Xero released half year earnings today, so I thought I should do an update. The numbers from the report:
|– Near tripling of half year operating revenues from $1.3m to $3.7m.|
|– Net loss of $4.7m – an increase of 24%, is expected to be the maximum|
|loss incurred as the company drives toward break-even.|
So that looks pretty good. It looks like they’re on track, although the increased loss, as expected, will make it interesting to hit breakeven, ie, EBIT = $0 by end of year 2011.
The previous model posted here looks good so far. The subscriber numbers are a bit lower than that forecast, but that suggests the revenue per subscriber is a bit below the $29 mark. Also, revenue numbers might be a little low, and expenses a little higher. But… not too bad for 6 months in the life of a rocketship!
Xero, spreading like a kiwifruit vine bacteria, taking over the world! (apologies to all kiwifruit farmers!). So… what to do? Does this change anything? For me, no. These results are good, but not spectacular, more or less what was expected/hoped. The Xero rocketship has cleared the launch-pad, hasn’t blown up spreading chunks across the landscape, and is pointing the right direction. These are all good things for a rocketship! There is a long way to go however to justify its current price (remember that Xero has made NO profit for owners, and has banked about $15 million in losses). Obviously the shares are up 5% in trading now, since the NZ market is pretty boring, and people need something to do.
PS. Don’t compare these results to last years results. Doing that for a startup is like comparing the altitude of a rocket before and after liftoff.
So, what to do? I would still suggest a part position, and waiting for the very big data points, namely annual results 2011, and annual results 2012. 2012 will be… huge.
Sure, it sounds like I’m being a wimp. And if Xero hits the afterburners, people who are in now will say “I knew it was going to work”, and “Greg, you’re a big, girly, wimpity-wuss”. But its my money, and I’m happy to miss out on the early upside and lock in (still significant) gains later in the piece when the clouds have cleared, and we know if Xero is going to the moon, or will be orbiting as a low flying satellite, posing a significant risk to adventurous birds.