If you bought into Xero Limited [ASX:XRO] last year you’d be one happy investor today. Since March 2017 the stock has broken out from a rut — nearly a three year one — and increased by over 160%! Just today, the stock rose 1.82%!
That’s all well and good, but what is Xero?
The company is listed on our Australian exchange, but it is in fact a multinational New Zealand corporation. They market ‘software as a service’ and generate revenue by providing products to subscribers.
So why did this happen to Xero’s shares?
To begin, Xero’s most recent financial statements show an astonishing 38% increase in revenue and its first positive earnings (before interest and tax).
Investors are eating the news up, clearly.
Xero’s aggressive rise is also likely due to its rapid expansion, having entered both new markets and competitor-dominated fields.
It is currently attaining 47% annual growth in UK subscribers (and annual growth of worldwide subscribers is not much lower at 33%…).
In its two most established markets, Australia and New Zealand, it is encroaching upon competitors Sage and MYOB. It could soon reign supreme in the very valuable accountant/tax market.
Cash flows are also favourable and likely to increase. From a slightly negative flow in 2017, the figure now stands at $41.2 million.
What’s next for Xero?
Xero will continue making headlines if it continues this incredible growth…
In the future, it could enter the largely untapped markets of America and Europe.
It is estimated the US market alone consists of 28 million potential subscribers. Currently, it has only 128,000 subscribers. That means there is significant room for growth.
On the other hand, investors do need to remain wary as Xero has not yet made a profit.
Whether Xero can manage such extreme growth and maintain its financials remains to be seen. Check back for more updates.
Editor, Markets & Money