XRO - Xero

[BlackPeter]

Xero is one of these post hype companies which used to be one of these analyst and fundmanager darlings ... they loved the team spirit and the long runway and happily paid twice of todays share price to fill their clients portfolios. Hey, not their own money anyway, isn't it - so all good. Yes, SP peaked above A$155 in November 2021. Today the shares are on sale below $79. What a bargain ... isn't it?

Anyway - XRO does have a very healthy revenue CAGR (close to 50 every year over the last 10 years) ... and at least they managed in the last years to confine their losses.

Better not look at the forecasted PE, though (hint : still in the hundreds), but hey - they might not need another cash injection, this is good.

But maybe I am a bit cynical here ... their revenue CAGR (as above) and the growth of their customer base is really good - and their customer churn is very low (single percentages). So - maybe this is one of the hidden gems which might start through at the end of the bear market like Phoenix out of the ashes?

Question is - did the SP already bottom out and likely to return from here to its previous lofty heights, or is 50% of the recent heights not yet enough punishment?

It is still not really possible to value the company based on its earnings (the result would be too depressing), the only DCF I have seen puts them around the $40 mark ... and the professional analyst estimates are as usual just random fantasies. Yahoo puts the analyst forecasts between $67 and $145. Hey, this is good to know.

I am still sitting on my hands related to XRO. What do other people think? 

[winner (n)]

Go on Peter .... I know you are keen on them .... maybe not desperately keen ... but keen .... just BUY some ..... today

i won't be joining you .... that's a good sign

[kasper]

Xero is one of these post hype companies which used to be one of these analyst and fundmanager darlings ... they loved the team spirit and the long runway and happily paid twice of todays share price to fill their clients portfolios. Hey, not their own money anyway, isn't it - so all good. Yes, SP peaked above A$155 in November 2021. Today the shares are on sale below $79. What a bargain ... isn't it?

Anyway - XRO does have a very healthy revenue CAGR (close to 50 every year over the last 10 years) ... and at least they managed in the last years to confine their losses.

Better not look at the forecasted PE, though (hint : still in the hundreds), but hey - they might not need another cash injection, this is good.

But maybe I am a bit cynical here ... their revenue CAGR (as above) and the growth of their customer base is really good - and their customer churn is very low (single percentages). So - maybe this is one of the hidden gems which might start through at the end of the bear market like Phoenix out of the ashes?

Question is - did the SP already bottom out and likely to return from here to its previous lofty heights, or is 50% of the recent heights not yet enough punishment?

It is still not really possible to value the company based on its earnings (the result would be too depressing), the only DCF I have seen puts them around the $40 mark ... and the professional analyst estimates are as usual just random fantasies. Yahoo puts the analyst forecasts between $67 and $145. Hey, this is good to know.

I am still sitting on my hands related to XRO. What do other people think? 

I think lots of people missed the original sailing on this one and now have the chance to reboard the 2nd sailing. Lol

[BlackPeter]

Xero is one of these post hype companies which used to be one of these analyst and fundmanager darlings ... they loved the team spirit and the long runway and happily paid twice of todays share price to fill their clients portfolios. Hey, not their own money anyway, isn't it - so all good. Yes, SP peaked above A$155 in November 2021. Today the shares are on sale below $79. What a bargain ... isn't it?

Anyway - XRO does have a very healthy revenue CAGR (close to 50 every year over the last 10 years) ... and at least they managed in the last years to confine their losses.

Better not look at the forecasted PE, though (hint : still in the hundreds), but hey - they might not need another cash injection, this is good.

But maybe I am a bit cynical here ... their revenue CAGR (as above) and the growth of their customer base is really good - and their customer churn is very low (single percentages). So - maybe this is one of the hidden gems which might start through at the end of the bear market like Phoenix out of the ashes?

Question is - did the SP already bottom out and likely to return from here to its previous lofty heights, or is 50% of the recent heights not yet enough punishment?

It is still not really possible to value the company based on its earnings (the result would be too depressing), the only DCF I have seen puts them around the $40 mark ... and the professional analyst estimates are as usual just random fantasies. Yahoo puts the analyst forecasts between $67 and $145. Hey, this is good to know.

I am still sitting on my hands related to XRO. What do other people think? 

I think lots of people missed the original sailing on this one and now have the chance to reboard the 2nd sailing. Lol

No doubt - many people missed the first sailing, and many people missed as well to leave the boat when it reached its northern most harbour.

I guess the real question is - will the journey from here go Northwards or further South?

Always difficult to say with these growth shares. Todays $78 could be next months $39, couldn't it? And looking at the (known) fundamentals it still would not be a cheap share (though probably more fairly valued than today).

Looking at the wasteland the XRO threads resemble both here and in the other forum ... all the cheerleaders still firmly asleep ... I think the hype wave hasn't yet started to return - but who knows, maybe we just started the first trickle?

[kasper]

Regardless of anyone's personal opinion of this company its been an absolutely fantastic NZ success story and huge kudos to those that bought very early on and held until it hit near its peak.

