Intuit Q4

Not much new to add, although some trends are starting to become apparent.

Interestingly- Intuit announced they were starting to sell data centres in the last 3 months and in the press releases it was clear that they had migrated only part of their software to AWS (probably another 6 months to complete). Xero is a full 2 years ahead on this. This is a massive competitive advantage and you have to commend Rod's vision on this one. He also stated that Xerocon South 18 was going to be big on the product front, so I am hoping to see that play out in the next quarter.

Total QBO: 3.4m

QBSE: 720k

QBO ex QBSE: 2.7m

Xero/QBOexQBSE: 52%

QB total: 4m

QB desktop decline rate: -7% and accelerating

Underlying QBO growth rates ex-QBSE and accounting for declining sales 28%

ARPU: 19USD (28 NZD). International QBO users are very cheap (I think the ratio is 3.5:1 in terms of ARPU)

Takeaways:

- market maturing but 30% underlying user growth very much on

- Xero is killing Intuit in overseas markets, particularly on a revenue basis

- Intuit has a massive headstart in the US, but a lot of their growth has been in QBSE and from churn from desktop products. They possibly don't have quite as strong a foothold as I initially thought.  This is a big IF, but Xero could potentially catch up significantly to Intuit in the US.

A few points on Xero:

I am very interested in the next results in November- cashflow positive should be imminent (probably next half), and the monetisation trend started very strongly last half (4% divergence between sub-growth and revenue).  This trend should accelerate as add-ons were growing at 90+% last half as to the rest of the business <35%.  Moreover, the UK which is growing strongly has become a much bigger piece of the pie, and that should hopefully start to flow through more and more, particularly in light of MTD changes.  Finally, currency movements should be very favourable.

Putting it all together, if ARPU starts rising and we hit the inflection point where Xero is cashflow positive. If capital is allocated wisely, we could really start seeing a run of multi-year growth in excess of 40%.  To be fair, given the shareprice, this is much needed to maintain the fairly lofty valuation!