All eyes are on the US market for Xero and for good reason, it is the market that largely drives Xero’s potential MC, but IMO the next big success for Xero will be the UK.
With 80k+ users in the UK as at end of March 2015. The team at Xero has likely surpassed 100k subscribers in the UK and is tracking towards 130k to 150k users by March 2016 (any more than this and it's a runaway train).
I believe they could be saving this news for an announcement nearer the UK Xerocon.
The Adoption Curve
Australia is in the sweet spot right now of rapid adoption (will gain another few hundred thousand subscribers before it settles)… this point is still 12 to 18 months away for Xero in the UK, but it is coming and the based on size of the market and early growth patterns it will be a very steep growth, steeper than Australia and NZ combined.
UK Tells
Using the annual reports (subs to date) and google trends / keyword tool’s. The UK in the past 4 months has exploded in activity for Xero with Sage making a bit of traction too (Xero showing around 40 percent the size of Australian activity). Sure this is a bit rudimentary, but it does help paint some idea of what progress looks like.
Fair Value
Anything I have said above is purely personal opinion, I hold XRO, I consider the share at fair value right now. I see if all targets reached are within 12 – 18 months there would be a minimum annualised revenue of close to $400m PA. by end of Dec 2016… around multiple of 5 on the current MC. Which will start reduce the cash burn returns.
What does this all mean? I don’t know, I am just a fellow HotCopper reader with an interest in this company.
The transparency of the company should be applauded, and it is equally the reason why there is far less blue sky is now built into the price.
Once all of the hype of the “next big thing” goes away, we are left with a rapidly growing but highly transparent company. This means no surprise outcome, no unexpected twists or turns to their growth to bank on.
We know where they are going and can see the sky, and there isn’t as much as we first thought.
XRO Price at posting:
$13.72 Sentiment: Hold Disclosure: Held
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