[Basil]

When do you think they will make a real profit and pay a dividend ?
Maybe you are better off in mega cap tech in the US markets some of which have real earnings and attractive multiples e.g. Alphabet (Google) on 17 times FY23 earnings https://www.marketscreener.com/quote/stock/ALPHABET-INC-24203373/financials/ or Oracle with fast growing earnings on sensible metrics
https://www.marketscreener.com/quote/stock/ORACLE-CORPORATION-13620698/financials/
No earnings SAAS and tech companies are not for me.  Plenty of them are down 60-80% or worse on the Nasdaq this year.

[Ferg]

or Oracle with fast growing earnings on sensible metrics
https://www.marketscreener.com/quote/stock/ORACLE-CORPORATION-13620698/financials/
No earnings SAAS and tech companies are not for me.  Plenty of them are down 60-80% or worse on the Nasdaq this year.

Oracle has a very good product, NetSuite, which is going great guns and deservedly so.  For any business that finds the likes of Xero to be too small or lightweight, then NetSuite is a very good alternative where a company is not large enough for a full blown ERP system.  In my experience there are a number of NZ businesses using it in the $10-$100m turnover range.  I can't rate NetSuite highly enough - it's like a proper ERP system with fully integrated financials and all sorts of APIs & add-ons etc. but without the 12 month hugely expensive implementation.  Oracle deserve to do well with such a good product.   

[Hectorplains]

Regardless of anyone's personal opinion of this company its been an absolutely fantastic NZ success story and huge kudos to those that bought very early on and held until it hit near its peak.

Don't be blinded by parochialism, based on their NZ origins.  Plenty of better growth stock stories on the ASX. 

[kasper]

Don't be blinded by parochialism, based on their NZ origins.  Plenty of better growth stock stories on the ASX. 

I'm not blinded as i don't own the stock and haven't since 2014, just giving credit where it is due, as an aside had i put the same amount of money into XRO instead of A2 I would be in a hugely better place than I am now and remember A2 was one of the hottest growth stocks on the ASX a few years ago.

[BlackPeter]

I'm not blinded as i don't own the stock and haven't since 2014, just giving credit where it is due, as an aside had i put the same amount of money into XRO instead of A2 I would be in a hugely better place than I am now and remember A2 was one of the hottest growth stocks on the ASX a few years ago.

... I see.

XRO is the orange line, ATM is blue:
You cannot view this attachment.

Actually - interesting comparison you are making here. High correlation between these two growth wonders up to mid 2021 ... and yes, after that they both managed to get uncorrelated both from each other as well as from the exponential growth curve they both were sitting on, but one of them managed to do this more thoroughly than the other :p ;

Tells us maybe something about exponential growth curves in the real world ... 

[winner (n)]

Been a bit of commentary about XRO and other high flying 'tech' companies lately. The recent 'tech wreck' has prompted many to question the future of some of them.

Seems that many are coming to the view that many of these companies will never make any decent sustainable profits. Increasing interest rates and tougher times for their customers have highlighted that maybe (probably) they don't really have a viable business model.

Xero for instance have a Gross Margin of over 80% of sales but expenses aren't running much less than this even as revenues grow - it seems they need to add a buck of expenses for every buck of extra sales.

One conclusion is that businesses like XRO just don't charge enough for what they sell. Therein lies a problem charge heaps more and they lose customers.

So is XRO on a slow path to oblivion or needing to evolve into a smaller profitable company - charge more and cut costs and produce some semblence of profitability

Wonder what XRO would be valued on such basis? Nowhere near $70 a share where it is now

The world may be changing and XRO could be be that suffers

[Basil]

I have never understood the share price of Xero.  Nobody I have asked has been able to explain it to me.  Analysts make far reaching assumptions (guesswork at best) far into the distant future and hope one day that the rate of revenue growth will significantly outstrip costs.  Good luck to them.

[winner (n)]

Me too basil

I only had another look at XRO after reading that commentary about how some businesses are possibly beginning to realise they don't actually have a business model that is profitable ....unless they charge heaps more for what they offer and then that changes the model radically.

Looking at XRO F22 results I was a bit aghast as this slide in their preso - Really high margins but look at that Operating Expense trand as % of revenues..... and then they also capitalised $200m odd of development costs.

Still a A$10 billion (down from A$20 billion) company

So like you I just don't get it ....but'll check in every now and again to see how things develop and to see if those dudes were right about having  a business model that doesn't work.

You cannot view this attachment.

[Basil]

Agreed Winner I have never understood the hype.  To be honest I was really perplexed when Rod Drury won some prestigious business award here many years ago when the market cap hit $4 Billion.  Had never made a profit at that stage and was losing heaps.  Why people win business awards for best in class when the business model was still completely unproven is beyond my comprehension.  I thought that award was to recognize successful companies...you know, ones that make a real profit.🤷�♀️  I think some people simply get blinded by all the hype and the marketing dribble of it being "beautiful" a favorite adjective they use in their advertising.  Being in the accounting profession all it is to me is just another accounting system...nothing sexy, racy or beautiful about that.

I suspect the hype will continue to gradually die down as this is not a market that places a high value on vague promises of profit far into the distant future.   

[Ferg]

Nice work guys and thanks for sharing.  Given how much they spend on PD&P in addition to amounts that are capitalised, you would think they could put together a decent sales report for their users. Other parts of Xero are pretty good but the sales reporting is woeful. If I try to find top 10 clients for last year and/or how much I billed a client.....can't do it in Xero. I am actually astonished. Unless I have missed something obvious.