Ann: Investor Presentation H1 FY21, page-22

I tihnk anyone paying attention will know that "growth above profits" is Xero's position. They couldn't have been clearer about it yesterday. Article in today's AFR talks about it as well.

What it does show is the profit potential once growth is no longer the focus. This will be many years down the track, but their target of putting around 40% of revenue into CAC shows how much additional profit is available if they wind that back. I think institutional buyers and educated private investors understand that, which is why the price is so high relative to currrent "reported" profits.

If you compare CAC for Xero to a retail chain having capital costs to open new stores, it would show two completely different accounting outcomes. The retail chain would capitalise their costs of each new store fitout, and then depreciate them slowly over time. If the chain was reinvesting 40% of revenue into new stores every year, revenue would be increasing, but only a portion of their fit out costs would effect profit as depreciation, as the rest would be capitalised. For Xero, the 40% is fully expensed so reduces profit in full measure. Cash flow wise both businesses would be the same, but the retail chain would show better short term profits. If the market doesn't understand the difference, they would asign a higher value to the retail chain.

At the margins Xero produces its revenue, and the stickiness of the product, I am more than happy for them to continue to acquire as many customers as they can through reinvestment of what would otherwise be profits.