@stardestr0yer (and anybody else that may be interested), Rod Drury did do an interview which was released on Monday, I don't think it explains the recent rise but I found the interview interesting.
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In the interview this bit caught my attention:
Alan Kohler: Your cloud supplier, Amazon, has never had too much trouble with getting share price up despite not a lot of profit. It’s all about revenue growth, I guess. What’s your gross margin?
Rod Drury: The gross margin improved. I don’t remember the numbers exactly but one of the things we’ve been doing is tweaking every part of the business. What’s interesting around the incumbents that we compete against, there’s a bit of a land grab for customers. What we’ve said is if we’re going to drive towards breakeven, we’re not just going to go out and sort of grab low value customers. We’re going to look for high margin business. We improved our margins. Our gross margin improved and will continue to improve as we get the benefits of being fully on AWS. We were running dual infrastructure for the last year so we expect that to keep going.
And, now we’ve done the boring bits of accounting software, our strategy is to add new revenue to those existing customers. We’ve got to that $360 million of annualized revenue just by selling one thing to a million subscribers. What we want to do is add lots of other services now and as we’ve built that massive moat, that single global accounting platform in a cloud. We can now move from the back office applications to front office applications so selling things to each employee of the small businesses. Those are very high margin services because we’ve already acquired the customers. It’s relatively low marginal computing power to provide those services.
Alan Kohler: What is the potential in terms of subscribers? Leaving aside the other products you’re going to sell – what are the actual numbers of subscribers you think, you can achieve in the US and Europe and the UK?
Rod Drury: It’s really fascinating, there’s hundreds of millions of small businesses. And only five million businesses around the world at its peak ever used desktop accounting software because it was really just too hard to use for many businesses. Probably Microsoft Excel is the biggest bit of accounting software that’s still out there.
What we found with well-designed first generation cloud products is it’s easy to use. There’s nice designed experience, you can have mobile applications and if you look at the big players: us, Intuit, Sage, MYOB, there’s now about just over three million customers on cloud software and we’re seeing probably half of our customers are new, half of them are coming from the incumbent products.
Over 25 years, the market only ever got to sort of five to ten million desktop units and over ten years, we’ve got to three million in the cloud. It feels like the market’s really going to take off. The question is, how do you make accounting so much easier that those that have stayed away from it in the past, it’s compelling for them to come in? And, there’s some really nice tailwinds. In the UK for instance, there’s a program called Making Tax Digital that the government is implementing, meaning all businesses have to electronically file their returns so this stimulates the market.
What we did, by moving onto the AWS environment, we processed $1.4 trillion of transactions last year.
Now we have that information sitting on those Amazon servers, virtually sitting in the cloud, and we can start plugging in a whole lot of big data, machine learning and AI style tools. The benefit of that is what we’ve seen, is with having so much data, we can actually do the accounting part of accounting, the coding of transactions far better than most small business owners can.
What we’re working on at the moment, now we’re on these new platforms, is what we call code free accounting. Which essentially means all a small business owner needs to do is get their documents, their invoices, their receipts, their bills into the system and if we can electronically see that data or scan for that financial information. We can code those transactions for them and the accountant can just check what’s going on and clean them up if they need to.
What we think is happening is we’re kind of at the end of the beginning. When the first generation cloud accounting applications are now in place and there’s about three million people on that. But a million of those customers are on the second generation cloud which is a single global platform on Amazon web services and we’re now deploying machine learning and AI as part of that product which is making it so much easier for small businesses.
We think the targets, you know, 10, 20, 30 million small businesses over the next 10 years.
XRO Price at posting:
$23.92 Sentiment: Buy Disclosure: Held
(20min delay)