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News & Events 4 min read

Xero triples revenue. Again.


May 19, 2011

Well it’s that time where as a public company we hang it out for all to see. Here are the numbers.

2011 full-year results commentary

20 May 2011

  • Operating revenues of $9.34m up from $3.15m
  • Operating expenses of $18.0m as the company invested in growth
  • Net loss after tax of $7.5m reduced from $8.4m
  • Cash at bank of $16.9m

Xero is now one of the leading global online accounting software companies, tripling its revenues in the 2011 year.

From February, Xero has exceeded $1m per month of revenue and the annualised subscription run rate is approximately $14m. Revenue is expected to continue to grow strongly.

Paying business customers have doubled from 17,000 to more than 36,000 across 100 countries as at 31 March 2011. Xero has now processed in excess of $35 billion of customer transactions. This signifies the quality of Xero’s Software as a Service model and its growing importance in the Financial Services industry.

Xero has now established itself inside 2,200 accounting firms and continues to develop innovative features to gain broader adoption within the accounting community. A growing number of accounting practices are 100% Xero. The accountant channel provides access to hundreds of thousands of small business customers.

Xero continues to carefully balance investment in its existing business operations and the pursuit of growth opportunities as the Company drives toward monthly break-even. The Company retains a strong cash position as it refines its US strategy and it begins to create a presence in the vast US market.

You can read the full release here.

How numbers reflect strategy

For those that follow technology businesses, I thought I’d kick off the discussion with a few points and compare what we are doing at Xero to other models, like the ‘lean start-up’, which we are clearly the opposite to.

Firstly revenue. It’s growing well and you can see how cumulative monthly revenue is a wonderful thing. What astounds even us about this is how fast revenue has grown even while we are still actively building the product.

We’re thrilled (and relieved) that Xero is already good enough to provide value to our customers. We’ve only scratched the surface in meeting the needs of  small businesses and accountants and pursuing our roadmap for the product.

And as you can see above, while we reported revenue of $9m, we already have $14m or 55% growth locked in for next year because of the growth curve. Love that!

Next is investment. Wow $18m. That is a huge number and a couple of businesses ago I would have said “imagine what you could do with all that money”.

Our major cost is staff. The operating model we chose requires more staff than most start-ups. Developers, testers, designers, sales people, marketing, customer care people, billing specialists, HR, documentation etc etc.

While this is lot of cost, it’s not compared to the incumbents (which we are competing very well against). We are a fraction of their size – but ‘just big enough’ to be a real competitor.

It’s not easy to raise the money we have to do this massive investment and it’s proving to be a real competitive advantage.

Start-ups continue to flourish and we love that because we’ve been there too. But the Global Financial Crisis and the nature of early stage start-ups has created a situation where most new tech businesses don’t have access to large amounts of money. They need to execute on a business or two before people will give them a lot of money. Our experience has allowed us to raise more than anyone else and challenge some really big companies. Accounting software is big and it’s hard to sell because the incumbents have such a lock on the market and channels. There are lots of other things people would rather do in a weekend than change their accounting software.

The money raised has allowed us to build a ‘big enough’ team to have a go at building a long term business. And it’s working. What’s more, we are changing the category – we believe online accounting should cater for both small business and accountant sides of the industry. This makes the investment even larger and therefore harder for new entrants to compete.

So when we eventually win, it will be because we did an IPO early, giving us access to the capital to invest enough to win.

Next up is the loss. Over the last four half years our loss has decreased which is what you’d expect as we drive to break even. This was what we said we’d do which I hope gives investors confidence we are carefully managing our spend – large as it is.

Lastly cash. We have a strong cash position and sufficient resources to get to break even. It’s our responsibility to use that cash to grow the long term value of the business for shareholders. The balancing act we face is driving to break even so Xero looks less odd to New Zealand investors, and putting the accelerator down to exploit the huge opportunity. We will always take a long term view.

Emerging Saas FinTech sector

It’s also worth noting there are now other SaaS FinTech companies that are in a similar space to Xero. and Square are useful peers having raised money recently as private companies at what best industry estimates deem to be well above our public company valuation. We do expect a greater focus on FinTech as a category over the next year with significant M&A action.

LinkedIn’s IPO yesterday is another important business web milestone. LinkedIn connects social media to business and is part of the process of investors working out that the business web can have direct and lucrative business models.

A business like Xero hasn’t been done before from New Zealand. We’re learning a lot as we go and we are far from perfect. But we are incredibly proud of our results to date and very very excited about where things go from here.

As always feel free to shoot through questions in the comments. Happy to cover off any public information.

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