies, with $74.2 million of the company’s annualised committed monthly revenue of $159.3 million generated in Australia and $39.5 million in New Zealand. That compares with North American monthly revenues of $12.5 million. The UK market, where the company is also making a concerted push, accounts for $25.9 million a month on current customer numbers.

“I wish we’d kept all the money we raised in US dollars, but that wasn’t our treasury policy,” he said, reflecting on a 25 percent fall in the New Zealand dollar exchange rate against the US dollar in the last year, during which the company raised a total of $147.2 million from two US private equity investment funds.

Press Release – Xero
Xero (@Xero) today held its Annual Shareholder Meeting in Wellington, where the company detailed achievements from the past year and the outlook for the year ahead. Xero also announced it had passed a significant milestone in New Zealand, reaching 150,000 subscribers and over 540,000 worldwide.

In the financial year ending 31 March, Xero passed through $100 million revenue milestone, and today provided guidance that it expects subscription revenue for the full year to exceed NZ$200 million for the financial year ending 31 March 2016, based on June 2015 FX rates.

Global recognition
In a year of accolades, Forbes recently named Xero #1 Most Innovative Growth Company for the second year running. Locally in New Zealand, Xero picked up HiTech Company of the Year and in June, IDC named Xero the fastest growing company in the payroll accounting space demonstrating 74.7 percent yearoveryear revenue growth in 2014 . Xero was also recently named the fastest [IDC, Worldwide Payroll Accounting Market Shares, 2014: Xero and Workday Lead Payroll Growth into the Cloud, Doc #256819, June 2015.] growing financial applications vendor with 80.3 percent yearoveryear revenue growth in 2014, by IDC [IDC, Worldwide Financial Applications Market Shares, 2014: Year of SMB and Public Cloud, Doc #257867, July 2015.].

Xero is becoming an indispensable platform for small business, with thirdparty integrations and an ecosystem featuring more than 400 partners. Existing relationships and distribution partners include Apple, Avalara, Bill.com, Google, Microsoft, Mindbody, Shopify and Square. Xero is continuing to invest in application programming interface (API) improvements to fuel growth of its developer ecosystem and support tighter integrations with strategic partners.

Xero’s growth agenda

Xero strategy remains firmly focused on growth, attracting worldclass investment to fuel this. Earlier this year, Xero attracted a NZ$132.9 million investment from Accel Partners and an additional NZ$14.3 million from Matrix Capital Management.

Since its inception, Xero has set an unprecedented pace of innovation in an industry that was previously accustomed to annual product update cycles. The company delivers regular product updates and new features, with no intention of letting up its relentless pursuit of giving its customers the best possible experience.

Xero’s awardwinning,innovative service support model provides expert customer support around the clock.

With Xero offices all over the world, the customer care team delivers quick solutions to Xero users, no matter where they are. Xero’s innovative support model is benefiting customers every day and saving them time waiting on the phone.

Key points from Xero’s Annual Meeting 2015

Delivering on what it said it would do at last year’s Annual Meeting across product, people, partnerships and gotomarket.

Detailed the momentum driving Xero from an accounting platform to a business platform, and leveraging the market network effect that presents opportunity as a financial platform.

Demonstrated that it is one of only a few SaaS companies worldwide to scale its user base to more than 10,000 subscribers (few have done this).

Early FY16 outlook including expecting subscription revenue for the full year to exceed NZ$200 million for the financial year ending 31 March 2016, based on June 2015 FX rates.

Comments on the News:
Our team has proven its execution ability and we are building a small business platform that will help millions of businesses thrive,” said Xero CEO, Rod Drury.

“Our journey has just begun,” said Andy Lark, Xero’s Chief Marketing Officer. “We have an immense global opportunity to become the platform small businesses thrive on.”

Xero NZ Managing Director, Victoria Crone, said: “I love that Xero is making it easier and faster for around a quarter of small businesses in New Zealand to run their business. I’m excited that we’re cutting an even greater slice of the small business market in Xero’s home country. Congratulations and thank you to each of our 150,000 Kiwi subscribers.”

[link to the CEO and Chairman’s presentations from the meeting]

About Xero

Xero is a beautiful, easytouse online accounting software for small businesses and their advisors. The company has 540,000 subscribers in more than 180 countries. Xero seamlessly integrates with over 400 thirdparty tools, and was ranked No. 1 by Forbes as the World’s Most Innovative Growth Company in 2014 and 2015.

Content Sourced from scoop.co.nz
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