Xero to Hero

Hello all,

I’ve attached some information on Xero, one of our highest conviction positions.

The stock looks expensive, trading at NZ$3.6 billion, but revenues are growing at 50% on a constant currency basis and the world is only just beginning to shift accounting from hard drives to the cloud.

Xero plans to completely automate account preparation from bank feeds, which is how it should be. Artificial intelligence etc etc.

Their closest competitor is Intuit/Quickbooks in the US with a market cap of >US$36 billion. Recently Intuit’s market cap increased by the entire size of Xeroin a single day. Intuit has 2 million paying cloud customers (and 3m non-cloud), whereas Xero has over 1 million paying subscribers.

Xero is leading in Australia, New Zealand and the UK, but has barely scratched the surface in the US, perhaps partly due to ANZ culture.

I imagine if Xero was founded in Silicon Valley, USA, instead of Wellington, New Zealand, they would have raised hundreds of millions of dollars and spent it all paying customers to join.

If Xero lists on the Nasdaq and gains any kind of foothold in the US, the stock should do quite well. A quick back-of-envelope calculation suggests every 10% market share they get in the US could increase value by up to 3x current market cap.

More info here.

Best regards


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