Reckon Limited (ASX: RKN) shares surged 8.5% on Monday after reporting a surprising 5% jump in its calendar year 2014 normalised net profit to $17.6 million. Reckon, which is competing with XERO FPO NZ (ASX: XRO) and MYOB in the local, US, and UK cloud accounting software markets, switched to a subscription model in 2014 that has paid off handsomely.
Customer Growth
The switch to a subscription model has cut down the upfront costs for clients and has resulted in 25% growth in clients using its Virtual Cabinet document management system, 10% growth in its Reckon One small business cloud accounting software, a 9% rise in the number of practice management subscriptions and 4% growth in its "business group" products.
Further Expansion Possible
Reckon's CEO believes that revenue growth will continue in the coming half as the company rolls out the Reckon One software in the UK and the group's document management system into the US, where currently only document scanning and cost recovery software is offered.
Profits?
Investors in Xero and MYOB might be wondering why Reckon shareholders are being treated to profits and dividends, while their companies are reporting losses. For the first half of the year, MYOB reported a $5.6 million loss and Xero a $24.5m loss.
Reckon, as the established player, is trying to maintain market share, while Xero and MYOB and doing their upmost to take market share and develop new products. Importantly, Reckon's share price is still 2% down over the last 12 months, meaning that we could see some more upside if the company can continue its subscription success.
More Growth and Dividends
