@lightning23You're invested in a high growth stock not an income...

@lightning23

You're invested in a high growth stock not an income stock. Revenue is being reinvested in marketing and R&D. It's a race to capture users from MYOB & Reckon in AUSNZ, Sage in the UK and Intuit in the US & Canada.

If you have used the product you will understand that each new subscription has very little cost to Xero. Its almost all Gross Profit > cream. Once users are hooked you should keep them from changing to competitors. I know of very few businesses that sign up a customer (for $70+ a month) where Users do all the on boarding work and the app and system does the rest. Once you understand what's going on - earning money for not having to do too much work - you get why the marketing push is on big time. Provided new customers can be acquired for less than their acquisition cost the company's asset base is continuing to grow.

Accounting standards generally require marketing costs to be expensed via the P&L whereas say a mining company can capitalise mine development, new trucks and therefore the mining company financial statements can appear "healthier" than XRO as they have an net asset value. Whereas XRO can't "create" the user base dollar value as an asset in their financials. For this reason, they report a lifetime user value, to give an indication of the "value" of the user base.

When it comes to expansion, the big difference, for example, between the mining company & XRO is - for each (extra) tonne of product the mining company needs proportionate amounts of capital. They must buy physical goods. XRO on the other hand may need more rack space and more support crew - but can scale up at far less cost against revenue.

XRO collects 30% of the revenue from external Apps that users connect to their subscription (similar to the big earners > Apple & Google Store). Bonus. More cash for not much extra effort.