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Thursday 08 November 2018

H1 results reflect Xero's expansion activities

logoInterim results from New Zealand-based SaaS accountancy software challenger Xero reflect a company in growth mode: revenue growth of 37% to $257m with deeper losses of $28.5m vs. $19.6m (to 30 September 2018), but as always the numbers are just the tip of the iceberg.

Xero is changing and increasing its scope. One of the most obvious signs was Steve Vamos moving into the CEO seat in March, as founder and CEO Rod Drury took up a non-exec role (see Xero is growing up nicely). But there is change on several fronts as the company raises itself from a point application to a platform provider with a growing international presence.

$300m available via convertible notes as of September provided resources for acquisitions and expansion. Prior to that it had already made an acquisition, bringing in Canadian data capture provider Hubdoc, as part of its aim of helping small businesses make sense of their financial data rather than expending resources collecting – this contributed to its widening losses. (Sage has similar goals via its ‘invisible accounting’ intention.)

As part of the platform direction, Xero introduced initial services, including payroll, expenses and data capture. Platform revenue is negligible at the moment but is a prime growth area. The company is feeling its way – it wrote down its US payroll software and opted to work with payroll provider Gusto, which added to its losses but no doubt provided a lesson to learn from.

International expansion is also a major part of its plans and Xero is seeing substantial growth in all regions. In the UK, where it goes head to head with Sage, revenue grew 56% to $53m in H1, with 40% growth in the number of subscribers to 355,000 (of c.1.6m worldwide). Next week sees the Xerocon conference come to London so we’ll have more insight into plans and ambitions.

One external factor of note is that in the ANZ region, Xero competes with MYOB. MYOB has concentrated on the ANZ region but now that private equity house KKR has launched a $1.2bn bid for MYOB that could change and Xero, Sage and Intuit could all be facing another challenger on the international stage. 

Posted by Angela Eager at '09:18' - Tagged: results   saas   cloud   software  

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