XERO FPO NZ (ASX: XRO) has been a rollercoaster ride for shareholders over the past two years.
After soaring from $5 to $43 in eighteen months, the share price of this accounting software company has since relaxed considerably, now trading for around $15.50.
While the falls may sting for investors who bought in at the high point, the fundamentals of the company remain unchanged with a staggering rate of expansion seeing the company grow by leaps and bounds.
This trend continues in the latest half-yearly report, which revealed the following results for the 6 months to 30 September 2014:
- Subscription revenue rose 85% from $28.1m to $52m
- Number of paying customers leapt from 211,000 to 371,000
- Most growth occurred in Australia, up 79,000 customers, however UK and US subscribers more than doubled to 61,000 and 22,000 respectively
- Several new appointees, including a Vice President of US Marketing, General Manager of Business and Corporate Development, and a Senior Vice President/ Chief Product officer
While Xero's growth continues to amaze, there is one key message to take away from the report.
Xero is concerned about its ability to penetrate the key US market.
The appointment of a Vice President whose sole dominion is US sales is an obvious indicator of this, and represents the degree to which US success will either make or break Xero.
Attaining a large enough slice of its target markets will be vital to ensuring that Xero attains the critical mass required to stick around for the long term and resist competitors forays into the cloud software market.
With the potential for MYOB software to list publicly and continued stiff competition from companies like Reckon Limited (ASX: RKN), the management at Xero has its work cut out, and is adding corporate brainpower with three very experienced appointees.
This is a big deal, and investors should not underestimate the degree to which success or failure hinges on the US market.
Xero remains a speculative investment with considerable risks, however should the company successfully crack the US market the rewards could be meteoric.
As yet the company hasn't hit any significant speed bumps, and the recent board appointees are clearly intended to navigate the biggest obstacle visible on the horizon.
For investors considering a speculative purchase, today's prices continue to look quite reasonable and I saw nothing in the half-yearly report to make me rethink my investing thesis.
